Increase leverage of a long option ?

Aston01 · Nov 13, 2015

This in all likelihood is a foolish question, but you never know till you ask...

I was wondering if there are any techniques to increase the leverage of a long option. I know the further OTM you go the greater the leverage, but from what I can tell it still can't quite replicate the delta efficiency and gamma sensitivity of expiration day.

I guess in some ways what I am looking for is a way to synthesize the gamma sensitivity of expiration day on other days.

debitspread · Nov 13, 2015

Bucket-shop binary options.

xandman · Nov 13, 2015

OTM options on earnings plays purchased close to the end of the expected move. It's a lotto ticket. But if you get it right, the payoff is quite spectacular. Since your OTM option is the new ATM, it will also have peak gamma. But do you really want to keep holding your newly acquired deltas?

[I'm discombobulated on the theory, but you can look up some old posts with visualizations.]

Actually, a guy named "OTM Options" trades like that. Always wondered why he had "Options" in his name but did not believe in greeks. Seems he may have some good intuition.

OptionGuru · Nov 13, 2015

Aston01 said:
This in all likelihood is a foolish question, but you never know till you ask...

I was wondering if there are any techniques to increase the leverage of a long option. I know the further OTM you go the greater the leverage, but from what I can tell it still can't quite replicate the delta efficiency and gamma sensitivity of expiration day.

I guess in some ways what I am looking for is a way to synthesize the gamma sensitivity of expiration day on other days.

You can't increase the leverage of options, but buying 1 or 2 strikes OTM is optimal for weekly options - that will provide the most bang for the dollar.

xandman · Nov 13, 2015

OptionGuru said:
You can't increase the leverage of options, but buying 1 or 2 strikes OTM is optimal for weekly options - that will provide the most bang for the dollar.

How about spreads that are 1 dollar wide and 100 contracts thick?

OptionGuru · Nov 13, 2015

debitspread said:
Bucket-shop binary options.

Could you give an example? Isn't the maximum reward of binary options the debit paid, or maybe even less. Regular options have an unlimited reward.

OptionGuru · Nov 13, 2015

xandman said:
How about spreads that are 1 dollar wide and 100 contracts thick?

IMO ...... Debit Spreads are no good. The extra premium collected isn't worth the reduced reward.

Aston01 · Nov 13, 2015

OptionGuru said:
IMO ...... Debit Spreads are no good. The extra premium collected isn't worth the reduced reward.

I just need an option of an option...now that would be leverage

.

xandman · Nov 13, 2015

Aston01 said:
I just need an option of an option...now that would be leverage .

Try futures options. When the customer implodes, they take the broker with them.

Aston01 · Nov 13, 2015

xandman said:
Try futures options. When the customer implodes, they take the broker with them.

I actually looked into futures options, but from what I gathered the fantastic leverage offered on an ES contract didn't appear to translate over the ES options.

http://www.elitetrader.com/et/index.php?threads/e-mini-vs-spy-options-leverage-differences.295394/