Leveraged options

[Tavurth]

What would be the highest leverage one could achieve using short term (weekly) options?

Imagine you can quantify the probable direction of a future weekly move, but not the final price resting point, just up or down.

I'd like to buy a small position in many stocks to spread the probabilities around, what would be the best strategy to maximise leverage on this?

I was looking at verticals but perhaps someone knows of a nicer strategy?

 

[tonyf]

What would be the highest leverage one could achieve using short term (weekly) options?

Imagine you can quantify the probable direction of a future weekly move, but not the final price resting point, just up or down.

I'd like to buy a small position in many stocks to spread the probabilities around, what would be the best strategy to maximise leverage on this?

I was looking at verticals but perhaps someone knows of a nicer strategy?

Spray and pray does not work really....I would not put much money into this if I were you

 

[smallfil]

The highest leverage gain I got from buying calls and puts, trading only directionally was 6/1 or 600% gain with a holding period of 2 months. That happened just once, so far. Although, I have gotten 200-300% more often and maybe, another 400% one time. That is over a span of 2 months holding most times. 100% or 1/1 is more common and can occur within a month holding. Fair warning, only get 30-40% winners. Of course, there are losses, 70% of the time. You have to factor that in as losses will occur more times than winners. Some traders get 10/1 or 1,000% but, they are buying way out of the money options so, there is more risk. They probably, have more losses too. Do not trade weekly options but, absent a volatility spike, you probably, are looking at a much smaller leverage return on your monies. There is probably, not enough time in that short period for a huge price spike either way unless, there is a huge earnings surprise or other extreme good or bad news related to the stock.

 

[Tavurth]

there is probably, not enough time in that short period for a huge price spike either way

Sure I don't care so much about a huge price spike, more about taking $5-10 price movements from many individual stocks. I was wondering if there was a better strategy than a vertical to maximise gains (on minimal capital input) from such?

 

[caroy]

https://www.elitetrader.com/et/threads/weekly-pin-butterfly-strategy.354495/

Butterflies provide good leverage and are often cheaper than putting on calls or call spreads on a weekly basis.

 

[Tavurth]

Butterflies provide good leverage

I think a butterfly is more a put on volatility, while cheap they don't allow for a running leg (tail risk).

Am I missing something?

 

[smallfil]

Sure I don't care so much about a huge price spike, more about taking $5-10 price movements from many individual stocks. I was wondering if there was a better strategy than a vertical to maximise gains (on minimal capital input) from such?

A lot of stocks do not even move $5-$10 in any given week but, give it a shot. Most would move $0.50-$1 then, pullback and go back up another $1. That is why I trade for about 2 months holding to give it time to make a big move in my favor if it moves at all. Time is always the enemy of the options buyer.

 

[Tavurth]

A lot of stocks do not even move $5-$10 in any given week but, give it a shot

I guess I'm too used to staring at large-caps

The $ delta doesn't matter too much, just as long as I can hit the next options strike price in a weekly.

I notice some stocks in the $100-150 range have a $1 strike increment.

 

[OptionsOptionsOptions]

• Buy 1-strike OTM.
• Long calls or puts only.
• Avoid credit/debit spreads.
• Avoid strangles/straddles.

 

[Poljot]

Synthetic Long Stock: Long Call, short Put
Synthetic Short Stock: Short Call, long Put
Same strikes, 1:1 ATM