most leveraged market short positioning

superabsorbent

superabsorbent

Howdy,

I'd appreciate any advice from folks here on how to position a big market short.
Assume you are convinced the market is going down the drain over the next 6 months (until QE resumes :), how could you position in the most leveraged way but still with some reasonable protection?

It seems like futures on the market indices allow the most leverage, so let's say short /ES.
Let's assume using a stop loss. There are the challenges of staying in the position given the high volatility and also the adverse possibility of slippage should price gap up.

How can one provide for a window of being hedged before having to bail with the least amount of damage?

So for instance, perhaps a combination of option spreads that provide a small window of being delta hedged, yet minimize cost / a reduction in buying power.

So more generally: what combination of stop loss methodology, options hedging, and trading in/out would be the optimal (cheapest) way to insure against a move higher, while maximizing the size of the position (meaning buying power)?

Thanks for any replies.
 
My 2 cents:
Leverage is defined as the maximum amount of money you can make from the same initial investment. Not sure the SPX gives more leverage because it's 100X the index. You have to take into account the initial investment cost. The SPX options ATM 6 months expiration (March 2016) are very expensive compare to the ES future.

Having said that, the OP question is not simple, although it's kind of lazy to subscribe to a Trading forum and ask tthe answer rather than do its own research and analysis.
 
OP's "question" is really, "how can I make money if I'm right but not lose anything if I'm wrong?"... That ain't how markets work. There's no free lunch.
 
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rmorse said:
SPX would be a little more levered than ES because ES is 50X the index and SPX is 100X.
More...

Thanks. It seems to me like I would have to pay dearly (negative theta) to carry a SPX option position (e.g. long put vertical spread).
My concern is not to get wiped out and/or stopped out because of volatility in the initial phase of putting on the position (assuming my directional assumption is correct). If I'm correct, and things move far enough in my favor (again, assuming the thesis of a sustained longterm move down pans out), then I can remove/adjust hedges and stop loss since I'm not so worried about being wiped out.
 
rb7 said:
My 2 cents:
Leverage is defined as the maximum amount of money you can make from the same initial investment. Not sure the SPX gives more leverage because it's 100X the index. You have to take into account the initial investment cost. The SPX options ATM 6 months expiration (March 2016) are very expensive compare to the ES future.

Having said that, the OP question is not simple, although it's kind of lazy to subscribe to a Trading forum and ask tthe answer rather than do its own research and analysis.
More...

You are right, it's not a simple question and actually a rather interesting topic to discuss, which is the purpose of this forum, no?
 
Last edited:
rb7 said:
My 2 cents:
Leverage is defined as the maximum amount of money you can make from the same initial investment. Not sure the SPX gives more leverage because it's 100X the index. You have to take into account the initial investment cost. The SPX options ATM 6 months expiration (March 2016) are very expensive compare to the ES future.

Having said that, the OP question is not simple, although it's kind of lazy to subscribe to a Trading forum and ask tthe answer rather than do its own research and analysis.
More...
that is american education for you.
 
rb7 said:
???
Can you elaborate?
More...
"Having said that, the OP question is not simple, although it's kind of lazy to subscribe to a Trading forum and ask tthe answer rather than do its own research and analysis."
that is american education.
 
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