options on s&p vs. options on s&p futures?

T

TheoCap

Hey everyone,

I am wondering if anyone knows the way to achieve the greatest leverage on the s&p. options on the S&P or options on the S&P futures? also, numerically , at kind of leverage can each get me?

The reason I ask is that I am currently devolping a strategy that uses a very very small percentage(less than 1% of a portfolio) and leverages it as much as possible to an index.

any help would be greatly appreciated. have a good one.
 
(1) With the S&P futures, you can achieve huge "leverage" doing a calendar spread, i.e. being long March and short June because of the "low" margin levels for that type of position. (2) With options, spread trades produce the most leverage. You could put on a deep-out-of-the-money vertical-debit-spread for a few ticks. If you divide the difference between the strike prices by the debit, you'll have gigantic leverage if the trade "comes in".
 
Thanks for the help nazz. when re-reading my post, i think my use of the word "leverage" was a bit off.

A better description of what i am looking for is a way to get the highest amount of volatility (a beta of say... 100) possible while still keeping the correlation to the s&p as close as possible. Like indexing on steroids.

I just don't know enough about options on futures to compare the two option vehicles.

Hope this makes more sense.
 
in options you have to equate other variables such as vega, theta or gamma.

if what you want is bang for the buck, you could set up long otm butterflies (short vega) or long otm calendars (long vega). both of these will give 10 to 20 times your initial outlay if they'd land in profit territory. in the former, you believe volatility is going to fall while in the latter, you think volatility is going to raise. from your last post, it looks like this is what you're looking for. is it?

the problem with these highly leveraged approaches is the probability of successes is low. if what you want is to track the movement of the underlying, the approach will be to enter a long atm vertical. in this case your risk to reward is close to 1:1 and your probability of success is close to 50% but you dont bear any vega or theta risks.

in all cases, you odds are the same though.

normally ES future options have more interesting margin requirements (close to haircut) than SPY options, which means you'll get more bang for your buck but obviously more risk as well.

hope this helps.
 
Quote from TheoCap:

Thanks for the help nazz. when re-reading my post, i think my use of the word "leverage" was a bit off.

A better description of what i am looking for is a way to get the highest amount of volatility (a beta of say... 100) possible while still keeping the correlation to the s&p as close as possible. Like indexing on steroids.

I just don't know enough about options on futures to compare the two option vehicles.

Hope this makes more sense.
More...

Options on futures will give you higher vola level per margin, according to your definition.

Think about ES options.
 
You may be interested in the Index Roll. The strategy uses in-the-money LEAPs on Index ETFs and rolls them forward every year to achieve hig long-term returns. A colleague and I just wrote it up in web form and are working on an article. Any feedback would be appreciated.

Tristan
www.indexroll.com
 
Thanks for the help everyone. I'm getting a much better picture of the kind of option setup would work best for what I'm looking for. I'm not quite there, but getting much closer.
 
Quote from tyates:

You may be interested in the Index Roll.

Tristan
www.indexroll.com
More...

Quoting your website Tristan:

"We don't want to be elitist, but we do need to provide fair warning:

if you didn't get your business degree at a tier one school,
if you don't hold a CFA or a SEC or NASD license,
or if you don't work in the financial services industry or in the finance department,
then the Index Roll is probably not for you.

That is the funniest peice of self promoting internet spam crap I've read in a long time. Awesome! That will probably convince scores of people to join your service, 'cos you guys must be really, REALLY smart.

Again, great work!
 
We don't have a service, we're just presenting ideas. Everything on the site is free. But we've found that people who don't have a finance background aren't able to comprehend the concepts and really get into trouble when trying to implement the strategy.

Anyway, thanks for the feedback - if you would like to go through the site and provide your impressions, I'd really appreciate it. Maybe we will rewrite that part.
 
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