Single stock inverse ETF
- Thread starter Cuddles
- Start date
General Collateral - widely available underlyings. Hard to Borrow (HTB or 'specials') are underlyings that are more difficult to find a locate for and the borrow rates reflect that short supply. The borrow rates are controlled by hidden forces that produce large income streams for Stock/Loan desks. Unusual representation from Staten Island on these desks.
Definitely!
@OneChicago
I want SSF to trade 24x5 with good liquidity like CME futures when can I expect that ?
I want SSF to trade 24x5 with good liquidity like CME futures when can I expect that ?
I apologize in advance if this message is a bit too basic for people who already trade options.
You could buy puts and sell calls (at the same strike and expiration in its simplest form) to create a "synthetic short." Options also have the psychologically convenient feature of taking you out of the trade upon their expiration, although the are many things to watch out for, a few of which I list below.
1. Diividends complicate options in the US because we don't adjust the option strikes for ordinary dividends, which creates an incentive for the buyer of a call to exercise it early in some cases when the ex-dividend underlying price is exceeds the call's strike price.
2. Avoid trading options at strikes that might end up being below about a third of the stock's price in the US because there is a 100% margin requirement on the equity options even when exercising the option might result in lower margin requirements. This makes it expensive for you to own the put and creates another incentive for the owner of the call to exercise early.
3. Be warned that if the stock you are trying to short is hard to borrow, the premium that you earn from selling the call can be much less than the premium you pay to buy the short ("put-call parity" of option premiums at the same strike and expiration is limited in this direction by the cost or impossibility of shorting the underlying stock).
4. The bid-ask spreads can be quite wide, so you'll almost never want to submit an order that you know will fill immediately unless you really know what you're doing.
If you want the limitation of loss that an inverse ETF offers, then you might want to consider simply buying puts. If your expectation of the stock's dividends during the duration of the option are equal to or higher than the market's, then there should not be dividend problems at any strike. The premium you pay for an option and the volatility drag of an inverse or leveraged ETF are sort of similar increasing functions of the volatility of the stock. Besides, if you're willing to put up as much money as the margin requirements for the inverse ETF and your stock does not have super high historical volatility, then option premiums should be relatively low at a strike that far above underlying, even if the enormous published bid-ask spreads for options away from the strikes suggest otherwise. Basically, if the strike you offer to buy at is that far from the underlying stock's price, it shouldn't take too much premium for you to be offering an implied volatility at which some market making algorithm will take your offer within a few minutes.
Also, if you don't have much experience with option premiums, I think you're best off trading at a strike where option premiums are low. For example, premiums can drop enormously after an earnings announcement even if the underlying stock's price does not move much.
If you do decide to try to use options, I recommend you read up on them. When you first see the low prices of some options, they can seem like much more of a bargain than they are, so it is important to understand properties of the options' premiums before being attracted to buying low priced out of the money options, as their prices are 100% premium.
You could buy puts and sell calls (at the same strike and expiration in its simplest form) to create a "synthetic short." Options also have the psychologically convenient feature of taking you out of the trade upon their expiration, although the are many things to watch out for, a few of which I list below.
1. Diividends complicate options in the US because we don't adjust the option strikes for ordinary dividends, which creates an incentive for the buyer of a call to exercise it early in some cases when the ex-dividend underlying price is exceeds the call's strike price.
2. Avoid trading options at strikes that might end up being below about a third of the stock's price in the US because there is a 100% margin requirement on the equity options even when exercising the option might result in lower margin requirements. This makes it expensive for you to own the put and creates another incentive for the owner of the call to exercise early.
3. Be warned that if the stock you are trying to short is hard to borrow, the premium that you earn from selling the call can be much less than the premium you pay to buy the short ("put-call parity" of option premiums at the same strike and expiration is limited in this direction by the cost or impossibility of shorting the underlying stock).
4. The bid-ask spreads can be quite wide, so you'll almost never want to submit an order that you know will fill immediately unless you really know what you're doing.
If you want the limitation of loss that an inverse ETF offers, then you might want to consider simply buying puts. If your expectation of the stock's dividends during the duration of the option are equal to or higher than the market's, then there should not be dividend problems at any strike. The premium you pay for an option and the volatility drag of an inverse or leveraged ETF are sort of similar increasing functions of the volatility of the stock. Besides, if you're willing to put up as much money as the margin requirements for the inverse ETF and your stock does not have super high historical volatility, then option premiums should be relatively low at a strike that far above underlying, even if the enormous published bid-ask spreads for options away from the strikes suggest otherwise. Basically, if the strike you offer to buy at is that far from the underlying stock's price, it shouldn't take too much premium for you to be offering an implied volatility at which some market making algorithm will take your offer within a few minutes.
Also, if you don't have much experience with option premiums, I think you're best off trading at a strike where option premiums are low. For example, premiums can drop enormously after an earnings announcement even if the underlying stock's price does not move much.
If you do decide to try to use options, I recommend you read up on them. When you first see the low prices of some options, they can seem like much more of a bargain than they are, so it is important to understand properties of the options' premiums before being attracted to buying low priced out of the money options, as their prices are 100% premium.
SSF are a tool used by investors who hold assets for term. It is not a product to be scalped in and out of. The primary use of this Delta 1 derivative is as a synthetic replacement for an underlying position while participating in Securities Lending or Equity Repo.
Out of curiosity...what is your definition of liquidity?
Yes. I did discuss earlier in this thread our efforts to move towards trading out to four decimals in our CLOB. This will allow us to convert all trading to basis points whereby everyone will bid in bps instead of outright decimal places.
One fire at a time.