Synthetic leveraging using options

T

taotree

I'm investigating setting up leveraged positions for equities without borrowing, so using options or such. I've read about Zebras and familiar with them. I have run backtests with rolling ZEBRAS (2 long + 1 short calls for a delta of around .9 or 1) on SPY and the overall shape mostly matches the underlying, but it consistently has a lower return. I enter at a target X days to expiration and roll them when it reaches Y days to expiration for a few values of X and Y (ideal values for X and Y are included in what I'm asking about). This is for both when SPY goes up or down (ie. profits less, loses more). I can understand that this may be the nature of the beast, and if so I want to understand that. However, if there are particular guidelines that can help it match the underlying more precisely, I'd like to know.

Thank you!
 
The ZEBRA strategy explained for newbies :
https://seekingalpha.com/article/4624531-zebra-a-lower-cost-option-spread-to-simulate-a-long-stock-position
"
ZEBRA: A Lower-Cost Option Spread To Simulate A Long Stock Position"
By Richard Bloch, Aug. 06, 2023 12:25 AM ET

Summary
  • Buying stock or even deep-in-the money calls on high-priced stocks like NVDA can require a lot of capital.
  • A ZEBRA option spread simulates a long stock position at a lower cost with the same upside as the underlying stock.
  • Understanding extrinsic value shows the potential reward vs. risk for a ZEBRA spread.
[...]
"

The above one is behind a Paywall shit!
So maybe these are better:
https://www.tastylive.com/concepts-strategies/zebra
https://orats.com/blog/taming-the-zebra-spread
 
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Quanto said:
The ZEBRA strategy explained for newbies :
https://seekingalpha.com/article/46...tion-spread-to-simulate-a-long-stock-position
"
More...

I have read several articles about it. Sufficient that I wrote code to backtest it. However, I haven't seen anything analyze or explain exactly how one can control results by fiddling the parameters (eg. days to expiration for entry and exit, exact delta and other greeks, etc.). I've tried a few cases and so can start to get a feel for it, but I was asking if there is established knoweldge/analysis around them that could give me a head start.

aside: It seems that link goes to an article that is behind a paywall, so is less helpful.
 
taotree said:
I have read several articles about it. Sufficient that I wrote code to backtest it. However, I haven't seen anything analyze or explain exactly how one can control results by fiddling the parameters (eg. days to expiration for entry and exit, exact delta and other greeks, etc.). I've tried a few cases and so can start to get a feel for it, but I was asking if there is established knoweldge/analysis around them that could give me a head start.

aside: It seems that link goes to an article that is behind a paywall, so is less helpful.
More...
I don't see any paywall. Oops, sorry in other browser I too get a paywall :-(

Maybe these are better:
https://www.tastylive.com/concepts-strategies/zebra
https://orats.com/blog/taming-the-zebra-spread

And: my posting was intended for other people new to the ZEBRA strategy, so to understand your posting, since in your OP there was no link or explanation about ZEBRA.

Sorry, can't help, as ZEBRA is new for me :)
 
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Last I checked, CBOE and the MM do not provide free lunches for us retail option traders. You have to pay for the downside protection, I don't know but I suspect it could be in your total returns?

In general to beat them for the free lunches, you have to know something they don't. You are a tao, maybe you ask the other two tao on ET for answers on how to beat them: @taowave and @Leob.
 
taotree said:
I'm investigating setting up leveraged positions for equities without borrowing, so using options or such. I've read about Zebras and familiar with them. I have run backtests with rolling ZEBRAS (2 long + 1 short calls for a delta of around .9 or 1) on SPY and the overall shape mostly matches the underlying, but it consistently has a lower return. I enter at a target X days to expiration and roll them when it reaches Y days to expiration for a few values of X and Y (ideal values for X and Y are included in what I'm asking about). This is for both when SPY goes up or down (ie. profits less, loses more). I can understand that this may be the nature of the beast, and if so I want to understand that. However, if there are particular guidelines that can help it match the underlying more precisely, I'd like to know.

Thank you!
More...

If you wish to leverage using options, your resulting delta should be > 1!
I leverage using DITM Calls and DITM Puts, obtaining deltas between 1.5 and slightly under 2. You can enter for debit or credit (which ever you prefer) by picking the strikes carefully. -- You can do this for either long or short with leverage. You will need to consider the increased risk of your position when leveraging this way. -- Some instruments are not candidates for this, such as short leveraged UVIX position.
It above not clear, think of creating a synthetic position (Call and Put at the same strike), then begin to slide the Call and Put away from center until your delta provides the leverage you want.
 
taotree said:
I'm investigating setting up leveraged positions for equities without borrowing, so using options or such. I've read about Zebras and familiar with them. I have run backtests with rolling ZEBRAS (2 long + 1 short calls for a delta of around .9 or 1) on SPY and the overall shape mostly matches the underlying, but it consistently has a lower return. I enter at a target X days to expiration and roll them when it reaches Y days to expiration for a few values of X and Y (ideal values for X and Y are included in what I'm asking about). This is for both when SPY goes up or down (ie. profits less, loses more). I can understand that this may be the nature of the beast, and if so I want to understand that. However, if there are particular guidelines that can help it match the underlying more precisely, I'd like to know.

Thank you!
More...


I've been messing around with it on the pnl chart, and it performs worse than just buying a single call option atm. Must have something wrong.

Is this the setup?

  • Purchase two 70 (0.7) delta calls (if bullish) or two -70 (-0.7) puts (if bearish)
  • Write (sell) one 50 (0.5) delta call (if bullish) or one -50 (-0.5) put (if bearish)
 
taotree said:
I'm investigating setting up leveraged positions for equities without borrowing, so using options or such. I've read about Zebras and familiar with them. I have run backtests with rolling ZEBRAS (2 long + 1 short calls for a delta of around .9 or 1) on SPY and the overall shape mostly matches the underlying, but it consistently has a lower return. I enter at a target X days to expiration and roll them when it reaches Y days to expiration for a few values of X and Y (ideal values for X and Y are included in what I'm asking about). This is for both when SPY goes up or down (ie. profits less, loses more). I can understand that this may be the nature of the beast, and if so I want to understand that. However, if there are particular guidelines that can help it match the underlying more precisely, I'd like to know.

Thank you!
More...

because you are fundamentally long vol and paying the vol risk premium for it.

how did it do in march of 2020?
How did it do in Nov 2020?
 
wxytrader said:
I've been messing around with it on the pnl chart, and it performs worse than just buying a single call option atm. Must have something wrong.

Is this the setup?

  • Purchase two 70 (0.7) delta calls (if bullish) or two -70 (-0.7) puts (if bearish)
  • Write (sell) one 50 (0.5) delta call (if bullish) or one -50 (-0.5) put (if bearish)
More...
You are basically saying KISS which I found to be true in general.
 
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