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leverage amount
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leverage amount

  #11 (permalink)
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shezts View Post
The account is small. That's the source of all the difficulties. Imagine the minimum needed to open an account at a well known broker and you'll be in the ball park.

I don't think it would be possible to feed myself trading SPY with an account this small. I do feed myself trading this account in ES, but fearfully. I also tend to be priced out of the best trades because they're too big/choppy/fast/whatever for my tolerance.

So here and there I pick up trades and it's enough, but at the rate I'm going (because I'm also taking money out every month) it's going to be a long time before the account is big enough to trade ES comfortably .

I took some NQ trades and was able to find some cases where the stop could be managed down to something cheaper than it would have had to be in the comparable ES trade, but it wasn't by very much.

Stocks are interesting from this perspective, but then other sources of difficulty are introduced. The more I think about it the more I realize that there won't be a way around it. risk/difficulty are going to tend to measure out comparably between markets because that's what markets do.

FESX, FTSE both good
futures, you can do smaller account, but most of us struggle when we face drawdown so
and for a 25k account, which is minimum for day trading stocks, you can comfortably do any ETF, like UVXY, SPY, UPRO, RUSS and best thing is you can do very small amount when you practice, that you can not do in Futures

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  #12 (permalink)
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3x leveraged ETFs are already found to slowly deteriorate to zero indefinitely, because they track the market and readjust on a daily basis.

For 4x leverage (or any leverage) with small account, can choose to trade very deep-in-the-money options.

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  #13 (permalink)
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Hi Dorky,
Can you please explain the following part of the following statement .....

" For 4x leverage (or any leverage) with small account, can choose to trade very deep-in-the-money options. "

This part right here please ...... can choose to trade very deep-in-the-money options

So would trading deep-in-the-money options be a better strategy to employ vs trading a 4x leveraged ETF ?

Thanks much

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  #14 (permalink)
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mdsvtr View Post
Hi Dorky,
Can you please explain the following part of the following statement .....

" For 4x leverage (or any leverage) with small account, can choose to trade very deep-in-the-money options. "

This part right here please ...... can choose to trade very deep-in-the-money options

So would trading deep-in-the-money options be a better strategy to employ vs trading a 4x leveraged ETF ?

Thanks much

Very deep-in-the-money options generally priced with very low premium.
Trading options is good if you have short time frame, buying and selling way before it expires.
But if your time frame is much longer, then options is definitely not for you.
You will have no other choice except to go for the futures market.
Regardless of time frame or capital at risk, leveraged ETFs are inherently a bad choice (they decay), unless you day trade, which I believe is unlikely considering such low leverage.

And here's why:
Getting Smart About Leveraged ETFs | Seeking Alpha
Investing In Leveraged ETFs - Theory And Practice | Seeking Alpha

And since you're looking for low leverage, like 4x, then I believe your time frame is the long-term, thus leveraged ETF is not an option.

The best is to just acquire more capital to trade the e-mini S&P futures.
Since every contract gives around 19x leverage, so to get effective leverage of 4x, just employ $5,060 * 5 = $25,300 and use that to trade 1 contract per $25,300.
And if you get much lower leverage as your account grows, just allocate some of the funds to buy options to maintain the 4x leverage.
For example, if you get to grow your account to $50,000, which is not quite $50,600 to start trading 2 contracts, but too high that your leverage is less than 2x, then to maintain 4x leverage just continue buying 1 contract with $25,300 and the remaining $24,700 to buy very deep-in-the-money options (expiring 6 months or more if your time frame is long) at 4x leverage.
All options will expire and the premium will decline.
That's why buy the options that last much longer than your time frame.
If your time frame is 6 months, then can consider buying 9 months options.
The premium will be large, but when you sell you will also be selling some premium.
And because the option still have 3 months left when it's time for you to sell, the premium decline would not be much.

But if you still cannot come up with $25,300 to trade the futures, then options is the only way.
I believe trading options is a very straightforward stuff and does not need much elaboration.
Since they are mostly fairly priced along the options chain, you may need to consider only the premium and leverage involved.
I never consider the Greeks of options and yet can still make money.
People valuing options based on the Greeks and/or Black-Scholes model are probably over-analyzing things, in my opinion.
Options are a derivative, and thus to time options trading, you pay attention to the underlying stocks, not to the fair value of the options.
So what if the options are slightly overpriced, if the underlying is going to explode upward, you will still need to buy the options and make money.
But if you are too calculative towards a fair pricing, you may not buy the options and risk missing the boat.
If the leverage is just right, and the premium is cheaper/average as the rest, then it's just right, in my opinion.
No point knowing the Greeks and do a Black-Scholes analysis, unless the options is very actively traded with very tight spread, or that you're selling options, which would be a totally different story beyond me.


Last edited by Dorky; July 9th, 2015 at 10:31 AM.
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  #15 (permalink)
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Dorky View Post
Very deep-in-the-money options generally priced with very low premium.
Trading options is good if you have short time frame, buying and selling way before it expires.
But if your time frame is much longer, then options is definitely not for you.
You will have no other choice except to go for the futures market.
Regardless of time frame or capital at risk, leveraged ETFs are inherently a bad choice (they decay), unless you day trade, which I believe is unlikely considering such low leverage.

And here's why:
Getting Smart About Leveraged ETFs | Seeking Alpha
Investing In Leveraged ETFs - Theory And Practice | Seeking Alpha

And since you're looking for low leverage, like 4x, then I believe your time frame is the long-term, thus leveraged ETF is not an option.

The best is to just acquire more capital to trade the e-mini S&P futures.
Since every contract gives around 19x leverage, so to get effective leverage of 4x, just employ $5,060 * 5 = $25,300 and use that to trade 1 contract per $25,300.
And if you get much lower leverage as your account grows, just allocate some of the funds to buy options to maintain the 4x leverage.
For example, if you get to grow your account to $50,000, which is not quite $50,600 to start trading 2 contracts, but too high that your leverage is less than 2x, then to maintain 4x leverage just continue buying 1 contract with $25,300 and the remaining $24,700 to buy very deep-in-the-money options (expiring 6 months or more if your time frame is long) at 4x leverage.
All options will expire and the premium will decline.
That's why buy the options that last much longer than your time frame.
If your time frame is 6 months, then can consider buying 9 months options.
The premium will be large, but when you sell you will also be selling some premium.
And because the option still have 3 months left when it's time for you to sell, the premium decline would not be much.

But if you still cannot come up with $25,300 to trade the futures, then options is the only way.
I believe trading options is a very straightforward stuff and does not need much elaboration.
Since they are mostly fairly priced along the options chain, you may need to consider only the premium and leverage involved.
I never consider the Greeks of options and yet can still make money.
People valuing options based on the Greeks and/or Black-Scholes model are probably over-analyzing things, in my opinion.
Options are a derivative, and thus to time options trading, you pay attention to the underlying stocks, not to the fair value of the options.
So what if the options are slightly overpriced, if the underlying is going to explode upward, you will still need to buy the options and make money.
But if you are too calculative towards a fair pricing, you may not buy the options and risk missing the boat.
If the leverage is just right, and the premium is cheaper/average as the rest, then it's just right, in my opinion.
No point knowing the Greeks and do a Black-Scholes analysis, unless the options is very actively traded with very tight spread, or that you're selling options, which would be a totally different story beyond me.


First, thank you for these thoughtful answers.

My account is, in fact, much smaller than $25k and I now realize that they will not let me "pattern" day-trade in a stock account of this size, though they let me trade futures with no limitations. No point in discussing the logic of that - it just is.

So the solution was almost there. UPRO with a bit of margin could be a great day trader, but by the time this account gets to $25k I won't care any more. ach.

I'm just going to have to toughen up, maybe watch some sort of blood sport in the morning before the market opens.

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  #16 (permalink)
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Hi Dorky

I posted this elsewhere ,
but wanted to please direct it to you, and get your opinion on the question at hand.
It comes down to trading a Backspread or a Long regular Call/Put , and if one has an advantage over the other, and if so .... why and " when " ?

Here is my original post.....
" if I should even explore Backspreads , and what the positives and negatives are .

The main reason I have just recently sought out the Backspread, was the fact that I am trying to get Long regular Calls and Puts on the higher priced stocks .... I.E. AMZN, NFLX, CMG, GOOG, etc...

I like the fact that you can enter into a Backspread , and get into the trade for virtually no cost ( Debit ) , and even at times, for a Credit
But what I found out in running some analysis in comparing the Backspread to a regular Long Call , against stocks like AMZN, GOOG, CMG, etc. was ..... that I had to change the spreads from the default ( $5 backspread spreads ) to around a $15 - $20 spread , just to be able to get into the trade for virtually " Free "

By having to put on such a wide spread , this leaves the Max Loss to a much bigger Loss that I am comfortable with trading ( even though True .... I could put a stop loss in place to cap myself from only losing an amount that I am comfortable with ).

Also, to put on a Backspread on this high dollar stocks at the default ( $5 ) spread ..... the Debit is anywhere from $15 - $20 , and this is Selling the 1 strike ITM and Buying 2 ATM strikes , with 45 days till expiration

So in comparing the costs as mentioned above ( $15 - $20 ) to put on a backspread in comparing it to buying the same Long Call ATM with 45 days to expiration ...... The Long ATM call costs more ( roughly $20 for AMZN for example )
So the Breakeven point before I would actually start to make a profit , is actually better ( Lower Breakeven Level ) to place the Backspread vs the outright Long Call

Just wanted to get your thoughts, ideas and perspective on the formentioned comparisons please

I just don't want to miss out on trading this High priced stocks via Options, and so I am looking for an Option's strategy(s) that gives me Unlimited Profit potential , and with Limited Downside Loss

Thanks so much - Michael

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  #17 (permalink)
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2 screenshots highlightening the question at hand ....

Thank you again

Attached Thumbnails
leverage amount-2015-07-08-18_14_13-amzn-charts-_total_-paper-thinkorswim-build-1876.11-.png   leverage amount-2015-07-09-amzn-using-advanced-order-s-....1st-trgs-seq-h.png  
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  #18 (permalink)
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mdsvtr View Post
I posted this elsewhere ,
but wanted to please direct it to you, and get your opinion on the question at hand.
It comes down to trading a Backspread or a Long regular Call/Put , and if one has an advantage over the other, and if so .... why and " when " ?

Here is my original post.....
" if I should even explore Backspreads , and what the positives and negatives are .

The main reason I have just recently sought out the Backspread, was the fact that I am trying to get Long regular Calls and Puts on the higher priced stocks .... I.E. AMZN, NFLX, CMG, GOOG, etc...

I like the fact that you can enter into a Backspread , and get into the trade for virtually no cost ( Debit ) , and even at times, for a Credit
But what I found out in running some analysis in comparing the Backspread to a regular Long Call , against stocks like AMZN, GOOG, CMG, etc. was ..... that I had to change the spreads from the default ( $5 backspread spreads ) to around a $15 - $20 spread , just to be able to get into the trade for virtually " Free "

By having to put on such a wide spread , this leaves the Max Loss to a much bigger Loss that I am comfortable with trading ( even though True .... I could put a stop loss in place to cap myself from only losing an amount that I am comfortable with ).

Also, to put on a Backspread on this high dollar stocks at the default ( $5 ) spread ..... the Debit is anywhere from $15 - $20 , and this is Selling the 1 strike ITM and Buying 2 ATM strikes , with 45 days till expiration

So in comparing the costs as mentioned above ( $15 - $20 ) to put on a backspread in comparing it to buying the same Long Call ATM with 45 days to expiration ...... The Long ATM call costs more ( roughly $20 for AMZN for example )
So the Breakeven point before I would actually start to make a profit , is actually better ( Lower Breakeven Level ) to place the Backspread vs the outright Long Call

Just wanted to get your thoughts, ideas and perspective on the formentioned comparisons please

I just don't want to miss out on trading this High priced stocks via Options, and so I am looking for an Option's strategy(s) that gives me Unlimited Profit potential , and with Limited Downside Loss

Thanks so much - Michael

Very sorry. If it is about options strategy, then is beyond me.
I use options as an instrument of leverage and nothing more (not an options seller).
Until today, I am still not familiar with the options strategy out there.
I just don't believe there is a strategy that can give unlimited profit with limited risk.
It's mostly either unlimited profit with unlimited risk, or limited profit with limited risk.

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  #19 (permalink)
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shezts View Post
First, thank you for these thoughtful answers.

My account is, in fact, much smaller than $25k and I now realize that they will not let me "pattern" day-trade in a stock account of this size, though they let me trade futures with no limitations. No point in discussing the logic of that - it just is.

So the solution was almost there. UPRO with a bit of margin could be a great day trader, but by the time this account gets to $25k I won't care any more. ach.

I'm just going to have to toughen up, maybe watch some sort of blood sport in the morning before the market opens.

Leveraged ETFs are fine if you day trade.

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  #20 (permalink)
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I am not sure if anyone know about this, that leverage employed depends on the trading time frame.
And if the time frame is very short, like in minutes for day trading, I believe the leverage should be way much higher to compensate for the commission and the daily volatility.
You cannot always pick the top and the bottom.
4x leverage is better for longer-term time frame like daily and even weekly.
If you're using 4x leverage for minutely or hourly in day trading, I am not sure if the returns per every trade will be sufficient enough to cover the costs.
Risks from leverage need to be adjusted and balanced with the time frame employed.
Lower leverage = longer time frame, higher leverage = shorter time frame.
Any other way will seriously impact your performance negatively.

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