Regarding those 20x and 50x returns on options on futures...
For the SPX, here is the page of options data:
cboe.pcquote.com
Obviously I don't know how high the rally will take us
tomorrow, but putting the desired 20x gain into the ask
prices of the puts, and making the altogether reasonable
assumption that the time premium of the put after the
favorable market move will be negligible, I get the
following puts give the least market movement required
to get 20x and 50x returns. Of course, for a short term
movement, one would use the April puts, as these
have much less time premium on them. Later puts would
be way too expensive to give a 20x or 50x return.
Put which requires the least market movement to return
20x: April 1050 put. Costs 2 1/2. Needs SPX @ 1000.
50x: April 1010 put. Costs 1. Needs SPX @ 960.
Given that the SPX closed at 1101 today, we are talking
about a 10% drop to give the 20x return, and a 13% drop
to give the 50x return.
Note that these prices are as of close today. When the
market peaks tomorrow, (as alleged and as I believe it
will), you can approximately scale by just looking in the
above link for the puts that cost $2 1/2 or $1 in order
to shoot for the 20x or 50x return. They will have higher
strikes than the puts I selected above because the
market will have moved up. Of course, this assumes
that the volatility index will be about the same tomorrow
as today.
My advice is to forget the 20x or 50x return, and go with
a put that costs more like $4 or $5. The reason is that
those low priced puts have too much spread in them to
be a decent investment. And if the move is less than
expected, the $4 put can still be wildly successful, while
the cheaper ones expire worthless. BWDIK.
-- Carl |
