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How are you losing more on leveraged ETFs than options? I can't imagine options are always the correct choice for taking a long delta position.
by wocram 10y ago
How are you losing more on leveraged ETFs than options? I can't imagine options are always the correct choice for taking a long delta position.
- lisper 10y agoBecause win or lose you have to pay the loan shark.
- csomar 10y agoIf you are trading futures, you'll pay premium (though you can play the market sometimes and earn premium if you open/close early). However, for a long term position, and assuming efficient market the premium loss will be equal to the interest rate. A large difference will mean a SWAP arbitrage opportunity. So no, there is no loan shark. You are getting a privilege (margin liquidity) and it has some real risks (default on the base loan, and the loan shark kissing his money good bye)
- lisper 10y agoYou're right, I misread the question. Leveraged ETFs are better than options. However (and this is really the point I was hoping to convey) they only help you if you guess right. If you don't, they hurt more than they help. This is because, win or lose, you have to pay the interest on the leverage, and that can cost you a point or two in alpha. So you have to be able to guess right >50% of the time just to break even, and very few people are able to do that consistently. The problem with options and futures is that they tend to be thinly traded and so you lose on the spread. The net result is the same: unless you guess right with odds better than chance, your net alpha will be negative.
- csomar 10y ago> Leveraged ETFs are better than options. Not really. Depends on what you are looking for. Remember, on a leveraged trade you can 1. lose all of your capital and 2. be forced out of your position. If you are using options, you are guaranteed to lose if you are not right. But you don't lose more than that. It's like a "bet". > So you have to be able to guess right >50% of the time just to break even I see this line dropped a lot on trading forums. No, you don't need to guess right most of the times. The outcome is not binary and fixed. You can guess wrong 10 positions and lose $500 on each, and then guess right one position and make $20k on it. > The problem with options and futures is that they tend to be thinly traded and so you lose on the spread. Spread works out both ways. If you are the taker, you pay. If you are not in a hurry, then you can be a maker and actually make the difference. So you win on spread.