Using Put options in SPXU to trade the SPX
Updated
Disclaimer
All TRADING involves high risk and YOU can LOSE a substantial amount of money, no matter what method you use. All trading involves high risk; past performance is not necessarily indicative of future results.
For Educational Use Only – Not To Be Utilized As Trading Advice
Strategy
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SPXU is inversely correlated to the SPX.
Trade SPXU weekly put options for cheaper premiums and expecting a larger move.
Purchase the weekly SPXU put options contract to trade upside in SPX. (A short term trading strategy to reduce capital outlay)
Use Level 2 Tape Reading to see the supply/demand of the market, including the
Pros
-----
Less capital outlay so much more efficient
There is a tracking error in the SPXU which can help in getting a better price into the put option (the option pricing will change based on the buyers and sellers in the options market). This can help in time delay for trade setup before the move comes into the SPXU instrument.
SPXU provides (-3x) exposure to a market-cap weighted index of 500 large- and mid-cap US companies selected by the S&P Committee. This -3x exposure can help speed up the change in price of the underlying, which can help move faster towards breakeven and above into profitability in the options contract.
Cons
------
Options have an expiry date so some timing does come into question.
There could be a change in the negative correlation between SPXU and SPX due to tracking error.
The trade does not move enough in the direction of the put in SPXU over and above the breakeven that the premium
Premium decay in the option for short-term options which can result in Theta decay.
Put options tend to move slower (shorter deltas) than call options (larger deltas).
Summary
------------
This strategy is only meant for reducing the capital required to get exposure to the SPX via leveraged instrument such as option.
All TRADING involves high risk and YOU can LOSE a substantial amount of money, no matter what method you use. All trading involves high risk; past performance is not necessarily indicative of future results.
For Educational Use Only – Not To Be Utilized As Trading Advice
Strategy
-----------
SPXU is inversely correlated to the SPX.
Trade SPXU weekly put options for cheaper premiums and expecting a larger move.
Purchase the weekly SPXU put options contract to trade upside in SPX. (A short term trading strategy to reduce capital outlay)
Use Level 2 Tape Reading to see the supply/demand of the market, including the
Pros
-----
Less capital outlay so much more efficient
There is a tracking error in the SPXU which can help in getting a better price into the put option (the option pricing will change based on the buyers and sellers in the options market). This can help in time delay for trade setup before the move comes into the SPXU instrument.
SPXU provides (-3x) exposure to a market-cap weighted index of 500 large- and mid-cap US companies selected by the S&P Committee. This -3x exposure can help speed up the change in price of the underlying, which can help move faster towards breakeven and above into profitability in the options contract.
Cons
------
Options have an expiry date so some timing does come into question.
There could be a change in the negative correlation between SPXU and SPX due to tracking error.
The trade does not move enough in the direction of the put in SPXU over and above the breakeven that the premium
Premium decay in the option for short-term options which can result in Theta decay.
Put options tend to move slower (shorter deltas) than call options (larger deltas).
Summary
------------
This strategy is only meant for reducing the capital required to get exposure to the SPX via leveraged instrument such as option.
Comment
For additional protection, can also purchase an out-of-the-money call option to turn into a strangle.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.