http://IndexInvesting.xyz Daily Alert - January 29,2018
Achieving a 100% ROI is not a difficult task,
In the volatility trade, there are many ways to do this. Today, we will look at buying long dated puts (also known as LEAP Puts). LEAP stands for Long Term Equity Anticipation Security.
We are in Jan 2018. If I buy a Jan 2019 put, that is long dated or a LEAP put.
Let us say I buy ATM (At the money) UVXY puts $10 strike, Jan 2019 expiry.
Based on last Friday’s prices, I would pay $6.20 per put.
UVXY loses roughly 20% per month. Soon, we will see a reverse spilt for UVXY. But for simplicity sake, let us say that it does not split. So, its price on the option expiry date in Jan 2019 will be $0.69
Effective short price = Strike price minus put premium
= $10 – $6.20
Profit = $3.80 minus $0.69 = $3.11
ROI = (3.11/3.80) x 100 = 81.84%
Since the premium for 1 put was $6.20, I can just buy 10 UVXY puts $10 strike, Jan 2019 expiry for $6,200 which in 1 year will turn to $11,274. This again proves that you don't need a big portfolio to gain big. I hope you will agree that no bank will give me a return like this!!
Thanks and Happy Shorting Volatility
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