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How to Trade Options on Leveraged ETFs

Before I start with how to trade Leveraged ETF options, let me remind you that I believe we are at the start of an etf creation bubble, in which retail investors are getting exposure to financial instruments that they don’t need– the capital base is not large enough to warrant that sort of exposure (Case Shiller ETF??). Also, many of these etfs have structural issues that cause them to consistently underperform the instrument they claim to track — see USO and UNG for examples.

But there are some advantages with trading leveraged options. First, let’s take a look at the downside:

Leveraged ETFs go through a daily rebalancing, and that causes them to underperform over time just from their mathematical calculations. Unless there is a strong trend in price and volatlity, it is very difficult for these instruments to outperform in the intermediate term. The problem was so bad that Direxion did a reverse split in FAZ/FAS to encourage trading again.   –more

The original video of this part (1) was taken down by youtube due to a copyright issue with NBC… which must have been related to the section of video I used showing useless car parking and drivers as a background in parts, just to fill the visual space.

Related Options articles

• High-Yield ETFs’ Love-Hate Relationship (online.wsj.com)
• T. Boone Pickens Energy Fund announces exchange ratios (newswire.ca)

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There are so many options trading strategies out there that it can be overwhelming to sort through  them all.  Should you buy a call or a put?  When you should you do a debit spread and when should you do a credit spread.  So many questions, but no clear answers.

Here are a couple articles I found today that cover finding an options strategy and what to look out of at seminars.

Want To Find An Options Trading Strategy?

Options trading continues to be poorly understood in the markets. Many people understand that to trade effectively they need a good options trading strategy or system. However, the real drawback is that a lot of people don’t get first how to discover the opportunities, where they’ll be able to successfully utilize options.

There are many trading courses in the market that can take people through the fundamental models, or systems that may be used and then leave them to attempt to get on with making trades in the markets on their own.

This may achieve success to some extent and permit individuals to maximise their profits or successfully hedge positions, if they’re are fully knowledgeable of situations in which they can correctly use options.  –more

The Truth About Most Option Trading Seminars

Are you about to pay thousands of US Dollars to attend an option trading seminar this weekend?
Whether or not you have decided to join that weekend seminar, I hope I can help you make a more intelligent decision here.

A Grim Experience At An Option Trading Seminar
I had a friend who joined a weekend, 2 days, option trading seminar (a very well-known one by the way), promising that every participant will walk away with enough knowledge to profit at any market condition and be on their way to their first million just by option trading. He paid USD$3000 for the 2 days seminar and walked away feeling all hyped up but totally confused as to how exactly to start option trading. He was then told to sign up for an advanced course for another USD$5000 for 4 days. That 4 days seminar taught him little more than option trading basics and how to open a trading account but still completely no idea whatsoever as to how to read the market and pick stocks on which to trade options in the first place.  –more

Related options trading articles

• Japan Exporters Rise on Yen (online.wsj.com)
• Bank of America Merrill Lynch Enhances Canada Equity Algorithms (newswire.ca)
• Options Trading on Pace for Record (online.wsj.com)
• The Rookie’s Guide to Options by Mark Wolfinger (bargaineering.com)