A thought exp. on this swaps vs. options thing.
I want to risk 2% of my account. I'm bad I know. I think there's a good level for where I'd put a stop. I either:
Go long Perp. place stop risking 2%
Spend 3% of equity on calls. (Knowing gamma pads my fall and I can tap-out).
I want to risk 2% of my account. I'm bad I know. I think there's a good level for where I'd put a stop. I either:
Go long Perp. place stop risking 2%
Spend 3% of equity on calls. (Knowing gamma pads my fall and I can tap-out).
This is sort of a riddle so take a Tweet to pause and try to imagine for yourself what the resulting leverage and cost-of-capital per-day is for these two positions...
<Jeopardy Music plays, people scribbling notes on Etch-a-Sketches>
<Jeopardy Music plays, people scribbling notes on Etch-a-Sketches>
Bump, ba-dump bump, bump... bump..... bump - da dum!
Ok time's up:
At 1 bps the perp costs 3 bps per day, a weekly option with 3% outlayed costs 7.5 bps per day, a 6 week costs ~2-3 bps.
Perp gears you 2x, option gears you 2.5x or 1.8x weekly vs. 6 week.
Ok time's up:
At 1 bps the perp costs 3 bps per day, a weekly option with 3% outlayed costs 7.5 bps per day, a 6 week costs ~2-3 bps.
Perp gears you 2x, option gears you 2.5x or 1.8x weekly vs. 6 week.
Seems to me like the market is about-accurately pricing cost of capital vs. leverage?
Of course, to me options are about limiting risk on swap/future positions with limits and premium collected. There must be more like me to take the option market to the next level.
Of course, to me options are about limiting risk on swap/future positions with limits and premium collected. There must be more like me to take the option market to the next level.
