A Matter of Leverage

Discussion in 'Trading' started by MX_, May 3, 2020.

  1. MX_

    MX_

    Suppose for a moment you were somehow given a piece of information which could be trusted with 100% confidence. Maybe an angel told you, it doesn’t matter how you know but you just know, for the sake of this question, with perfect certainty, the exact price of some stock for one minute on a future date.

    The details won’t matter much here but for illustration let’s say XYZ is at $10 today, and let’s say you know for a fact that on May 31st at exactly 2pm it will be at $30. And that's all you know. Never mind how.

    My question is, what do you do now? What is the practical upper bound in our world on the return you could make with that piece of information? In what instrument can the absolute maximum leverage be found?

    If I were limited to buying shares, it would seem to simply be a matter of taking as large a position with as much borrowed money as I could muster and trying to catch that +300% on the table. Leaving aside the risks along the way (like what kind of draw downs might we have to endure, will we face a margin call?) this seems like all I could hope to do with long underlying. If I’m a man of modest means, tripling my maximally leveraged stake in XYZ might not even net me a million bux.

    Is there some way of trading the pin on the price target? Could you trade some kind of crazy binary option on the exact minute? Who would take the other side and how would you make this transaction?
     
    lovethetrade likes this.
  2. zdreg

    zdreg

    A Matter of Leverage
    The title of this thread should be a title for a movie or a mystery novel:cool:.
     
    jys78, Nobert and MX_ like this.
  3. ajacobson

    ajacobson

    Assume it's legal - no insider issues. If it's optionable I would sell a bag of puts and buy a bag of otm calls - have to calculate based on my capital. Might even do the puts ITM - again a lot would depend on my capital - understand my loss if I'm wrong and surviving the almost guaranteed scrutiny you're going to get post-trade. Wouldn't touch the stock if I'm seeking leverage and options are available
























































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    MX_ likes this.
  4. MX_

    MX_

    @ajacobson

    Thanks for the input. Where would you put your strikes?
     
  5. jys78

    jys78

    Share your inside info and we'll develop an optimal strategy! :)
     
    Ninja likes this.
  6. ajacobson

    ajacobson

    "Thanks for the input. Where would you put your strikes?"

    Still, too many unknowns and I can't do anything that smells of investment advice. Confident someone else here will cipher up a finely detailed idea.
     
  7. MX_

    MX_

    Hehe, I wish I had inside information, but unfortunately I'm just curious
     
  8. IB TWS - - > option strategy lab. Either that or you seek for structured products which are essentially levered options.
     
  9. ironchef

    ironchef

    Only goes up for 1 minute and then comes back down again?

    Options gapping up and down due to stocks gapping up and down are very common just that they usually don't gap up for 1 minute and gap down again.

    If you buy a call in anticipation of the underlying gaps up from $10 to $30 and you know exactly when it will gap, the option chain will provide you Max R:R trade. I am just a retail I don't know if MM will take your trade during the 1 minute window?
     
  10. never2old

    never2old

    clever post ... May 31 is a Sunday, North American stock markets are closed
     
    #10     May 4, 2020
    jys78 and MX_ like this.