How to calculate SSO to S&P relationship?

Discussion in 'Stocks' started by crgarcia, Sep 4, 2008.

  1. Let's say you are long SSO (2x S&P 500) and you want to place a take profit order when the S&P index gets to 1295.

    What level is it in the SSO?
  2. lassic


    proxy I use is 5 points on esmini = $.50 on SSO

    10points = $1.00

    SDS little bit more but still use same ratio
  3. unless the target was guaranteed to be hit within exactly one day, there is no direct relationship. It is dependent upon the incremental path it took to get there.
  4. Please elaborate.

  5. Don't have a lot of time to explain at the moment, but it has to do with the way returns of different signs compound asymmetrically. To convince yourself, you can try to simulate two different price paths (with pos and neg returns) to get to an equal final price, and then double each individual return in the original paths.
    The final price results on the doubling of both paths will likely not be equal (although the undoubled ones will).

  6. This doesn't answer the original question, but here is an example for the simple folks like me :) Numbers are hypothetical, but illustrate how the SSO works.

    Let's assume that the day you go long, they are trading at:

    SPY 120.00
    SSO 60.00

    The SSO tries to have twice the daily percentage move of the SPY.

    So, if you go long, and the SPY moves up 10%, your 120 spy is now worth 132 and your SSO is worth 72.

    Next day, the market gives back all 12 points in the SPY. This is a 9.09% drop (12/132=.0909)

    Since the SSO moves twice the daily percentage of the SPY, it should drop 18.18%

    So the SSO would decline from 72 down to about 58.91.

    You are back to even in the SPY and you are down 1.8% in the SSO. Funny huh? So now, your original target in the SPY is the same distance away from the SPY price but a larger distance from the new SSO price.

    To answer your original question, currently the SSO is about half the price of the SPY so a double percentage move equates about dollar for dollar. ie. SPY moves from 120 to 122. Up 2 bucks or 1.6% SSO moves from 60 to 61.92, almost up 2 bucks or 3.2%.

    I think this is just coincidental at this point in time, but it is an easy, quick reference. So, if your stop would be 5 bucks away in the SPY, it would also be about 5 bucks away in the SSO. This should change (I think) in the future due to the effects of the first example.