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thereslifeafter87
17-05-2006, 10:30 AM
http://www.financialsense.com/editorials/weiss/2006/0515.html

This article states at one point:

"5. Options on interest rates. These give you more leverage than you’ve ever seen or probably every will see. For just $500, you can still buy options that give you the potential to control $1,000,000. That’s effectively 2,000-to-1 leverage with strictly limited risk."

How exactly can one get that kind of leverage, with that limited risk?

thereslifeafter87
17-05-2006, 10:54 AM
quote:Originally posted by aspex

They will probably offer you guaranteed stop loss.
The curly bit is possibly that the guarantee will cut in at some spread away from the initial value.
So possibly your real risk could be , say $2000 being the smallest amount they will set the stop at.
Then I no nothing!


Hmmmm.

So, any movement in the direction you don't want, and you lose all your cash.

Any movement in the right direction and you make a SH*TLOAD.

Am I right?

thereslifeafter87
17-05-2006, 11:14 AM
There must be a catch.

Mick100
17-05-2006, 11:49 AM
There's no catch
With options you get limited downside ($500) with unlimited upside
,

thereslifeafter87
17-05-2006, 01:54 PM
What kind of options would you have to buy to get that kind of leverage for that amount of risk.

Where would you buy them? From who?

thereslifeafter87
17-05-2006, 02:16 PM
My thinking is with that kind of leverage, and limited risk, you could lose 9 out of 10 times, and still make a bundle on the tenth go!

Mr_Market
17-05-2006, 05:59 PM
No doubt there is a house advantage in this casino game. If you want to make money buy shares in the house ;)

Mick100
17-05-2006, 06:17 PM
quote:Originally posted by Mr_Market

No doubt there is a house advantage in this casino game. If you want to make money buy shares in the house ;)


Absolutely, there's the commision for the brokers, the buy-sell spread for the floor traders plus slippage. These are the winners over the long term - the brokers, the floor traders and usually the option writers.
,

Mick100
17-05-2006, 06:31 PM
quote:Originally posted by thereslifeafter87

What kind of options would you have to buy to get that kind of leverage for that amount of risk.

Where would you buy them? From who?


Try google
,

Halebop
17-05-2006, 06:40 PM
The guys that write the options can't loose. Often they are mandated to own bonds anyway so wouldn't be natural sellers even in a falling market. Earning an extra $500 to borrow their $1m in bonds might not be much money but its still money for nothing.

thereslifeafter87
18-05-2006, 12:58 PM
I've tried google. But I can't see anywhere that offers you that kind of leverage.

Maybe $10k for $500, but not $1mill.

Dimebag
18-05-2006, 03:15 PM
Buying a lottery ticket costs $5 and exposes you to $1.3m in upside. Is this a good bet?

That kind of basis R/R comparision misses the point. Somebody is writing the option and for you to have the potential to make $1m, someone has to risk losing $1m for a measly $500.

The probabilities would have to be appropriately very long indeed.

Mick100
18-05-2006, 05:06 PM
You should read the artical again 87
It does not say that you have the potential to make a million. It says that you can control up to $2 million. The option is on the interest rate diffrential. I have never dealt in these things before but I would assume that you would buy a call option, say when the int rate is 5%, then assuming the int rate goes up 1% above your strike price which is say 5.5% to 6.5 % you would profit 1% of 2 million which is $20000 which is a very profitable trade.

You would probably have to go offshore to get exposure to these soughts of things. I have had a quick look and I can't see anything with such a low premium to control $2 m. Maybe you should go back to the artical and contact the authors. There is an email address at the bottom of the artical.
,
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thereslifeafter87
19-05-2006, 11:39 AM
quote:Originally posted by Mick100

You should read the artical again 87
It does not say that you have the potential to make a million. It says that you can control up to $2 million. The option is on the interest rate diffrential. I have never dealt in these things before but I would assume that you would buy a call option, say when the int rate is 5%, then assuming the int rate goes up 1% above your strike price which is say 5.5% to 6.5 % you would profit 1% of 2 million which is $20000 which is a very profitable trade.

You would probably have to go offshore to get exposure to these soughts of things. I have had a quick look and I can't see anything with such a low premium to control $2 m. Maybe you should go back to the artical and contact the authors. There is an email address at the bottom of the artical.
,
.


I didn't misunderstand. My understanding is exactly the same as yours. Like you I couldn't find anywhere offering that kind of leverage.

I'll email them.