Low-Risk High Leverage?

[thereslifeafter87]

http://www.financialsense.com/editor...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]

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]

There must be a catch.

[Mick100]

There's no catch
With options you get limited downside ($500) with unlimited upside
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[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?

[thereslifeafter87]

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]

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

[Mick100]

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]

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]

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.