Thursday, March 26, 2009

Options Comparison: 2X ETF Versus Underlying

Here is another comparison of the performance of options of 2X ETFs versus the options on the underlying stock. We look at XLF versus SKF for the period March 3 to March 25. During this period, SKF dropped from around $260 to $90, while XLF went up approximately from $6 to $9.20.


Move Percentages:

Picking a price in the middle of the range, SKF 150 puts went up 350%, while XLF 8 calls moved up 800%. The others are similar.


Now, if we look at the volumes, it is clear that XLF has signifcantly higher liquidity. This makes it much easier to buy and sell the options, and also reduces the spreads between bid and ask prices.

Once again, based on this study, it is much preferable to use options on the underlying stock, and not on the leveraged ETF. There is no corresponding leverage on the leveraged options. This, in addition to the immense risks of holding a leveraged ETF which have been discussed here so many times.

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1 comment:

Deming said...

Excellent post!


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