Trading the SPX Index with Leverage

An image of a stock options process chart.

Trading the SPX Index with Leverage

 

Have you ever wanted to trade the SPX Index with built-in leverage ? Let’s look at existing choices and some new ones that have cropped up.

 

There are several ways to trade the SPX Index (or the S&P 500 Index in general).

 

SPX Index options itself. There is no leverage here. And this is a large Index and Options can be expensive, not to mention a Bid-ask spread as wide as the Panama Canal.

 

SPY ETF. Great ETF, 1/10th the size of the SPX, fantastic liquidity, and a 1-cent Bid-ask spread. Can’t ask for anything better. But its a bit boring, and you have to buy large quantities. And no leverage.

 

SSO and SDS. These ETF’s have a 2X leverage on the SPY. Not bad. Decent liquidity with about a 5-cent Bid-Ask spread. Definitely acceptable.

 

What if you want more ??

 

Well, it seems like two instruments have come up recently – the SPXL and the SPXS. As the names might suggest, the SPXL is a Long-instrument (3X leverage of the SPX), and the SPXS is a short version (also 3X leverage.)

 

I’ve been watching these for some time, and they are interesting. But they are still new, so liquidity needs to come into these instruments.

 

Check out this video I made on these two instruments. BOTH HAVE 3X leverage, but the price of the stocks is reasonable, so the Option prices are also reasonable.

 

 

 

Do you have any thoughts on the SPXL and the SPXS ??

 

Please post your thoughts below.

4 Comments

  • Peter Evanson

    Reply Reply March 11, 2013

    Amazing post.

    • Hari Swaminathan

      Reply Reply March 18, 2013

      Thanks Peter

  • Jack Skwat

    Reply Reply March 13, 2013

    I’ve traded them. The unfortunate thing about them is, like all the other super-leveraged Direxion ETF’s, they are not correlated well to their core derivative. If the VIX, VXX or any of the other volatility instruments rise or fall, the SPXL and SPXS rise and fall way differently. Superimposing a chart of the VIX, VXX and either of the 3X ETF’s will show this. So, the only way to make good money with these is to day trade, pref. in minutes.

    • Hari Swaminathan

      Reply Reply March 18, 2013

      Jack, glad to see your inputs on this…Makes sense , these 3X instruments don’t have a good tracking record. I suppose they may be okay for intraday situations..

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