I was looking at the DRIP put trade you mentioned the other day, but maybe I'm missing something.
Yesterday, the premium to buy a DRIP put option expiring in Dec/Jan with a strike price just outside the money around $20-21 costed around $6/share. How can you expect to make a profit when the premium is so high (30% of the share price)?
It's a risky play. But DRIP is a 2x ETF, so that means oil needs to go up 15% for DRIP to drop 30% (roughly, there are arithmetic considerations that make it more like 15-18% depending on speed of drop.)
The $21 strike for 1/20/23 has a Put value of $6.87 at time of writing. And that doesn't include leveraged ETF value shed (which is much smaller for 2x ETFs than 3x, but is still present.)
I'm not telling you the play will work out. I'm just pointing out that the price is pretty fair. If you think oil could soar northward, by say 10% by next month, that option premium is probably going to be around $9.
If you are unsure, don't trade it. I think David found an exploit in the market here. We knew these leveraged ETFs lost value over time. It was obvious from their long-term charts. David just found a way to capitalize on that lost value through long dated put contracts. I highly advise you to watch his latest experiment with the SPXL/SPXS position that he just started today.
This is where it really sucks to be up to 7 weeks behind in money supply numbers.
I was looking at the DRIP put trade you mentioned the other day, but maybe I'm missing something.
Yesterday, the premium to buy a DRIP put option expiring in Dec/Jan with a strike price just outside the money around $20-21 costed around $6/share. How can you expect to make a profit when the premium is so high (30% of the share price)?
It's a risky play. But DRIP is a 2x ETF, so that means oil needs to go up 15% for DRIP to drop 30% (roughly, there are arithmetic considerations that make it more like 15-18% depending on speed of drop.)
Although that premium seems high, it's actually a little underpriced. https://www.optionseducation.org/toolsoptionquotes/optionscalculator
The $21 strike for 1/20/23 has a Put value of $6.87 at time of writing. And that doesn't include leveraged ETF value shed (which is much smaller for 2x ETFs than 3x, but is still present.)
I'm not telling you the play will work out. I'm just pointing out that the price is pretty fair. If you think oil could soar northward, by say 10% by next month, that option premium is probably going to be around $9.
If you are unsure, don't trade it. I think David found an exploit in the market here. We knew these leveraged ETFs lost value over time. It was obvious from their long-term charts. David just found a way to capitalize on that lost value through long dated put contracts. I highly advise you to watch his latest experiment with the SPXL/SPXS position that he just started today.
https://livebetternow.substack.com/p/new-3x-etf-pair-position-opened/comments?s=w