Using options to profit from market movements

[onetti]

Hi,

Please forgive in advance my naivette -- I am not au fait with options, but I would much appreciate an answer to a pressing question, which is simply this:

"If I felt bullish on the general stock market over the next 2 months, what would be the most aggressive strategy I could possibly pursue to maximise profits?"

I have looked at the major indices, and can see potential returns on investment of around 2-3x using simple strategies. But can I improve upon this?

Re. figures, let's say I estimate a return on the S&P of 10-20% before the Sep expiry?

Many thanks for your time and consideration,

Alex

 

[Martinghoul]

You can sell gamma to enhance your returns... Specifically, sell puts or do risk reversals (sell puts, buy calls). Caveat emptor: this strategy has been shown to be hazardous to your mental and physical health.

 

[Rhody Trader]

The most straightforward strategy would be to buy calls. That might not be the best approach for what you want to do, as there may be a spread strategy which is better, but it's the simplest.

 

[onetti]

Hi Martinghoul, Rhody Trader,

Many thanks for the reply and my apologies for the somewhat "out the blue" question. I like to model strategies at the weekends but the missing link is usually: "So how would you actually implement it as a trade?" I'm increasingly conscious that this is a question I need to be able to answer quickly if any of these ideas turns out to be tenable.

My suspicion was that a vanilla strategy of buying calls was the best option. I hadn't even considered the potentially devastating course of selling puts to finance calls: that is actually the perfect answer to my question, and it is also also a terrifying prospect!

In fact, the conclusion I came to was that spread betting would have been the best option with fixed risk, since this question concerned an index. This gave you realistic leverage of say 9x with a 10% stop loss, and the dividend payments of the constituents largely offset the rolling fees.

All food for thought.

Best,

A.