Explore Your Options by Tom Gentile
"SPYING" A BETTER OPTION?
After the “flash crash” market price jolt in early May and thinking there’s got to be a safer way to position, I came across the ProShares Ultra S&P 500 (Sso) instrument, which looks to make twice the returns of the Standard & Poor’s 500. At less than one-third the price of the S&P 500 exchange traded fund (Etf) (Spy) and twice the punch, it seems to be a long straddle strategy in which you get more bang for your buck and a stronger way to position. What are the pros and cons?
The reality of this type of product as it relates to option strategies is that the prices are essentially baked in. There are slight nuances with the “Ultras” over time that can affect actual performance in the underlying. But in order to keep things to the point, let’s compare recent front-month and at-the-money (Atm) straddles.