This type of options trade allows you to do leveraged investing based solely on the buying power of your equities without needing any extra cash or loan. It is similar to using futures for leverage, except no cash is needed.
+
This type of options trade allows you to do leveraged investing mostly using the buying power of your equities. Some cash is required to enter the trade, mainly due to the call being more expensive than the put. It is similar to using futures for leverage.
Overview video:
- [Buying Stocks? Try This Instead - Synthetic Option Strategy](https://youtu.be/5G9tItA28Uw?si=YROxKchDAoV9DlTd)
-
You will need to apply for undefined risk options trading ability at your brokerage to do this because it involves selling a PUT (i.e. naked put).
+
You will need to apply for undefined risk options trading ability at your brokerage to do this because it involves selling a put (i.e. naked put).
+
+
Here is a simple example. Assume I have $100k invested in plain equities. I want to leverage up to 1.3 to invest in US large cap. I setup an ATM synthetic long 1 year out in SPLG (a lower cost version of SPY):
+
+
- 4 SPLG 2026-03-20 71 Call
+
- -4 SPLG 2026-03-20 71 Put
+
+
4 contracts would give a notional value of 71 * 400 = $28400. It might cost about $500 in cash. With portfolio margin, my buying power (coming from the value of current equities) might be reduced by $3k to hold this position. So in essence, I am allocating $3500 for this trade.
+
+
This gives me a notional exposure of $28.4k in the S&P 500 at the cost of $3500. That would give an overall leverage of (100-3.5+28.4)/100 = 1.25.
### Futures as leverage
@@ 141,7 150,7 @@
1 /MES futures contract has a notional value of 5 * index price. Currently that is $30k. To buy this contract, I am required to set aside $2500 as a good faith deposit for the contract.
-
This gives me a notional exposure of $30k in the S&P 500 at the cost of $2500. The $2500 is only the bare minimum, and it is usually advised to keep 2-5x of cash to handle downswings (see [below](#futures-vs-equities-margin)). So I set aside $10k as a safe amount of cash for this contract. That means I get a notional exposure of $30k at the cost of $10k.
+
This gives me a notional exposure of $30k in the S&P 500 with a deposit of $2500. The $2500 is only the bare minimum, and it is usually advised to keep 2-5x of cash to handle downswings (see [below](#futures-vs-equities-margin)). So I set aside $10k as a safe amount of cash for this contract. That means I get a notional exposure of $30k at the cost of $10k.
That $10k needs to come from somewhere. I could sell $10k of equities. That would give an overall leverage of (100-10+30)/100 = 1.2.