Quote:
Originally Posted by photon
What kind of leverage are you talking about, and what would you have to know? 
Plus it's a bit easier to get external investors to invest in real estate than it is to have someone invest in paper assets, at least at my level. |
One good example would be writing long term, in/at the money covered calls.
20k of your own cash will allow you to buy about $66000 of 70% loan value stock using margin.
So lets say you take 60k of that margin and buy 3000 shares of a highly volatile stock, for example SOLF @ $20. Then you sell 30 calls of January 2010 $20 calls at $7, gaining you $21000 of cash. So you take that $21000 and with the 30% margin rule you have an additional $70000 of margin which you use to buy another 3500 shares....you write more calls...and so on.
Lots of firms are starting to block these there because they are known as highly leveraged writes. You basically use the sale of the option to cover the margin requirement for the stock, allowing you to buy unlimited shares with basically no money.
However you can use it to a smaller extent of course. Substitute the option premium you receive in the above example from $7 and instead use $3 (Further out of the money/out of the money strike)...you still gain $27000 in margin when all is said and done.
Lots of different strategies on top of this one that you could use.
I use them to a lesser extent. Buy the stock at $20, sell the $20 strike price call at the money for say $1.80. Make $180/100 shares, so providing the stock stays above 18.20/share i make money, and if it stays higher then that i earn money.
Sorry if this is kinda confusing...feel free to ask questions!