The leverage ratio of 50ETF options is non-linear and is related to the remaining time of the contract, the rise and fall of the underlying, etc.

How to calculate the leverage of options?

In the financial derivatives market, the leverage ratio is the ratio of the actual value represented by the derivative to the amount of cash paid to establish a position. The higher the leverage ratio, the greater the profit or loss that can be brought about by each unit change in the price of the underlying asset, which means that the investment risk is higher. Based on the nonlinear profit and loss structure of options, the leverage ratio of options needs to be understood from two aspects: cost and rate of return.

The leverage ratio of each option contract is not fixed. The contract leverage ratio is equal to the ratio of the percentage change in the option price to the percentage change in the underlying asset price. That is, if the underlying asset price changes by one percentage point, the option price changes by G percentage points (G represents Leverage multiple), let S and C represent the underlying asset price and the option price respectively, S and C represent the underlying asset price and the option price change respectively, then

Just look at this formula, investors in options The leverage ratio corresponding to each contract can be queried in the trading software. For option contracts with the same expiration time and different exercise prices, the characteristics of "the leverage ratio of real-valued options is small and the leverage ratio of out-of-the-money options is large". Leverage trading is like a double-edged sword. If used properly, you can achieve the effect of "using small to gain big benefits". If used improperly, you will suffer the risk of magnifying losses. Therefore, investors need to choose options contracts with moderate leverage ratios for trading based on their own risk tolerance.

From a cost perspective, the option leverage ratio is equal to the ratio of the current price of the underlying 50ETF to the option premium, which is also the traditional definition of leverage ratio. When the price of the underlying 50ETF is 24500/10000 units, the price of 10001313 is 386 yuan, and the option leverage ratio is 62.82. He said that for every 386 yuan spent to subscribe for a 2.450 option, he can buy 10,000 units of the 50ETF index fund worth 24,500 yuan.

However, due to the non-linear profit and loss structure of options, this does not mean that under the same underlying asset price fluctuations, the option return rate is equal to the underlying futures return rate, so the leverage ratio can also be interpreted from the perspective of return rate. It is also called the real leverage ratio, which is defined as:

Real leverage ratio = option return rate / underlying 50ETF return rate = cost leverage ratio × Delta.

Obviously, with Compared with the cost leverage ratio, the real leverage ratio more truly reflects the profitability of the option.

Characteristics of option leverage

As mentioned earlier, option leverage changes dynamically, so what is the law of its change?

To put it simply, the leverage of options has the following characteristics:

1. It is related to time, which is time value. At the beginning of the contract of the month, the leverage is small; in the middle and late stages, the leverage will become larger; by the week of contract delivery, the leverage will become smaller again.

2. Different contracts have different leverages in different periods. At the beginning of the month's contract, the leverage of the at-the-money contract is the largest; in the middle and late stages, the leverage of the out-of-the-money contract is the largest.

Generally, the leverage is about 20 times, that is, the 50ETF (510050) rises by 1%, and the options contract rises by 20%. However, if you combine the remaining time of the contract with different at-value and out-of-value contracts, the leverage may exceed a hundred times.

Option leverage generally follows the following characteristics:

(1) The more out-of-the-money the option is, the greater the leverage; the more real-valued the option, the smaller the leverage.

(2) Option leverage changes dynamically. The current value only represents the current leverage level in a short period of time. It does not mean that the leverage will always be this high.

Some investors may ask: option leverage only represents the leverage level in a short period of time. What should I do if I am not doing short-term trading and want to hold it for a long time? In fact, no matter how long the option is held, its final actual leverage level will generally not exceed the ratio of the futures price to the option price when the position was first opened. Therefore, there is generally no need to worry that the final leverage level will appear uncontrollable after the position is completed.

In short, short-term traders, especially options speculators, should focus on changes in option leverage (real leverage ratio) due to their short holding time. For investors who have held it for a long time, in addition to paying attention to changes in option leverage, they should also pay attention to the ratio of futures price to option price (leverage ratio) when opening a position. Generally, this is the upper limit of the final leverage that the option can achieve. .

The above figure shows the changes in option leverage with different remaining expiration times. It can be known that option leverage generally has the following rules over time:

(3) Under the same conditions, as the remaining time decreases, option leverage gradually becomes larger. It can be understood this way: as time decreases, under the same conditions, the price of the option will still gradually decrease due to the decay of time value, so the leverage will increase.

(4) As the remaining time decreases, the leverage changes of options gradually accelerate. This is caused by the accelerated price fluctuations of options approaching expiration and the accelerated changes in delta values ??(except for deep real value and deep out-of-the-money values). decided. As expiration approaches, option leverage can become very large. This can be seen from the contracts that expire in 7 days.

Therefore, investors with extreme risk preferences may wish to trade options within a week and be the buyer.

If you are afraid of the rapid decay of value near expiration, you may wish to buy more real-valued options. Although they are in real value, their leverage effect is still much higher than that of futures. Also, try not to buy deeply out-of-the-money options near expiration. Although you have ultra-high leverage, your probability of winning at expiration is extremely low.