Leveraged index investments, including index futures, options, and ETFs, are one of the fastest growing products in finance, as both retail and institutional investors are attracted to their long-term returns and capital efficiency. With Enhanced Indexing Strategies, author Tristan Yates reveals how you can create and build high-performance indexing strategies using derivatives that can potentially generate much higher returns than conventional index investing. In addition, Enhanced Indexing Strategies introduces six innovative long-term indexing strategies using futures and options, each with its own advantages and applications.
About the Author
Tristan Yates researches and writes about global index investing, leveraged portfolio management, and derivative strategies for many publications, including Futures & Options Trader, Seeking Alpha, and Investopedia, and his articles are distributed through Yahoo! Finance, Forbes, Kiplinger, and MSN Money. An industry expert on leveraged ETFs, his research has been cited in the Wall Street Journal.
Table of Contents
CHAPTER 1 Owning the Index.
The Story of Indexing.
Indexing: Strategy or Philosophy?
Active Investment Selection.
Index Investing and the Efficient Markets.
Reconciling Indexing and Active Investing.
Index Risk and Reward.
Drift and Noise.
Momentum, Mean Reversion, and Market Cycles.
Cycles and Regime Change.
High Performance Indexes.
Small Cap and Value Premium.
Forecasting Index Returns.
CHAPTER 2 Applying Leverage.
Leveraged Investments: Conservation of Risk.
Using the Leverage Ratio.
Debt and Interest Effects.
Sources of Leverage.
Other Debt Sources.
Managing a Leveraged Portfolio.
Rebalancing with Leverage.
Dollar Cost Averaging and Liquidity Preference.
Reinvesting Leveraged Gains.
CHAPTER 3 Indexing with Synthetics and Futures.
Index Portfolio Returns.
Holding Synthetic Positions.
Expected Returns and Reinvestment.
Adding Portfolio Volatility.
Random Scenarios with Monte Carlo.
CHAPTER 4 Capturing Index Appreciation with Calls.
Intuitive Option Pricing.
Options as Potential Liabilities.
Time and Volatility.
Dividends and Interest Rates.
Following an Option.
Risk Components of Various Options.
Capturing Appreciation with Options.
Daily Cost of Options.
Marginal Returns—Extending Time or Lowering Strike.
Monthly Returns of Calls.
More about Volatility.
CHAPTER 5 Leveraged Covered Calls with Futures.
Covered Calls as a Source of Income.
Expected Strategy Returns.
Annual Return Backtests.
CHAPTER 6 Rolling LEAPS Call Options Explained.
Understanding LEAPS Calls.
LEAPS—by the Greeks.
One Year Later.
Rolling LEAPS Forward.
Roll Cost Prediction.
Estimating Average Returns.
Investing Cash Flow.
Selecting Indexes and Strike Prices.
Market Drops and Volatility Spikes.
LEAPS Covered Calls.
CHAPTER 7 Long-Term Returns Using Rolled LEAPS.
Strike Price Selection.
Sector Performance: 1999 to 2006.
Sector Portfolio Returns.
Higher Performance Portfolios.
Covered Calls and Mid-Caps.
Covered Calls with Sectors.
CHAPTER 8 Long and Short Profits with Call Spreads.
Understanding Debit Spreads.
Bull Call Spreads.
Call Spreads and Appreciation.
Spreads and Skews.
Diagonal Call Spreads.
Long/Short Portfolios from Diagonals.
Early Exit and Theta.
Calendar Call Spreads.
LEAPS Calendar Calls and Early Exits.
Cycling Investment Gains.
Constant Investment and Hybrid.
Index Regime Change.
CHAPTER 9 Cycling Earnings Using Spread Positions.
Short Option Selection.
Creating the Diagonal Spread.
Cycling Fractional and Fixed.
Transaction and Spread Costs.
Fast Cycling with Calendars.
Weekly Volatility Simulation.
Weekly Strategy Returns.
CHAPTER 10 Practical Hedging with Put Spreads.
About Put Options.
Selling Puts versus Covered Calls.
Seller Risk in Pricing.
Puts, Futures, and Leverage.
Diversification and Correlation.
Bear Put Spreads and Speed Bumps.
Bull and Calendar Put Spreads.
Calendar Put Spread.
Deep-in-the-Money Calendars and Diagonals.
Rolling LEAPS Puts.
Rolling LEAPS Calendar Spread.
CHAPTER 11 LEAPS Puts and Three Ways to Profit.
Portfolio Safety Nets.
Expected Returns and Hedging Analysis.
Correlated Indexes Using SIMTOOLS.
Correlated Protected Portfolios.
LEAPS Calendar Put Spreads.
LEAPS Calendar Put Portfolios.
Put Writing with LEAPS.
CHAPTER 12 Managing the Leveraged Multistrategy Portfolio.
The Question of Alternative Assets.
The Solution: Own the Producer.
ProShares ETF Analysis.
Multiplier Leverage Effect.
Learning from Failure.
Asset Management Overview.
Long and Short Strategy Combination.
Minimum Investment Sizes.
APPENDIX List of Index ETFs and Futures.
About the Author.