Options Jive

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How To Calculate Your Portfolio Leverage

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

The margin required to hold a trade is initially determined when the position is established at but as the market moves and implied volatility (IV) changes position leverage can grow quickly and the portfolio’s buying power changes. We show how to calculate the leverage of a portfolio so you won’t be caught unawares.

A table of how to calculate the notional value of a position was displayed. The table included the calculation for stocks, naked equity options and futures. A different table gauging if your portfolio is leveraged or not was displayed. The table included the liquidation value of the portfolio, notional value of the portfolio returns and the actual portfolio leverage. Part of the appeal of trading options and futures is the ability to leverage returns; however, leverage works both ways, and when overused, can lead to significant drawdowns with small changes in the underlying.

A table of a portfolio trading /ES Future contracts was displayed. The table included the value of the portfolio, portfolio leverage when trading 1/ES with a $100,000 notional value and the P/L after a 5% move (up or down) in the /ES. The table showed that trading futures contracts that are significantly larger than the portfolio will result in volatile P/L swings on a percentage basis leaving little room for error.

Watch this segment of “Options Jive” with Tony Battista, Pete Mulmat and Chris Butler from the research team for the valuable takeaways, how to calculate your portfolio leverage and for a better understanding of how portfolio leverage can increase.

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