Leveraging with Futures: dividends

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jjmaddison
Posts: 32
Joined: Sat Oct 21, 2017 3:52 am

Leveraging with Futures: dividends

Post by jjmaddison »

Hello,

I'm seriously thinking about leveraging my SP500 investment to 1.5-2x in near future.
For me, it's still 25+ years till retirement. Hopefully, such leverage isn't that big and will allow to survive coming downturns.

I've read many messages on this forum about leveraging, and it appears that futures represent the cheapest way to do it.

Tax-wise, stocks / futures are the same to me.

Does "E-Mini S&P 500 Future Continuous Contract" look like a good choice?
I traded futures many years ago, and these were fixed-date contracts, not sure what a "continuous" is, any pitfalls?

Also, what happens with dividends then?

If I own real stocks, e.g. via an ETF, then it pays out or reinvests dividends.
Holders of futures, naturally, don't receive dividends, but futures' prices are affected by dividends.
For futures, talking long-term, e.g. the continuous contract, do dividends affect their prices in the same way as they do for accumulating ETFs?
glorat
Posts: 992
Joined: Thu Apr 18, 2019 2:17 am

Re: Leveraging with Futures: dividends

Post by glorat »

I can't comment on continuous futures but regular futures prices include the effects of dividends as if it were an "accumulating ETF"
DoctorE
Posts: 57
Joined: Thu Feb 13, 2014 2:11 am

Re: Leveraging with Futures: dividends

Post by DoctorE »

Pitfall: 2x leverage = lose 100% of your money.
Topic Author
jjmaddison
Posts: 32
Joined: Sat Oct 21, 2017 3:52 am

Re: Leveraging with Futures: dividends

Post by jjmaddison »

DoctorE wrote: Tue Jan 24, 2023 4:05 pm Pitfall: 2x leverage = lose 100% of your money.
The maintenance margin requirement for E-mini SP500 futures is quite low.

To loose all money on 2x... The drawdown must be the biggest in last 100 years of history.
Not sure, which exactly, because maintenance tends to increase in times of crisis.

(actually I'm also worried that 2x might be too much)
DoctorE
Posts: 57
Joined: Thu Feb 13, 2014 2:11 am

Re: Leveraging with Futures: dividends

Post by DoctorE »

SPY 2007/2008 -50.80%
There were larger drawdowns than that.. just an FYI.
And yes, you might get margin call before -100% of your capital.
What are you actually trying to achieve?

PS. I was leveraged in 2008 and lost my a**. Still regret it to this day. If I would have asked on here, I probably would have been cautioned and wouldn't have listened. Luckily I learnt my lesson and calmed down. Sometimes it takes a 7 figure slap across the face to realize you are playing with fire.
Last edited by DoctorE on Tue Jan 24, 2023 5:07 pm, edited 1 time in total.
the_wiki
Posts: 960
Joined: Thu Jul 28, 2022 11:14 am

Re: Leveraging with Futures: dividends

Post by the_wiki »

Ask yourself if you need leverage to reach your retirement goals. My guess is the answer is no. In that case it is just gambling.
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