What you're saying is exactly right.stone wrote: I thought that that is what fortuitously was done with the LEAPS PP talked about here.
Also, "fortuitously" is the key word above.
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What you're saying is exactly right.stone wrote: I thought that that is what fortuitously was done with the LEAPS PP talked about here.
If I were to use this strategy (which I will not do), I wouldn't use rebalancing bands. I'd just sell the calls once a year a buy more (reablancing then). Anything else is just guessing and will also rack up fees.stone wrote: Adam, perhaps rebalance from the TLT and GLD calls to the regular stocks (real stocks not options) whenever a rebalence band was hit and always do any toping up of the options by purchasing options expiring in sixth months time? I
Likewise, I think the best way to implement this strategy is to set aside some pre-determined amount. Divide by 12, and purchase LEAPS expiring > 1 year in the first week of every month, timing your entry as you see fit.Adam1226 wrote:If I were to use this strategy (which I will not do), I wouldn't use rebalancing bands. I'd just sell the calls once a year a buy more (reablancing then). Anything else is just guessing and will also rack up fees.stone wrote: Adam, perhaps rebalance from the TLT and GLD calls to the regular stocks (real stocks not options) whenever a rebalence band was hit and always do any toping up of the options by purchasing options expiring in sixth months time? I
No, I'm not saying they are always a bargain. I'm just saying that the PP principles usually come out ahead over a 1 year timeframe. So, for example, this year your TLT and GLD options might be up, but you take a loss on SPY. This is not a big deal if you have 100%+ gains on TLT and GLD. By buying all 3 options at the same time you are just applying PP principles and hoping that one or two go up enough to offset the losses on the other 2. As we've seen with normal PP backtesting this usually holds true.stone wrote: Storm, are you saying that these options are always a bargin? It seems easy to believe that sometimes the market misprices them but you are saying that they are systematically underpriced. Would that not mean an ever accelerating increase in prices? I can't make sense of it.
That's a good idea.Storm wrote:
Likewise, I think the best way to implement this strategy is to set aside some pre-determined amount. Divide by 12, and purchase LEAPS expiring in the first week of every month, timing your entry as you see fit.
Sell exactly 1 year and 1 day, or time your exit after that point for tax purposes. Some months you may lose, and some you may win, but I would be willing to bet you would have more profitable months than not.
The difficulty is that because you can only buy options in lots of 100, you might need a significant amount of startup capital to do this - at least $50K or so.
SPY calls are the most unchanged of the 3 I purchased.stone wrote: Storm, I'm curious to see whether the SPYcalls will provide as much of a bonanza when stocks have their day as the TLTcalls and GLDcalls have done lately. It wouldn't seem too implausible that SPYcalls might currently be priced expecting a big rebound in stock prices. If so, then even if the stock rebound does happen, you haven't done well- merely stayed even? How much of a jump in stock prices would be needed from this point to make SPYcalls bought now as profitable as the TLTcalls or GLDcalls bought earlier this summer were?
Stone, admittedly I am not very well educated on options trading. I'm a total newbie, if you will. But, as I understand it, purchasing a put option on a stock you are long is just a way to give up some of the upside in exchange for some downside protection. It is possible that by using this strategy they are continually eating into their gains.stone wrote: Storm, do you understand why the combination of stocks and stock put options doesn't work well at all? The Hussman fund does that and seem to engineer a steady creeping loss each year. http://www.hussman.net/theFunds.html
There must be something about market psychology that makes stock put options too expensive and call options too cheap? If so, then it seems remarkable that some combination such as short puts, long calls and short underlying isn't deployed to iron out the discrepancy?? I'm probably totally confused about all of this.
I decided that in October, I'm going to sell some of my VP, realize some long term gains, and try a LEAPS PP out for a bit. I only have enough money to do about 3 purchases, and I'll do them about a month apart each. We'll see how they go.stone wrote: Storm, I guess all LEAPs options are not issued as an act of charity. The people engineering them will be making a good living so they will entail plenty of (inbuilt) costs even if those are not as transparent as the quoted TER for a mutual fund??? My impression is that the PP works because it exploits a systematic goofyness in that markets always over-react. Hopefully you are right in thinking that LEAPs harvest such over-reactions in a more effective way. Best of luck with it!
I will be sure to report back and let you know how it goes. The biggest question I have is whether I should hold them the entire 1 year and 1 day or sell early if I'm up something like 80%... It's going to be tough to decide and I'm not sure if the time value decrease will be too great as you approach the option date.clacy wrote: Thanks for sharing storm. Please keep us up to speed on how that goes.
Storm wrote: I put my money where my mouth is and bought the first $10K Jan2013 call options today. At the money was difficult because most trade at $5 increments.
I'm a little bit overweight GLD options, but heck, this is a VP after all and I expect gold to be significantly higher by Jan. 2013.
10/10/2011 YOU BOUGHT OPENING TRANSACTION
-GLD
130119
C165 CALL (GLD) SPDR GOLD TR GOLD JAN 19 13 $165 (100 SHS)
Cash Contracts: +2.000 Price: $23.00 Amount: -$4,609.49
Comm: $9.45
Fees: $0.04
Settlement Date: 10/11/2011
10/10/2011 YOU BOUGHT OPENING TRANSACTION
-SPY
130119
C125 CALL (SPY) SPDR S&P 500 ETF JAN 19 13 $125 (100 SHS)
Cash Contracts: +3.000 Price: $10.33 Amount: -$3,109.27
Comm: $10.20
Fees: $0.07
Settlement Date: 10/11/2011
10/10/2011 YOU BOUGHT OPENING TRANSACTION
-TLT
130119
C120 CALL (TLT) ISHARES BARCLAYS 20+ JAN 19 13 $120 (100 SHS)
Cash Contracts: +4.000 Price: $7.67 Amount: -$3,079.04
Comm: $10.9
I don't think HB would approve, although it's an interesting idea. There's unlimited loss potential, in theory at least.clacy wrote: Has anyone here considered selling puts, rather than buying calls? If someone has the means to backtest options strategies, that might be interesting.
With put selling, you have time decay on your side, as well as the upward drift of the four asset classes together.
Yeah, I wanted a VP strategy that gave me potentially leveraged gains, without using leverage. I suppose this is the closest thing, however, this strategy really plays on the whole "nobody knows what is going to happen next" theory. I mean, look at GLD calls, they are ridiculously expensive. Everyone expects GLD to soar by 2013. But who knows what will really happen. It could be that TLT calls save the day, or even SPY.Adam1226 wrote:I don't think HB would approve, although it's an interesting idea. There's unlimited loss potential, in theory at least.clacy wrote: Has anyone here considered selling puts, rather than buying calls? If someone has the means to backtest options strategies, that might be interesting.
With put selling, you have time decay on your side, as well as the upward drift of the four asset classes together.
LOL, very true. I think we can all agree that Harry would not approve of much of what is posted on this website.Adam1226 wrote:I don't think HB would approve, although it's an interesting idea. There's unlimited loss potential, in theory at least.clacy wrote: Has anyone here considered selling puts, rather than buying calls? If someone has the means to backtest options strategies, that might be interesting.
With put selling, you have time decay on your side, as well as the upward drift of the four asset classes together.
It occurred to me that you may be able to pull this off just using SPY and TLT.Storm wrote: I'm beginning to think that short term options are better because you're not paying as much for the time value... The 2013 options really have a premium for time value that isn't present in a 90 or 120 day option.