LEAPS PP

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Re: LEAPS PP

Post by AdamA » Tue Oct 23, 2012 9:08 am

Storm wrote:
AdamA wrote: I'd sell and rebuy similar options with later expiration dates...
I like this idea - how far out would you buy?  I think I would buy a 50/50 SPY/TLT split this time as well (and then sit in awe as GLD surely jumps... lol).
This to me is just like making complicated bets at a craps table.  i.e., you're still probably going to lose.

Why not just take the relatively small loss before time decay really starts to eat up your positions?  
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Re: LEAPS PP

Post by Storm » Fri Jan 04, 2013 9:30 am

This is an embarrassing chapter for my investing experience.  I ended up with a >25% loss on these positions.  Variable Portfolios teach humility, that is for sure.

My suggestion to you - don't use options-based PP.  Personally I won't do this in the future.  Perhaps losing this small amount of money (relatively speaking, a few thousand dollars still seems like a lot of money to me!) will teach me to stay humble and keep all of my money in the PP, rather than gambling with some of it.
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Re: LEAPS PP

Post by AdamA » Sat Jan 05, 2013 1:40 pm

Storm wrote: This is an embarrassing chapter for my investing experience.  I ended up with a >25% loss on these positions.  Variable Portfolios teach humility, that is for sure.

My suggestion to you - don't use options-based PP.  Personally I won't do this in the future.  Perhaps losing this small amount of money (relatively speaking, a few thousand dollars still seems like a lot of money to me!) will teach me to stay humble and keep all of my money in the PP, rather than gambling with some of it.
Honestly, 25% doesn't seem like that big of a loss for an options based portfolio (I'd expect a lot of volatility). 

What was your exact strategy again?

Just curious.
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Re: LEAPS PP

Post by Storm » Sat Jan 05, 2013 6:11 pm

AdamA wrote:
Storm wrote: This is an embarrassing chapter for my investing experience.  I ended up with a >25% loss on these positions.  Variable Portfolios teach humility, that is for sure.

My suggestion to you - don't use options-based PP.  Personally I won't do this in the future.  Perhaps losing this small amount of money (relatively speaking, a few thousand dollars still seems like a lot of money to me!) will teach me to stay humble and keep all of my money in the PP, rather than gambling with some of it.
Honestly, 25% doesn't seem like that big of a loss for an options based portfolio (I'd expect a lot of volatility). 

What was your exact strategy again?

Just curious.
I bought at the money call options about 16 months to maturity.  1/3rd each of SPY, TLT, and GLD.  My SPY options ended up making about 100% profit, while the other two made about 80% losses.  The idea was to keep them at least 1 year so that any gains would be long term.
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Re: LEAPS PP

Post by AdamA » Sat Jan 05, 2013 6:39 pm

Storm wrote:
AdamA wrote:
Storm wrote: This is an embarrassing chapter for my investing experience.  I ended up with a >25% loss on these positions.  Variable Portfolios teach humility, that is for sure.

My suggestion to you - don't use options-based PP.  Personally I won't do this in the future.  Perhaps losing this small amount of money (relatively speaking, a few thousand dollars still seems like a lot of money to me!) will teach me to stay humble and keep all of my money in the PP, rather than gambling with some of it.
Honestly, 25% doesn't seem like that big of a loss for an options based portfolio (I'd expect a lot of volatility). 

What was your exact strategy again?

Just curious.
I bought at the money call options about 16 months to maturity.  1/3rd each of SPY, TLT, and GLD.  My SPY options ended up making about 100% profit, while the other two made about 80% losses.  The idea was to keep them at least 1 year so that any gains would be long term.
How close to expiration did you sell them?
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Re: LEAPS PP

Post by Storm » Sat Jan 05, 2013 9:51 pm

AdamA wrote:
Storm wrote:
AdamA wrote: Honestly, 25% doesn't seem like that big of a loss for an options based portfolio (I'd expect a lot of volatility). 

What was your exact strategy again?

Just curious.
I bought at the money call options about 16 months to maturity.  1/3rd each of SPY, TLT, and GLD.  My SPY options ended up making about 100% profit, while the other two made about 80% losses.  The idea was to keep them at least 1 year so that any gains would be long term.
How close to expiration did you sell them?
About 3 weeks to maturity.  I was originally planning on selling them earlier but congressional stupidity made me think that it would be better to hold off on selling them while the market was temporarily down due to the fiscal cliff.

This experience has taught me that I really dislike any investment that has a time decay.  I hate the feeling that you can either take a loss now, or wait and take a bigger loss (let it ride, so to speak) later.
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Re: LEAPS PP

Post by AdamA » Mon Dec 30, 2013 10:00 am

So, I setup a real money options PP last year on December 28th.  Just sold the positions.  Here are the results for anyone interested.

It's really fun to watch these positions.  They are very volatile, but definitely "gyroscopic" as a whole.

All positions were at the money when I purchased. 

Initial (Dec 28, 2012)                                      Final (Dec 30, 2013)

SPY Jan 2015 Expiration---$1442                    $4363                                    Strike Price  $141
TLT  Jan 2015 Expiration--$1470                      $21                                                          $124
IAU  Jan 2015 Expiration--$1367                      $31                                                          $17

Total--$4280                                                    $4415


Gain--$135.17
Tax (15% capital gains)---$20

Net--$114. 
2.7% Gain

(commissions were included)

I thought it was cool that this portfolio had a gain (albeit small) in a year that the PP was down a little.

I also thought it was cool to watch the stock position completely carry the portfolio. 
Last edited by AdamA on Wed Jan 07, 2015 5:26 pm, edited 1 time in total.
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Re: LEAPS PP

Post by MachineGhost » Fri Apr 11, 2014 2:49 am

AdamA wrote: I thought it was cool that this portfolio had a gain (albeit small) in a year that the PP was down a little.
The increase in options implied volatility accounted for the gain.  That may actually be a boon for using options so long as you don't buy or rebalance when the volatility is high.
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Re: LEAPS PP

Post by AdamA » Wed Jan 07, 2015 5:00 pm

So I did this again this year.  Very good results for 2014.

All positions were at the money when I purchased.  (Had to sell a little early because I needed the money, but I don't think it effected performance that much outside of the taxes).


Initial (Dec 30, 2013)                                        Final (Nov 18, 2014)                                                                                            Gain/Loss

SPY  Jan 2016 Expiration---$3227                      $5439                                        Strike Price 183            2 contracts                      +69%   
GLD Jan 2016 Expiration---$2977                      $1585                                        Strike Price 116            2 contracts                        -46%
TLT  Jan 2016 Expiration---$3224                      $10,462                                    Strike Price 102            6 contracts                      +225%

Total---$9428                                                    $17,486


Gain---$8058 
            85% Gross gain


Tax (28% short term capital gain tax)---$2256

Net---$5802
          62% Net Gain


(commissions were included).

     
Very fun to watch this from week to week, especially TLT. 

I just bought 2017 positions.  Will post again next year.
Last edited by AdamA on Wed Jan 07, 2015 5:26 pm, edited 1 time in total.
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Re: LEAPS PP

Post by MachineGhost » Wed Jan 07, 2015 11:46 pm

Cool.  So far you've been doing this during periods of relative low volatility right?  Have you ever bought the LEAPs during a period of high volatility?  Also, how have the gains been compared to the leveraged ETFs?
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Re: LEAPS PP

Post by AdamA » Thu Jan 08, 2015 7:16 am

MachineGhost wrote: Cool.  So far you've been doing this during periods of relative low volatility right?  Have you ever bought the LEAPs during a period of high volatility?  Also, how have the gains been compared to the leveraged ETFs?
Good questions.

I've done this for only two years, each time buying and selling in late December, so, no, I haven't experienced much volatility just yet. 

I'm not sure how they compare to a leveraged ETF PP. 

I wish I knew of a way to backtest this strategy a bit.

I do this mostly just for fun.
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Re: LEAPS PP

Post by Gosso » Thu Jan 08, 2015 9:48 am

Congrats, Adam!

One thing to keep in mind is that the leverage for at-the-money Jan '17 options on SPY, GLD, and TLT is roughly 5.0x, 4.6x, and 8.1x, respectively.  So to balance the leverage you'd need to go in-the-money a bit for TLT, or lower your weighting of TLT options.  Otherwise the LEAP PP will live and die by the TLT options, which thankfully worked out well over 2014.

How was your trade execution?  Were you able to do better than the bid/ask prices (I'm seeing spreads of between 8-10%)?
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Re: LEAPS PP

Post by AdamA » Thu Jan 08, 2015 10:58 am

Gosso wrote: Congrats, Adam!

One thing to keep in mind is that the leverage for at-the-money Jan '17 options on SPY, GLD, and TLT is roughly 5.0x, 4.6x, and 8.1x, respectively. 
Very interesting.  This multiple changes, correct?

Do you think that in 2013 (the numbers are a few posts back) if I would have adjusted the weightings, I would have had a better result?  The SPY call did pretty well that year.  TLT and GLD were almost worthless at the time I sold them. 
How was your trade execution?  Were you able to do better than the bid/ask prices (I'm seeing spreads of between 8-10%)?
The spreads are steep.  I didn't calculate percentages, but the numbers include everything (commisions, bid/ask, etc). 
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Re: LEAPS PP

Post by Gosso » Thu Jan 08, 2015 11:26 am

AdamA wrote: This multiple changes, correct?
Yep, it is dependent on the implied volatility (IV), but in general TLT will have a lower IV so it will provide more leverage per dollar invested.
AdamA wrote: Do you think that in 2013 (the numbers are a few posts back) if I would have adjusted the weightings, I would have had a better result?  The SPY call did pretty well that year.  TLT and GLD were almost worthless at the time I sold them. 
Assuming the leverage ratio in my post from August 2012 was also true on Dec 31, 2012, then the weightings would have been 33% SPY, 47% GLD, and 20% TLT.  Since you already had SPY at 33% and it was the only profitable option then changing the weighting wouldn't have mattered since you already had 33% in SPY.
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Re: LEAPS PP

Post by Kbg » Fri Jan 09, 2015 7:31 pm

Gosso wrote: Congrats, Adam!

One thing to keep in mind is that the leverage for at-the-money Jan '17 options on SPY, GLD, and TLT is roughly 5.0x, 4.6x, and 8.1x, respectively.  So to balance the leverage you'd need to go in-the-money a bit for TLT, or lower your weighting of TLT options.  Otherwise the LEAP PP will live and die by the TLT options, which thankfully worked out well over 2014.
How are you calculating this?
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Re: LEAPS PP

Post by Gosso » Fri Jan 09, 2015 9:17 pm

Kbg wrote:
Gosso wrote: Congrats, Adam!

One thing to keep in mind is that the leverage for at-the-money Jan '17 options on SPY, GLD, and TLT is roughly 5.0x, 4.6x, and 8.1x, respectively.  So to balance the leverage you'd need to go in-the-money a bit for TLT, or lower your weighting of TLT options.  Otherwise the LEAP PP will live and die by the TLT options, which thankfully worked out well over 2014.
How are you calculating this?
(Strike Price x Delta) / Option Price = Estimated Leverage

So if we use Jan '17 at-the-money options for SPY we get the following:

(205 x 0.5) / 19.05 = 5.4x leverage

This is only an estimate since implied volatility will play a huge part in determining how well the option performs.  There is also time decay which will erode the option price.
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Re: LEAPS PP

Post by AdamA » Sat Jan 10, 2015 9:56 am

Gosso wrote: There is also time decay which will erode the option price.
That's why I use the longest LEAPS possible (2 year) and sell them after one year.  I think this protects a little better against a stagnant year for all three asset classes. 

If you used just a one year call, and the markets didn't really move, you could potentially lose all of your money.  Having a year buffer offers some protection against this. 
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Re: LEAPS PP

Post by Kbg » Sat Jan 10, 2015 11:07 am

Gosso....thanks. Easy enough. Asymmetric leverage just fascinates me as a trading approach. Adam's 2014 results are a great example as well as the stuff I've been posting about using leveraged ETFs in the VP section. I think Adam's timing makes a lot of sense as well because if you are going to pick one time of the year to buy options it is Dec/Jan historically. Likely not profitable but it would be interesting to see what simply buying both sides (call/puts) would do if getting that kind of leverage.
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Re: LEAPS PP

Post by Kbg » Wed Jan 14, 2015 7:39 pm

Proof you shouldn't believe everything you read. This is three years folks.

http://stockcharts.com/h-sc/ui?s=QQQ&p= ... 5821112739

Yeah, the "decay" has been just awful.
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Re: LEAPS PP

Post by AdamA » Thu Dec 31, 2015 3:32 pm

Rough 2015!

All positions were at the money when I purchased.

Initial (Jan 7, 2015)                                        Final (Dec 30, 2015)                                                                                            Gain/Loss

SPY  Jan 2016 Expiration---$2115                      $1764                                        Strike Price 200          1 contract                        -17% 
GLD Jan 2016 Expiration---$2673                      $475                                          Strike Price 116          2 contracts                      -82%
TLT  Jan 2016 Expiration---$2540                      $862                                          Strike Price 130          3 contracts                      -66%

Total---$7328                                                    $3102


Gain:  -58%

I am optimistic about next year, and put in more money than usual. 
Last edited by AdamA on Thu Dec 31, 2015 4:43 pm, edited 1 time in total.
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Re: LEAPS PP

Post by Cortopassi » Thu Dec 31, 2015 4:10 pm

Just saw this thread for the first time, ahhh, options, my true love and nemesis. 

I will have SLV, GDX, and GDXJ LEAPS all expiring next month which I bought 2 years ago under the assumption "they can't go any lower!"

All are massively underwater and have zero value.

I see from your previous post you were up well for the 2014 year.  And down for the latest.  Par for the course.  I've tried selling calls, doing crazy spreads (butterflys, iron condors, etc) selling puts, and on and on.  Exciting for a while, but almost always ending up negative.

About the only thing I'd consider calls for is to cover the down side and buy puts.  But that is a high insurance cost when things don't go down.  Of course you always regret not doing it when things do go down!

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Re: LEAPS PP

Post by AdamA » Thu Dec 31, 2015 10:31 pm

Cortopassi wrote:

I will have SLV, GDX, and GDXJ LEAPS all expiring next month which I bought 2 years ago under the assumption "they can't go any lower!"

All are massively underwater and have zero value.

I see from your previous post you were up well for the 2014 year.  And down for the latest.  Par for the course. 
It's mostly just a fun experiment for me.

I don't really try to pick a winner.  I just buy at the money LEAPS on all of the PP positions (except cash).  It doesn't take much for one to double or triple. 
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Re: LEAPS PP

Post by var » Thu Jan 07, 2016 11:59 pm

Interesting strategy Adam. 

Had a few questions and idea  At some point was this up greater then 30 pct for the year?

I think I might implement this Tlt and spy. 

Issues with leaps volatility is so important when you place order
You might want to leg in next time.

Take my opinions with a grain of salt i usually use spread and not straight calls

Buying when volatility of leaps is cheap. Other wise don't use the strategy at the time.
Also usually it's best to buy calls on dips.  Give u a margin of error.
So buying a pull back on Tlt or spy.  Then selling when you make 50 pct.  get out early.
Because you always have to worry about time decay.

I think you need to use charting time your entrances, options I don't think fit well into a mechanical strategy. 

Sorts interesting concept.  Leverged etf might be better in high volatility. 

another thing i like to do sometimes is use a synthetic long.  Sells some puts.  To pay for the calls. 

Just some thoughts. 


AdamA wrote: Rough 2015!

All positions were at the money when I purchased.

Initial (Jan 7, 2015)                                        Final (Dec 30, 2015)                                                                                            Gain/Loss

SPY  Jan 2016 Expiration---$2115                      $1764                                        Strike Price 200          1 contract                        -17% 
GLD Jan 2016 Expiration---$2673                      $475                                          Strike Price 116          2 contracts                      -82%
TLT  Jan 2016 Expiration---$2540                      $862                                          Strike Price 130          3 contracts                      -66%

Total---$7328                                                    $3102


Gain:  -58%

I am optimistic about next year, and put in more money than usual.
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Re: LEAPS PP

Post by AdamA » Fri Jan 08, 2016 8:26 am

var wrote:
Had a few questions and idea  At some point was this up greater then 30 pct for the year?
Thanks for your interest.  I've been dying to discuss this with someone!

For the last 3 years the returns were 3%, 85%, -58%.

Because options obviously expire, it's not like you can just stay the course when the portfolio is down 58% and wait a decade for things to improve like you can do with traditional investments (although even that is challenging for most people).  When the options expire, you obviously have to have more cash to put into the portfolio to attempt to make up for the loss.

For these reasons (the large downside volatility and the time pressure that come with options) I don't treat this like a normal investment portfolio where you invest 'X' dollars year one and buy and hold re-investing what this 'X' dollars becomes from year to year.

I usually just put in  $5-6K a year.  If the actual underlying permanent portfolio (not the options portfolio) has a bad year, then I double or triple the money I put in the following year (depending on how much cash I have available), the idea being that after a bad year one of the three components is more likely to catch fire. 

The idea here is to catch a rally in one of the three components, and if you look back at Craig's performance data you can see that it's not uncommon for one of them to have a year where they're up 20-30%.  More than makes up for losses in any of the other components during that year.  I might start doing it only years in which the underlying PP has had lackluster performance. 

I realize this isn't a very rigorous analysis, but it's too hard to backtest this and I do it mostly for fun. 
var wrote: ...get out early, Because you always have to worry about time decay.
Time decay really isn't as much of an issue with these as you'd think.  I buy these with two years to expiration and sell them with a year left.  Most of the time decay of an option occurs in the last 6 months before expiration.  Also, I like to hold the positions for over a year for tax purposes (it might be a good idea to actually do this within in an IRA to eliminate the tax issue, but I consider money in retirement funds sacred and don't like to gamble with it).
var wrote:
I think you need to use charting time your entrances, options I don't think fit well into a mechanical strategy. 
I just don't believe in this in general.  I don't think it works with any investment.  Impossible for the average investor to time their investments. 
var wrote:
another thing i like to do sometimes is use a synthetic long.  Sells some puts.  To pay for the calls. 
Ideas like this sound good, but in my opinion ultimately just cap the upside of the portfolio.
var wrote:
I think I might implement this Tlt and spy. 
This I think actually might be a good idea because SPY and TLT have more of a yin-yang relationship with one another than they do with gold.  It would just drive me too nuts to miss out on a big gold rally though, so I keep it.  I've thought about switching to a gold mining ETF. 
var wrote:
Leveraged etf might be better in high volatility. 


I agree.  The thing is that they aren't all available as LEAPS.  I did manage to set something close up in an educational account once, but it didn't really seem to perform much better or worse than the original, but I was lazy about it and didn't follow it for very long, so who knows. 
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Re: LEAPS PP

Post by var » Fri Jan 08, 2016 10:11 am

hi adam,

this my humble opinion... i do love the PP... however i think gold is dead i dont think it will rise again for at least 10 years... i can say that because this the variable portfolio...
i believe gold was useless around 2013... so if you took gold out your strategy i think your loses would have less.

yes you could do something simple like if spy down -10% jump in...


>Time decay really isn't as much of an issue with these as you'd think.  I buy these with two years to expiration and sell them with a year left.  Most of the time decay of an option occurs in the >last 6 months before expiration.  Also, I like to hold the positions for over a year for tax purposes (it might be a good idea to actually do this within in an IRA to eliminate the tax issue, but I >consider money in retirement funds sacred and don't like to gamble with it).

well i should really clarify you time decay and volatility implosion.....

if you have stockcharts.com account you chart $vix...  you buy when vix is under 12-12.5....  cause options will be dirt cheap then
2 things can make your options go up volatility.... and underlying price move....

so you need to factor in volatily...if i made enough gain... i am sure you watch it monthly or whatever...just cash in...
cause if volatility crashes you'd lose alot gain.

every time i bought a spy leap... (which is not too often) it usually moves like crazy when volatility moves up... you can check it with greeks... i dont want to get into a complicated options discussion...
long story short.... VOLATILITY moves LEAPS or any other long dated option.


>>I just don't believe in this in general.  I don't think it works with any investment.  Impossible for the average investor to time their investments. 

will see just for fun.. i jumped into 3k of UBT today....leg 1.... (which is a little late according to my charting...) yes its true for avg investor its hard to use charting....
i no expert... but its been working for me... support and resistance etc....

at some point when charts look good i'll buy some UPRO 2k UPRO to match... then sell it like 5 months so experiment... for fun of course..

when i mean't leverage ETF, i meant just buying them so i didn't have to worry about expiration... the only worry was UBT low trading volume... i guess it could close up at some point if it declined far enough...


>Ideas like this sound good, but in my opinion ultimately just cap the upside of the portfolio.

It actually makes it safer... you need to understand how naked puts selling work...  but its probably not something for the avg investor..
Its also not something i recommend avg investor due, you really need to study understand options before you try it...

i think keep it simple is the way to go with this strategy so i am going with UPRO and UBT.... or UPRO  or buy 3x TLT.....


>Time Decay....

yeah my only problem in a normal PP spy doesn't waste away into nothing.... so u need to buy more calls in a year?.
i guess you can rebalance more frequently....

my thoughts in a long enough time period 3yrs or so...

TLT or SPY is going to up or you'll be back to even....

the only time i am buying GLD if the banks collapse again....or some major disturbance in the US financial arena....
looking in hindsight...it looks like the USA.... single handedly pulled the world out of depression... and bernake was right to all the money to get us out....
Full disclosure: i was totally wrong... i thought gold was going to go up till at least 2020.... i had the opposite view....

anyways i really like your strategy... you have balls just for even trying it!!!  that goes for anyone else who tried it, i didn't read the full thread...

i trade options mostly.... then i got Mutual funds for the rest... i use charts alot too...  right now i don't even look at the finance news which seems to be working for me...
that's my stock trading background...

hopefully you keep us posted monthly on your option progress... and i'll keep up the notes on the leveraged ETF use.... 
this should keep the variable portfolio forum interesting!!

-var
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