LEAPS PP

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Re: LEAPS PP

Post by MachineGhost » Tue Oct 23, 2012 3:09 am

Storm wrote: Would anyone like to help me with an exit strategy?  Hold on and hope for some market movements, or just cut my losses now?  A few weeks ago I was looking at a slight (maybe 2%) profit.
Rule #1: Don't hold LEAPs at or below 6-months to expiration.
Rule #2: Don't forget Rule #1.

See if you can sell a Jan 13 call against it and achieve positive theta.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: LEAPS PP

Post by Storm » Tue Oct 23, 2012 7:05 am

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).
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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.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines.  Not that I'm complaining, of course." -ZedThou
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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.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines.  Not that I'm complaining, of course." -ZedThou
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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.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines.  Not that I'm complaining, of course." -ZedThou
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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.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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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?
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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