LEAPS PP

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AdamA
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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.
"All men's miseries derive from not being able to sit in a quiet room alone."

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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). 
"All men's miseries derive from not being able to sit in a quiet room alone."

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Gosso
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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!

Happy New Year.
But what do I know?
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AdamA
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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. 
"All men's miseries derive from not being able to sit in a quiet room alone."

Pascal
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