LEAPS PP

A place to talk about speculative investing ideas for the optional Variable Portfolio

Moderator: Global Moderator

var
Associate Member
Associate Member
Posts: 29
Joined: Thu Jan 07, 2016 11:12 pm

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.
User avatar
AdamA
Executive Member
Executive Member
Posts: 2311
Joined: Sun Jan 23, 2011 8:49 pm

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

Pascal
var
Associate Member
Associate Member
Posts: 29
Joined: Thu Jan 07, 2016 11:12 pm

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
User avatar
AdamA
Executive Member
Executive Member
Posts: 2311
Joined: Sun Jan 23, 2011 8:49 pm

Re: LEAPS PP

Post by AdamA » Sat Jan 09, 2016 8:20 am

var wrote: 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...
That may or may not be true.  But if you look back at the bear market of 80's and 90's, there were still years where gold had positive returns.
var wrote: Hopefully you keep us posted monthly on your option progress...


I'll post updates from time to time. 
"All men's miseries derive from not being able to sit in a quiet room alone."

Pascal
var
Associate Member
Associate Member
Posts: 29
Joined: Thu Jan 07, 2016 11:12 pm

Re: LEAPS PP

Post by var » Sat Jan 09, 2016 4:13 pm

when did you buy your new set of LEAPs for 2016?
User avatar
AdamA
Executive Member
Executive Member
Posts: 2311
Joined: Sun Jan 23, 2011 8:49 pm

Re: LEAPS PP

Post by AdamA » Sat Jan 09, 2016 6:53 pm

var wrote: when did you buy your new set of LEAPs for 2016?
December 30th.
"All men's miseries derive from not being able to sit in a quiet room alone."

Pascal
var
Associate Member
Associate Member
Posts: 29
Joined: Thu Jan 07, 2016 11:12 pm

Re: LEAPS PP

Post by var » Sun Jan 10, 2016 12:30 pm

AdamA wrote:
var wrote: when did you buy your new set of LEAPs for 2016?
December 30th.
hmm... vix was about 17... so premium might have been a little high...

so what the strategy just hold till next dec 2016 and sell?
var
Associate Member
Associate Member
Posts: 29
Joined: Thu Jan 07, 2016 11:12 pm

Re: LEAPS PP

Post by var » Sun Jan 10, 2016 12:34 pm

i back tested the spy and tlt 50/50 strategy with the simba spreadsheet... and it looks decent...

opinions?


i think with 3x ETF decent gains can be made.. or possible LEAPS...

but i think if i do LEAPS i would just be really careful wait to for the option
premium to erode before jumping in...
User avatar
AdamA
Executive Member
Executive Member
Posts: 2311
Joined: Sun Jan 23, 2011 8:49 pm

Re: LEAPS PP

Post by AdamA » Thu Jan 14, 2016 7:16 am

var wrote: i back tested the spy and tlt 50/50 strategy with the simba spreadsheet... and it looks decent...
With options???
"All men's miseries derive from not being able to sit in a quiet room alone."

Pascal
var
Associate Member
Associate Member
Posts: 29
Joined: Thu Jan 07, 2016 11:12 pm

Re: LEAPS PP

Post by var » Thu Jan 14, 2016 8:22 am

no just the looking at the mutual fund returns themselves..

with options no... will see if the opportunity presents its self i might jump in...
sk55
Full Member
Full Member
Posts: 59
Joined: Mon Apr 02, 2012 11:35 am

Re: LEAPS PP

Post by sk55 » Wed Feb 03, 2016 12:41 pm

AdamA wrote:
var wrote: i back tested the spy and tlt 50/50 strategy with the simba spreadsheet... and it looks decent...
With options???

adam

how are you long bond leaps doing?
User avatar
AdamA
Executive Member
Executive Member
Posts: 2311
Joined: Sun Jan 23, 2011 8:49 pm

Re: LEAPS PP

Post by AdamA » Sat Feb 06, 2016 3:36 pm

GLD position is up 56%
TLT position is up 49%
SPY position is down 49%

Altogether it's up around 19% for the year so far.
"All men's miseries derive from not being able to sit in a quiet room alone."

Pascal
Post Reply