leveraged etf leap puts

[Hester]

I am sure this has been discussed before but after doing a quick search I couldn't find anything.

Couldn't you just purchase LEAP puts, 2-3 years out, on a bear and bull 3X leveraged etfs, like faz and fas, to profit from price decay . I mean over a long period of time, say 2 or 3 years, decay should show a substantial profit on both etfs and with the leveraging aspect of options the profit should be more than worthwhile.

Also, If say the market crashes again and the bear etf increases by 1000% or whatever, the most you can lose is everything you invested with that put as opposed to with shorting, where you can lose a lot more than you invested. Also in that circumstance the profits from the bull etf should match the losses in the bear etf.

It just seems too obvious. Most everybody knows these things decay like crazy over time. I know there are no free lunches. I am probably missing something. Maybe the time decay in the options would match or exceed the etf price decay??

 

[rickf]

Quote from Hester:

I am sure this has been discussed before but after doing a quick search I couldn't find anything.

Couldn't you just purchase LEAP puts, 2-3 years out, on a bear and bull 3X leveraged etfs, like faz and fas, to profit from price decay . I mean over a long period of time, say 2 or 3 years, decay should show a substantial profit on both etfs and with the leveraging aspect of options the profit should be more than worthwhile.

Also, If say the market crashes again and the bear etf increases by 1000% or whatever, the most you can lose is everything you invested with that put as opposed to with shorting, where you can lose a lot more than you invested. Also in that circumstance the profits from the bull etf should match the losses in the bear etf.

It just seems too obvious. Most everybody knows these things decay like crazy over time. I know there are no free lunches. I am probably missing something. Maybe the time decay in the options would match or exceed the etf price decay??

I hear these Ultra ETFs are weird beasts to hold long-term...but I don't know enough about how these 2 or 3x ETFs (or their options) act as a result of the leverage to comment more intelligently, sorry.

I'll let more knowledgable options traders chime in on the greeks and all but in general, time decay is harmful to long option positions - but if you sold puts, you could see that outcome however with LEAPS you won't see any decent profits (only from time decay) for a few months, I think. Of course if the market tanks, those short puts will lose their value more quickly as well, meaning you keep more of the credit you took on for selling them.

As to your comment on shorting being more dangerous than options - if you know what you're doing, shorting can be just as safe as going long. It's all about risk management and your trading style.