Is anybody using LEAPS to trade the SPY long term. This seems like a way to limit risks with options (to 2% without using stops) while at the same time not being that badly exposed to theta risk.
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Using LEAPS for long-term SPY trading?
- Thread starter short&naked
- Start date
First of all, every options decays, you are paying theta, period.
Leaps are a great stock substitute. But you should only buy them deep in the money IF it's a stock substitute, 87 delta or higher. You can also sell front month out of the money calls against your leaps to offset theta and generate some income. However, if IV continues to drift lower, you could lose more than you think even if the stock is stagnant.
One more thing, if the calls are thinly traded, the bid/ask spreads are gonna be wide, so be patient for your price.
Leaps are a great stock substitute. But you should only buy them deep in the money IF it's a stock substitute, 87 delta or higher. You can also sell front month out of the money calls against your leaps to offset theta and generate some income. However, if IV continues to drift lower, you could lose more than you think even if the stock is stagnant.
One more thing, if the calls are thinly traded, the bid/ask spreads are gonna be wide, so be patient for your price.
Quote from coveredballs:
First of all, every options decays, you are paying theta, period.
Leaps are a great stock substitute. But you should only buy them deep in the money IF it's a stock substitute, 87 delta or higher. You can also sell front month out of the money calls against your leaps to offset theta and generate some income. However, if IV continues to drift lower, you could lose more than you think even if the stock is stagnant.
One more thing, if the calls are thinly traded, the bid/ask spreads are gonna be wide, so be patient for your price.
Hi,
Thank for the answer. This would apply only to SPY since it seems to have the most liquid LEAPS. Since in the beginning LEAPS don't decay that quickly I was thinking that it would provide plenty of time for a multi month long trade on the SPY with say a DEC 11 call.
The idea would be to limit the premium paid to 2% of account equity thus baking the mopney management right into the position... no need for stops.
The issue of bid/ask spreads, however is something to consider.
If it's not an I gotta have this position right now, try to split the bid/asked for a better fill on those options with wide spreads.