Vertical Spreads for Aggressive Growth
- Thread starter Cache Landing
- Start date
10 SPY 130/132 @ 0.50
Return @ Expiry (net commiss.)= $500 - 25 = $475
ROM 31.7%
1 SPX 1300/1320 @ 0.40
Return @ Expiry = $400 - 2.5 = $397.5
ROM 24.8%
1 SPX 1300/1320 @ 0.45
Return @ Expiry = $450 - 2.5 = $447.5
ROM 28.9%
If we assume round trip then SPY has less advantage. Assume the short is bought back at 0.05 in both cases and not held to expiry.
10 SPY @ 0.50 = $450 - 37.5 = 412.5
ROM 27.5%
1 SPX @ 0.40 = $395 - 3.75 = 391.25
ROM 24.5%
1 SPX @ 0.45 = $445 - 3.75 = 441.25
ROM 28.5%
So if we assume an early exit and a better fill on the SPX, then SPX is slightly better. But, then we have to consider the idea that SPY technically don't qualify for 1256 treatment. (I'm not looking for an arguement on that point.)
Held for worthless expiry after tax (approx 27% tax rate):
SPY 0.50= (0.73)*(475) = $346.75
SPX @ 0.40= (0.6*0.85*397.5)+(0.4*0.73*397.5)= $318.80
SPX @ 0.45= (0.6*0.85*447.5)+(0.4*0.73*447.5)= $358.9
So if we make some simple assumptions we can come to the following conclusions:
If you are going to close out early then SPX is probably better. If you plan on holding through expiry, then a crappy fill on SPX makes SPY the better choice even though you lose most of the advantage to taxes. My argument has always been that taxes aren't paid immediately so you should do what makes the most money right now, as that leads to better compounding up until tax time.
Quote from momoneythansens:
And Cache, I saw your post. Not sure why you deleted LOL. I have a no touch at 1290 but the position is minor and semi-auto-hedged. I wouldn't buy a touch - they are too expensive IMO. That's why I sell them instead
[EDIT: Went flat on futures, was making a play for the break-through 1280 Cash. Alas, wasn't sustained.]
MoMoney. [/B]
I wrote it because I thought Rally had referred to a no-touch. When I saw that he said "touch", I deleted the reply. I didn't think you really did have a no-touch. LOL
I think going flat on the futures was a smart decision for now. Too much risk to hold over the weekend.
{edit} BTW, I will still respect you when your 1290 "no touch" is hit next week. LOL :eek:
Minor addendum: SPY trading at 1 or 2 points premium to equivalent SPX cash value so spreads not quite true apples to apples...but close enough.
Good point. Sometimes the difference between the two is large enough to make a difference. Also, since we are on the subject, when trading SPY one must consider the dividend.
Also, in light of compounding, the benefits of losing very little on an early close makes SPX a big favorite for me. I would only use SPY to hedge an SPX position, but since I don't really hedge, I guess I wouldn't really ever use it.
Quote from Cache Landing:
2330% annualized
...ahhh...if only it were really that easy.
I might have a couple obstacles to overcome this year. There is a chance that the market could be changing directions right now. This makes the ATM positions much harder because I will be fighting those changes. We have seen a fair amount of whipsaw action lately. The OTM/FOTM positions will likely still be ok, as they have a little (or sometimes big) cushion.
I made 2.9% this month..my first time actually investing in stock...thought i did good...but apparently not =)
If you got 2.9% your first month then you are on track. Just read through many of the threads here and learn from others' mistakes, that way you won't ruin a good thing.
When I first started trading options the intial growth was parabolic. I'm talking doubling the account every couple/few weeks. I was taking huge risks and then one finally caught up with me. That was a reality check. You should spend a good part of your time learning how not to blow up an account while maintaining your 3-5%/month (assuming you're satisfied with that grwth rate).