Dollar cost averaging 2014 SPY Calls. Great long term strategy?

Discussion in 'Options' started by optionnew, Oct 30, 2011.

  1. I'm thinking about somthing new. Spend $5,000 every month buying SPY 150 Leap calls that expire 2014. When SPY will be high, $5000 would buy less calls. When SPY will be low a lot more calls will be purchased reducing my average dramatically.
    At any point once the value of the calls is more then 50% of my average, I sell everything & start over again.
    In 9-12 months I would start using the 2015 calls instead of the 2014 (roll over) to minmize time decay effect.
    Is this a good long term strategy?
  2. If it is a raging bull market with low IV, then I might hear you out.
  3. What's if its volatile market? Volatility helps when it comes to lower your average cost.
  4. spindr0


    You won't be able to minimize time decay by rolling. The first month's purchase will lose more than 50% of value in the year before 2015's are available.

    I'd be more comfortable with offseting some cost by taking in some premium (verticals, calendars, etc.) but you'd regret this if the SPY powered up.

    I'd also feel more comfortable initiating something like this after a prolonged down move... not after gaining 20+ pts in a month. Or doing it with puts if SPY 10-15 pts highter and another correction starts (problems with Greece, China, double dip, etc.)

    Short answer is: great strategy if the SPY goes up nicely. Lousy if it stagnates or declines.
  5. More money than sense. Troll thread. Yeah, do it, it's an awesome idea.
  6. newwurldmn


    At least he had re-posted.

    I think it's a bad idea also. What are you trying to accomplish that you couldn't by doing the same thing with stock?
  7. Did some backtesting, you are right. Too complicated & no big advanatge.
  8. I know this is a troll post. :D
  9. Better is to wait 12 months from any previous S&P high if S&P breaks 20% lower from that high (confirmed bear). Plot 12 months from that confirmed high and begin cost averaging from that projected date for 12 months ONLY if market has made new 52 week lows at that point. Then hold for 24 months and scale out. This outperforms 99.9% of all managed funds and the s&p.

  10. Can you explain in more detail what you are saying with some examples?
    #10     Oct 31, 2011