I'm wondering if this is at all tradable in real life? So I have this "market breadth" filter that can "tell" me when it's worth being long in SP. It doesn't to much without leverage but it seems like it can avoid some largish drawdowns. In fact, I would need 2.8 leverage to get drawdown the same as in SP. So I'm wondering how can I go long at 2.8 without taking too much risk. I'm leaning towards slight OTM calls here. At the moment of buying I would have delta high enough to make it equivalent to 2.8x my capital. If market goes up - delta gets higher, if I'm wrong and market goes down - delta gets lower + I would probably recover some value by increased IV. Any thoughts?
The market rallied about 33% since April and is at all-time highs, and yet you're thinking about buying calls consisting only of extrinsic value to reduce large drawdowns? Below is how the strategy looks like
How does increased IV help your calls if price drops? Price drops, delta dies, and IV’s tiny pop won’t cover the damage.
It certainly won't. But I've seen IV increase just before the end of the session, which may help my (hypothetical for now) position. Any other ideas apart from just futures with leverage?