More on my DITP Leap strategy

I recently delved into another book exploring the options strategy I previously mentioned: "Intrinsic" by Michael Yuen.

Yuen's take offers a fresh perspective compared to the original text. His analysis starts with a compelling statistic: If you were to randomly select any tech stock from the QQQ over the last 10 or 20 years, you'd have approximately a 75% chance of outperforming the S&P index. Even if we extend the horizon to 30 years, the stocks within the QQQ at the time would still have outpaced the S&P. The following forms the foundation of his approach – identifying stocks trading 5-10% below their 52-week highs, exhibiting a consistent upward trajectory over time, and possessing a competitive advantage or "moat." Yuen also emphasizes the importance of a tight breakeven point for the deep in the money (DITM) LEAP options he targets, ideally within 5% or less above the current stock price. He will go to 10% if that is all that is available. He favors DITM LEAPs with a delta near one and expiration dates of two years or more.

The brilliance of this strategy lies in the math. The call options are cheaper than purchasing the stock outright but capture the same dollar gains. For instance, if the option premium is $25 and the stock is priced at $40, a $10 increase in stock price results in a 40% profit for the option holder versus 25% for the stockholder.

Of course, the downside risk is amplified in declining markets, but given historical market trends and the multi-year horizon of this strategy, it often outpaces the S&P significantly. Despite its apparent advantages, one might wonder why this strategy isn't more widely adopted.

 

Wouldn't one be better off merely purchasing QQQ (instead of a random tech stock) and get a 100% chance of outperforming the S&P index? -- Seems this is getting into the weeds needlessly? - To be honest, I did not look, just noting performance of SPX (SPY) VS QQQ historically. -- kneejerk response post

 

How about after the Y2K dotbomb, Nasdaq took way longer than S&P to come back. It was so long ago (j/k) the QQQ's were - the QQQQ's - if any you old "geezers" like myself remember?

 

I don't know for sure, but I think it is the tech. stocks in the qqq that have done the best. You can do whatever analysis you know, and pick the best of them.

 

Guess you are too young to remember but the Y2K dotbomb Nasdaq collapse was all about Tech Stocks.

 

I remember. The nasdaq was down 80%. The strategy can be used on any stock, or even any ETF. The Shiller PE is the third highest in history, so perhaps, now is not the time to use the strategy.