Hi, I am going through similar research. My own goal is to limit the premium I pay to 2% of equity (no stops needed). The problem with very deep ITM options is that you might as well have direct exposure to the underlying as leverage gets less and less the more ITM you go. Aside from > .8 delta, what would be the best value ranges for the other greeks (for swing trading)?
Here's a good link suggesting that buying a greater quantity of debit spreads may be more efficient and profitable than a long option. http://evilspeculator.com/?p=6558 A big advantage with options for long underlying positions is the built-in disaster stop, especially when one trades larger size.
Thanks for the link. And yes, this is exactly the point. Even with futures, a large move can blow past a stop in no time (especially on Globex it seems). You never know when the next Oct 1987 is around the corner. This is a real risk for long term traders that many don't take into accout since it occurs so infrequently.
Leveraged ETFs: A Value Destruction Trap http://seekingalpha.com/article/31195-leveraged-etfs-a-value-destruction-trap
A new question (I am trading SPY options at this point), please : if I am trading a 10 lot, would it be advantageous to trade 2 x ES options instead ? I have never traded ES options & would be very interested to hear from anyone who has made this comparison and / or has practical experience of ES options. When running my strategy on both ES and SPY, the ES profit factor is slightly higher (I don't really understand why, but I have seen this with other strats as well).