The only problem is, I don't really understand how LEAPS work. I just know that they are some kind of call option. And how long? Can you get them for 10 or 20 years?pezblanco wrote: ↑Wed Mar 13, 2019 8:02 pm
The most basic strategy is just to leverage up stocks right? ... LEAPS are just long options on any index, not just the S&P500. I've been doing some calculations and basically you can borrow money using LEAPS for around 3.5% nominal right now. It is a little tricky to compute the borrowing rate since the dividends being paid in the future aren't known exactly (or guaranteed). So if inflation is 2.5% then you can borrow at 1% real. The S&P should give you at least 5% real (long term it has given 7% real) going forward from our high valuations. So, that gives you your 4% real cushion. Shouldn't you be pulling the trigger on this, Grayfox?
I did buy options once a long time ago, but have forgotten all the details about how they work. I also tried selling covered calls a couple of times. I just remember there was a pricing model that took into account how much time was left to go and how volatile the stock was.
What I don't get is how is buying options the same as borrowing money to buy stocks? I don't see how this two things are equated. Buying LEAPS sounds more like options trading than leveraging stocks. And which options do you buy? out-of-the-money, in-the-money? It seems like it would be a very complicated analysis.
The only reason I would be interested in LEAPS is because Zvi Bodie is behind the idea, and he is very wise professor and also promotes very low risk investing. So there must be something worthwhile to it.