This month’s strategy is buying yearly index long call options. You can follow the link to see how this strategy has played out historically.
The idea behind this strategy is to buy an index option that’s a little more than 12 months out, so that any profits will be long term capital gains rather than short term.
Options in this strategy are purchased 5% In The Money. This is a trade-off between purchasing the options At The Money, which has a higher time premium but doesn’t have exposure to intrinsic value loss, and buying options deeply In The Money, which have a lower time premium but do have exposure to substantial intrinsic value loss. Options could also be purchased Out of The Money, lowering the option premium, but then profit is only made if the index rises by more than the sum of (percent Out of The Money + option premium). I’ve found 5% In The Money to be a reasonable trade-off.
As always, I appreciate all the emails I receive to discuss stock (/ option) trading, so if there’s anything you’re interested in please send me an email:
joseph AT StockMarketMovement.com