I've read the life cycle investing paper from Ayres and Nalebuff. They prove that historically, younger folk leveraging themselves 2X to invest in the stock market had higher returns, even in the worst case scenarios.
The cheapest and easiest way to leverage you exposure to the stock market is to buy deep in the money call LEAPS.
However, I'm not too familiar with options (even though I have been investing for years, just never bothered with reading up on derivatives much).
I wish to only maintain 2X exposure to the S&P 500 when it is above say a 200 day moving average (for example). When S&P 500 drops below that SMA, move to government bonds (unlevered). Then get back in the market with 2X leverage again when S&P 500 moves above 200 day SMA again.
How exactly would I carry this out in practice? I am not sure if it is as simple as buying the LEAP call when going long the market and then selling it when going to bonds. Besides, wouldn't the bid-ask spreads eat me alive? Would I have to keep rolling the option contract to maintain a 12 month time to maturity or something (as I remember options behave differently as their time to expiry decreases)?
As you can tell, I have much to learn about options. I would really appreciate someone pointing me to a few good option books that cover this sort of stuff.
Thanks!
Submitted August 11, 2022 at 03:53AM by UDidNotSeeMeHere https://ift.tt/GNbkQpO
