Options

[Peticolas]

What are your thoughts on using deep-in-the-money (DITM) options to represent portfolio positions? By DITM, I mean options with a delta very close to or at 1. This strategy allows for exposure equivalent to holding shares, while the money saved by not buying the equities or ETFs could be invested in GSY to earn 5.5%.

This approach isn’t feasible for small portfolios. For example, one call option on NVDA represents an almost $100,000 exposure to the stock. Additionally, the execution price on the option might not be as favorable as on the equity or ETF. However, I believe the returns from GSY would more than offset this difference.

I’ve noticed some of you use options in your portfolios, so I wanted to ensure I’m not overlooking any important considerations.

[Frank1 Grossmann]

This is no problem as most of the top companies in the Nasdaq strategy have very liquid options. You can also write ATM (at the money) options in stead off writing nearly Delta 1 DITM options. This gives you a nice downside buffer. If you write 30 day DTE options you can let them expire around the normal rebalancing date.

[Peticolas]

Thanks Frank. That makes sense. Generally better to sell options than to buy. And if the delta on my DITM calls declines, I would see theta decay.

[Author]

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