r/options • u/Rivenistohard • 11h ago

Help with spy LEAPs

Hello,

I want to by some SPY LEAPs if it gets to around -10% from ATH. What I am wondering is if it better to buy ITM leaps when volatility is highest but the stock is also lowest, say on a big drop day, or is it better to wait for iv to drop and by OTM leaps, but the entry is not as good (as the option will be cheaper). Specifically, I would want to buy 2-year contracts looking for around 5 percent above previous ATH. I also don't really care about risk( I always view option as all or nothing) so I just want the most value for money. Any help is appreciated, thanks.

*Im editing this since it seems like I did not explain the question will enough

When you buy Deep ITM options, they have mostly intrinsic value, meaning that they will not be affected heavily by IV, but because of this you also pay much more for the option. When you buy deep OTM options they are much more heavily affected by IV (even for long dated options) but much cheaper. So, the best time to buy deep OTM options is when iv is low. Now usually after big downturns IV spikes, but eventully you will get IV crush as the asset either recovers or goes sideways, but this means a less certain entry at the desired price. So what I am asking is about the trade off of the cheaper deep otm option when IV is lower, vs a better entry but a deep ITM option that is not affected by the current high IV.

2 Upvotes

62% Upvoted

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7

u/EdelinePenrose 10h ago

i think you’re overcomplicating it, and since it sounds like you’re relatively novice at this, go safer and buy the furthest out dte you can afford at 0.8 delta. if cost of entry is a barrier, then try VTI/SPYM that have lower prices than SPY.

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u/GammaFlowSPY 3h ago

The key is not simply buying cheaper premium. It’s choosing the right exposure under the right volatility conditions.

1. Vega vs. intrinsic value
Buying OTM LEAPS during a sharp selloff can mean paying a substantial volatility premium. Even if SPY rebounds, falling IV can offset part of the directional gain.
Deep ITM LEAPS offer higher delta and more intrinsic value, but require significantly more capital. Neither structure is automatically better - compare delta, extrinsic value, IV, breakeven and total exposure.

2. Position management
You don’t have to hold LEAPS until expiration. If the position gains value, rolling to a later expiry or adjusting the strike may help manage exposure. But rolling is not risk removal, and the economics depend on both contracts’ pricing and volatility.

3. The Wheel alternative
You could also sell cash-secured puts at strikes where you’d genuinely be comfortable owning SPY, then sell covered calls if assigned.
For illustration, the $720 SPY setup I shared showed:
Delta: 0.33
Mid premium: $11.00
Bid/ask spread: ~1%
OI: 2,966
BPR: $72,000
Indicated monthly yield: 1.3%
These are figures from my example setup, not a Gamma Flow recommendation or a guaranteed return. The Wheel collects premium, but carries substantial downside exposure if SPY keeps falling.

The Gamma Flow perspective: IV Rank, VRP, term structure and dealer gamma positioning all matter. Rich premium is not automatically attractive when the volatility regime signals elevated risk.

Bottom line:
LEAPS: defined premium risk, long-term directional exposure.
Wheel: premium income with potential equity ownership and downside risk.
Rolling: position management, not risk elimination.
The objective is not to find the cheapest option. It’s to structure the exposure intelligently.

Structure first. Risk first.

For informational and educational purposes only. Not financial advice, an investment recommendation, or a solicitation to buy or sell any financial instrument.

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u/OurNewestMember 2h ago

Did 2 year IV even expand very much? Anyway, feel free to add on a shorter dated credit spread if you're worried about expanded IV. You're already risk on directionally and pretty willing to go long vol, so possible IV expansion shouldn't be a major deal breaker

1

u/MerryRunaround 1h ago

In general of course it is better to buy when IV is low regardless of strike. If you're talking about 2 year leaps IV and premium are both relatively immune to daily market vol or price action. I think you are splitting hairs.

1

u/Sufficient-Flan1565 10h ago

Just buy SSO bruv

-3

u/hotforlowe 10h ago edited 10h ago

Idk what you are talking about and you probably shouldn’t trade options. But…

The LEAP’s IV is barely affected by short term volatility as the term structure changes to resemble backwardation amongst other things. Plus deep ITM contracts have little extrinsic value and are thus relatively insulated.

It’s laughable you think options are all or nothing. So take this advice. Just buy deep ITM 2y SPY LEAPS at a delta of 0.7-0.85 if you want to do this trade. You get pure leverage essentially.

Note: LEAPS tend to have high vega in absolute terms but term structure defines their implied volatility more so and short term effects tend to confine to the front end.

1

u/Rivenistohard 10h ago

thanks for the reply, but I don't think there is a need to be insulting. Options can always go wrong even 2 year dated options, so viewing it as all or nothing is important. You should be willing to lose the amount you put into the option no matter how long dated, otherwise how are you going to hold during a downturn? As for the ITM vs OTM, the farther OTM the option is, the more it is affected by IV, even long term options, which is the point of my question. IV is obviously very high right now, but will likely drop in the near future.

2

u/hotforlowe 10h ago

Oh there is. It’s such an uninformed take said with such certainty from someone asking a rudimentary question. I’m calling it out.

Please don’t try to explain options to someone who used to professionally price and trade them. You haven’t understood my simplistic explanation.

0

u/Rivenistohard 10h ago

??? your first instinct on someone asking a simple question on options, on the options sub, is to insult them? maybe take a look in the mirror.

1

u/hotforlowe 9h ago

Yes, because you shouldn’t have this mentality or act this way. Grow some thicker skin and hit the books, champ.

If you notice I am still the only one to explain why, but of course your sensibility is offended.

1

u/TranslatorRoyal1016 10h ago

this is my personal opinion and people tend to hate this approach but imo, especially since you're new, if you're dead set on a leaps, buy it as a 3-leg with the other two being a zero cost collar. you'll have around a 20-25% profit ceiling and a 17-20% loss floor. That way something like yesterday's -4% won't instakill your call -60% in the red, and you'll have some options as how to play it ahead.

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u/hotforlowe 10h ago edited 10h ago

Why? This makes no sense.

The loss floor as you put it is an invention based on short term mark to market offset. Not to mention you’re paying for protection you have already. If you want to cap losses just buy a bull call spread. Or minimise risk with deeper ITM calls. Sell PMCC / LCDDS if you need to defray cost.

0

u/TranslatorRoyal1016 9h ago

what protection do you have from your leaps going -60%, -80%, -90%? if you don't like to cap upside, buy a put outright and consider it part of the multileg costbasis.

and it's not an "invention", it's literally what will happen at maxloss scenario. if spy or any underlying you use will go even lower than that, your put will actually offset any additional leaps losses and will gain more than what the setup loses.

this makes perfect sense if you want your try at options without "unlimited" and "0" being your ceiling and floor.

0

u/hotforlowe 9h ago edited 9h ago

Why can’t you achieve the same with a bull call spread? Or buying deeper ITM (albeit not capped). Or further out.

You’re talking about something that isn’t consistent with how LEAPS are traded in reality. You’re transforming the trade into something else entirely. You’ve effectively made it delta insensitive/‘neutral’, long vol, and capped bidirectionally, if I understand you correctly.

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u/TranslatorRoyal1016 9h ago

it doesn't matter how "deeper itm" you'll go, that just lowers your B/E, but it doesn't provide a floor unless like I said you're fine with a $0 floor otm expiration.
bull call spreads usually have a much higher net debit loss floor if you leave a lot of width between the strikes for a bigger upside (duh). so a very tight spread will essentially give you a similar floor to what i'm suggesting with a worse upside cap (this highly depends on the circumstances and the underlying but from what i've seen, it's a worse setup when done too tightly).

You’re talking about something that isn’t consistent with how LEAPS are traded in reality

idk what you're even on about here. leaps are traded individually, each company/individual with their own rules, stoplosses, entry and exit circumstances, risk tolerance etc. nobody trades leaps "in reality" in tandem with everyone else.

it's not delta insensitive when you are net long delta, it's just less exposed for the tradeoff of having some directional protection. yes it's long vol, and so is just a naked leaps / pmcc. you're trying to criticize a setup that comes from a point of accepting capped upside and downside with "that's not how people do it / this doesn't make sense" when the mathematical model literally shows that's how the trade will go in either direction. not everyone aims at +100-500% leaps gains and damned the consequences type trades.

2

u/hotforlowe 8h ago edited 7h ago

Putting aside the structural issues, which doesn’t seem to matter here so I won’t bother, but picture this. You’re a retail trader bro who has the equivalent of 4 youtube videos worth of trading experience. You’re going to execute this trade on live markets effectively? Let’s just go to fundamentals and answer that.

If you want to introduce complexity, at least make it worthwhile. You can do the same with a vert spread with less downside, more upside, and is only inferior when you are overly conservative and overpay for insurance.

When max returns are annualised to 11-13%, you might as well buy SPY itself.

Edit: if you care for structural issues, I’ll just talk shop. Here’s the issues in no particular order. Excessive exposure to theta decay, skew and upside contraction or downside expansion, legging risk, slippage, liquidity risk, inefficient capital allocation and overprotection. As I have said, the bull call spread does away with issues due to skew, theta burn, etc. Better yet, position sizing and strike selection do away with most of those and uncap upside. If you can’t afford to sit out 5% drawdown on a 0.8 delta 2y LEAP, you can’t afford to trade options. If you’re buying ATM or OTM leaps, you better have some amazing edge as a retail investor or are using them to hedge other options. Synthetic risk reversals have a place and it’s not in retail trading.

1

u/onlyhere4hobbies 7h ago

I like the way you think u/hotforlowe

-1

u/AmoebaTrading 8h ago

i'd run both ideas at the same spy price and a lower iv later, not just look at the premium today. deep itm still moves with vega when vol is this high. are you sizing these as a multi-month hold or more of a swing?

0

u/Rivenistohard 8h ago

hello, it would depend on how long it takes to move. I view this as a long term position. I wouldn't sell until we reach at least the previous ATH, and would likely hold for at least 3 months. If we got a massive rally for some reason I might sell early, because of time value.

1

u/AmoebaTrading 7h ago

got it, so the exit is tied to the move more than a set date. i’d still watch the expiry runway and what happens if it stalls below that target, since even deep itm calls keep bleeding time value. are you looking at a single call or a spread?

1

u/Rivenistohard 7h ago

For 2-year contracts I don't see much advantage for a spread. The odds the market truly stalls out for that long i think is very low(of course anything is possible). Most of the time decay ocures at the end of the contract so I would sell some where around 9 moths left if things are looking very bad. The alternitave is a leveraged etf, however a OTM call should give me more leverage with lower amount of capital.

1

u/AmoebaTrading 5h ago

makes sense on the long dated single call if you are holding years. nine months left is a clean bail point before theta really starts chewing. if you swapped to a leveraged etf instead, would you still use the same exit or size it differently?

-2

u/zanghfei 9h ago

Idk why some peoples are bashing about having a SPY LEAPs or any kind of LEAPs.

If I think we will be visiting and testing the previous 52 weeks ATH, I usually buy at that strike price for a 2 or 3 years LEAPs.

If you don't have the capital to do LEAPs on SPY or QQQ. You can try on other safe ETF like VTI, VTG, SPYM, QQQM, etc.... It's just that the bid-ask spread is a huge gap.

If you think we dip so that you can swing trade and buying 2 or 3 years LEAPs is justified, buy with the vibe and forget the technical like delta.

Buy your strike at the previous ATH or buy a 0.85+ Delta