I Put $250,000 Into 6 Different LEAPS Strikes: Here’s What Happened

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The analysis focuses on the performance of SPY options across various strike prices and market scenarios over a one-year period. The key takeaway is that the choice of strike price significantly impacts the outcome, especially in volatile or trending markets. When SPY was flat, all tested option strikes (30% ITM, 20% ITM, 10% ITM, ATM, 10% OTM, 20% OTM) experienced losses, ranging from 9.1% for the deepest in-the-money to 53.9% for the furthest out-of-the-money. This highlights the time decay component of options pricing. In a scenario where SPY dropped 10%, losses were amplified, with the deepest in-the-money strike losing 33.9% and the furthest out-of-the-money losing 87.8%. Conversely, when SPY rose 10%, all strikes showed gains, with out-of-the-money options providing the highest percentage returns (21.5% for 10% OTM and 22.5% for 20% OTM, though the deeper ITM strikes also performed well with returns ranging from 16.1% to 19.7%). In a strongly bullish market (SPY up 20%), out-of-the-money options demonstrated significant convexity, with the 20% OTM strike yielding a remarkable +130.3% return, while the 30% ITM strike returned +41.7%. This suggests that while ITM options offer downside protection, OTM options offer greater upside leverage in strong trending markets. The break-even analysis shows that for a 1-year holding period, the ATM strike requires a 6.1% SPY gain to break even, while the 20% OTM strike requires a 7.6% gain, indicating that further OTM strikes require a larger market move to overcome their initial premium cost. The historical data suggests that while major down years are infrequent (4.3% of years with worse than -20% returns), the market often shows significant recovery in the subsequent year. The analysis concludes that the best strike choice depends on the trader's outlook and risk tolerance, with deeper ITM strikes offering more downside cushion and OTM strikes offering higher potential rewards but also higher risk.

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