termn8er

So after thinking about this further I do understand what you mean by I'm using more leverage. With your trade you are risking about roughly 15% of the capital deployed where I'm risking 100% of the capital deployed. So based on that if I increase my size at all I am absolutely adding more risk to the trade. With that said again if somebody had a smaller account they would be risking a much higher percentage of it. However I still believe that my approach for the same size account as you recommend would be a better use of capital as I have roughly 18,000 that I can just keep in cash versus put in the trade

Chris, Thanks for the reply and clarifying the dividends as that's the number TOS gave me. However on the margin side (I know you are not using margin leverage). If I set up the basic position today using your method it would look as follows: Long 1 16 Sep 22 call @ 255 Long 1 16 Sep 22 put @ 435 Total cost = $218.75 My suggestion is: Long 1 16 Sep 22 put @ 255 Long 1 16 Sep 22 call @ 435 Total cost = $37.51 While these might not be exactly what strikes you would pick the example still holds. The two positions are synthetically the same. However my approach would yield the same dollar returns but much higher % on capital. Plus I can trade this which a much smaller account now. Additionally since I am using so little capital compared to the original approach, I can buy closer to the money puts and still be way ahead of the game as far as capital in the trade and thus have much greater downside protection. So what am I missing?

This is a very interesting system/method. However, in less I am missing something you are not using your margin efficiently as you could and thus could get even better returns. The position set up you recommend includes a DITM call and slightly OTM put. However this is synthetically the same as using an OTM Put and a slightly ITM call. The big difference between the two is although the risk is the same, the cost (margin) required for your set up is 5 - 6 times greater than the cost of the synthetic alternative. I confirmed this with TOS as well as modeled it out. So this is a big opportunity to trade this in a much smaller account as well as having much better results if you use the same amount of margin but use the OTM options. Secondly, when comparing to buy and hold, you do need to consider that the SPY does have approximately a 5% annual dividend which of course you do not get when using the long term options.