Feb 2025 Briefing: LT Model Portfolio Risk Assessment, Optimization & stress test
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/ February 28, 2025 By
/ February 28, 2025 By
/ February 28, 2025 By
/ February 28, 2025 By
/ February 28, 2025 By
/ February 28, 2025 
This synthetic roll strategy is amazing! You basically time the buying of the call and the selling it short in such a way that all your leap contracts transform into a call-spread contracts that have a basically negligible cost basis.
And with your ability to sus out correction bottoms, it feels almost like cheating compared to the OG dollar cost averaging I was taught.
Thanks for the detailed explanations!!
For the synthetic rolling, wouldn’t the selling of the contracts create a short-term capital gains tax event, thus erasing the benefit of not closing the long calls?
I think it is similar to when you short sell a stock. You are immediately paid for the stock but the brokerage does not count that as profit until you close the short position and sell it back and the difference is what is taxed.
No. Because when we sell the contract short, it is an opening transaction not a closing one. When we close the transaction down the line, then the tax event occurs.
When you sell a position short, you don’t have gains to realize until you close that short position.
Obviously, Mark to market rules changes all of that. But as the Samwise portfolios are concerned, we are not mark to market accounting.
Please see our 3:52 PM EST on February 14, 2025 update above on the Arryn Portfolio.
For Arryn portfolio, if you compare the price movement of NVDA and QQQ from August 5th until Feb 14th. NVDA is definitely move with larger % compare to QQQ and both has same expiration day. However, QQQ contract is outperforming NVDA contract. Can you help me explain why ?
Because Nvidia has significantly higher volatility at 50% and hence higher built-in expectations for larger percentage gains. Nvidia fell short of expectations whereas the QQQ exceeded its expectations relative to its price parameters.
The QQQ rallied from $430 to $530 a share. That’s a 23% return. Nvidia rallied from $100 to $139 or 39%. 39% is expected. 23% for the QQQ is far beyond the options built-in expectations.
yet another reason why as a consistent long-term invest year in and year out, the QQQ is the best overall investment. It’s intrinsically well diversified, it’s always moving higher due to worldwide population growth, increases in the standard of living and constant economic expansion. Total economic output is the QQQ’s fundamentals. And the options are nearly always on the cheaper side.
Nvidia & Tesla happen to have very high volatility due to the way those stocks move. So they require more gains to get the same return.
Let me add the following. Suppose Nvidia rallies to $200 a share. For an option expiring in nearly 2-years from now, that’s something that can very easily happen. If Nvidia runs to $200 a share, those options triple in value.
At the time back in August, that was for sure a built-in expectation of investors trading in those options. It’s why we bought them. Because in 2-years, they could triple in value if Nvidia makes that expected run to $200 in 2.5 years.