Reflecting on my SPY options strategy and trades. What I did right. What I did wrong. What I am going to do next.
I learnt this SPY options strategy called The Parakoopa Strategy from The Next Level Talks. It was created for the average investor like me and only requires taking action once a year.
By the way, Parakoopa is the name of the winged turtle in the Nintendo game, Super Mario Bros. This strategy seems slow, like the turtle on land. It is actually quite powerful due to the use of options and the compounding effect.
Instead of buying the SPY itself, buy an option which requires less money up front. Placing any income from each option contract back into buying more options allow compounding to take place.
Instructions on SPY Options Strategy
- Purchase long term At-The-Money call options (the longest one available)
- Sell it one year later
- Purchase the next long term call options
Repeat step 3 and 4 every year for the next 10 years putting any profit and loss back into the loop.
Watch the video below for details on how this strategy works and why it is suitable for beginner investors.
Taking Action
SPY is around US$408. The US stock market is supposedly bearish and price of SPY is expected to drop. It went down to US$380 during the 3rd week of May.
The premium for a 900-day call option at strike price of US$408 costs around US$66.78 with an implied volatility of around 25.25. A low implied volatility number means that this options contract is cheaper than a year ago.
I plan to execute the Parakoopa strategy when SPY price dips below US$400.
I am making an assumption that the call premium will not become more expensive when the price dips. Let’s see if I am right.
June 2022
The US stock market is in a bear market now. SPY has dropped to $375.63. Will it fall further?
The data I used for evaluation are sourced from Firstrade.com and Moomoo (affiliate link). I have trading accounts with them and it includes access to relevant company and market information.
