This started by me thinking about the “if you can’t beat QQQ/SPY, invest in QQQ/SPY”. My question was, “what would be a sure-fire, no-brainer way to beat SPY/QQQ”. I think I might’ve found that way. My strategy is to use QQQ/SPY to beat QQQ/SPY. The correct way, I think, of doing this is by making use of LEAPS. Long-Term Equity Anticipation Securities, in the simplest terms, are just options with a far away expiration date. My thought process was, if you can leverage the same amount of money you would’ve put in SPY/QQQ using these LEAPS, wouldn’t you be able to return a greater percentage than SPY/QQQ in the long term? So, I back tested it using thinkBack on thinkorswim and got some interesting results. My strategy would be using 25% at-the-money leap calls on SPY, 25% in-the-money leap calls on SPY (using the nearest 25-multiple strike price, so 25, 50, 75, 100, 125, etc.), 25% at-the-money QQQ leap puts, and 25% cash for short-term plays. These are my results.
All of these results are holding every contract until expiration, as is the case with most LEAP contracts. All of the tests, starting in 2012, are using the first trading day of the year.
TEST 1
01/03/2012:
SPY: $127.50
QQQ: $56.90
Using this strategy, you would’ve put in the following orders (using a $100,000 portfolio so the numbers are simpler to calculate):
BTO 28 QQQ puts with JAN 2014 EXP and strike of 57 for 8.795 (Around $25,000 used, or 25% of portfolio)
BTO 14 SPY calls with DEC 2014 EXP and strike of 130 for 17.905 (25% of portfolio)
BTO 7 SPY calls with DEC 2014 EXP and strike of 100 (125 would be at-the-money so I decided to go to the next strike) for 35.50 (25% of portfolio)
01/17/2014
SPY: $183.64
QQQ: $87.88
QQQ puts expired worthless
SPY Calls total return so far: ATM calls P/L of $50,799.00 and ITM calls P/L of $33,880.00 (Both were opened with ~$25,000 each). Of course, at this point you already made a decent ROI, so, you could close all positions and restart strategy.
12/19/2014
SPY: $206.52
QQQ: $104.32
QQQ puts already expired.
SPY calls total return at EXP: ATM calls P/L of $82,033.00 and ITM calls P/L of $49,689.50.
Subtracting the QQQ puts, strategy returned total of ~$107,000 profit on $75,000 investment (100%+).
TEST2
01/02/2013
SPY: $146.06
QQQ: $67.20
BTO 26 QQQ 16 JAN 15 $68 Puts for 9.57 (25%)
BTO 17 SPY 18 DEC 15 $150 Calls for $14.74 (25%)
BTO 8 SPY 18 DEC 15 $125 Calls for 28.875 (25%)
01/16/2015
SPY: $201.63
QQQ: $100.82
QQQ puts expired worthless.
SPY ATM calls total P/L of $65,560.50 and ITM calls total P/L of $38,596.00
Again, decent ROI so could restart strategy at this point.
12/18/2015
SPY: 200.02
QQQ: $109.83
QQQ puts already worthless.
Total P/L of ~ $72,000 on a ~$75,000 investment.
TEST 3
01/02/2014
SPY: $182.92
QQQ: $87.27
BTO 23 QQQ 14 Jan 16 $88 Puts for 10.885
BTO 10 SPY 15 Dec 16 $175 Calls for 24.55
BTO 12 SPY 15 Dec 16 $183 Calls for 20.48
01/14/2016
SPY: $191.93
QQQ: $104.07
QQQ puts expired worthless
SPY total P/L is -$1949.00 (ITM P/L is -$65.00 and ATM P/L is at -$1,884.00)
12/15/2016
SPY: $226.81
QQQ: $120.40
QQQ puts worthless
Total P/L for strategy is ~$30,200 on ~$75,000 investment (ITM P/L $27,235.00 and ATM P/L $27,624.00 minus the -$25,000 for worthless QQQ puts expiry).
TEST 4
01/02/2015
SPY: $205.43
QQQ: $102.94
BTO 20 QQQ 20 Jan 17 $103 Puts for 12.445
BTO 9 SPY 15 Dec 17 $205 Calls for 26.165
BTO 9 SPY 15 Dec 17 $200 for 28.79
01/20/17
SPY: $226.74
QQQ: $123.25
QQQ Puts expired worthless
Total SPY P/L $3,541.50 (ATM P/L $1,138.59 and ITM P/L $2,403.00)
12/15/2017
SPY: $266.51
QQQ: $157.65
QQQ puts worthless
Total P/L for strategy is ~$40,900 for $75,000 investment (SPY ITM P/L $34,380.00 and SPY ATM P/L of $32,242.50 minus worthless QQQ puts for ~$25,000).
TEST 5
01/04/2016
SPY: $201.02
QQQ: $109.50
BTO 18 QQQ 19 JAN 18 $110 Puts for 13.89
BTO 10 SPY 21 DEC 18 $200 Calls for 25.16
BTO 6 SPY 21 DEC 18 $175 Calls for 39.95
01/19/2018
SPY: $280.41
QQQ: $166.34
QQQ puts expired worthless
ATM SPY P/L $57,305 and ITM SPY P/L $39,831 minus ~ $25,000 of worthless QQQ puts (decent ROI so could restart Strategy at this point)
12/21/2018
SPY: $260.47
QQQ: $161.08
QQQ puts worthless
Total P/L of ~$37,600 (ATM P/L $35,540 and ITM P/L $27,396 minus ~$25,000 of worthless QQQ Puts)
TEST 6
01/03/2017
SPY: $225.24
QQQ: $119.54
BTO 19 QQQ 18 JAN 19 $120 Puts for 13.05
BTO 10 SPY 20 DEC 19 $230 Calls for 24.05
BTO 6 SPY 20 Dec 19 $200 Calls for 41.09 ($225 calls weren’t being traded according to thinkorswim backtesting)
01/18/2019
SPY: $264.46
QQQ: $165.25
QQQ puts expired worthless (-$25,000)
ATM SPY P/L $20,495 ITM SPY P/L $17,525
12/20/2019
SPY: $320.73
QQQ: $211.71
QQQ puts expired worthless
Total P/L for strategy ~$89,700 on ~$75,000 investment (ATM P/L $66,990 and ITM P/L $47,970)
TEST 6
01/02/2018
SPY: $268.77
QQQ; $158.49
BTO 16 QQQ 17 JAN 20 $159 Puts for 15.405
BTO 8 SPY 18 DEC 20 $270 Calls for 29.90
BTO 6 SPY 18 DEC 20 $250 Calls for 41.85
01/17/2020
SPY: $331.95
QQQ: $223.38
QQQ puts expired worthless
SPY ATM Calls P/L $29,244 SPY ITM Calls P/L $25,566 (minus worthless QQQ Puts -$25,000)
Decent ROI, could restart strategy at this point?
12/18/2020
SPY: $369.18
QQQ: $310.06
QQQ puts expired worthless
Total P/L for strategy ~$77,200 on $75,000 investment (ATM P/L $56,232 ITM P/L $47,004)
TEST 7
01/02/2019
SPY: $250.18
QQQ: $154.88
BTO 14 QQQ 15 JAN 21 $155 Puts for 18.12
BTO 8 SPY 17 DEC 21 250 Calls for 32.25
BTO 5 SPY 17 DEC 21 225 Calls for 46.10
01/15/2021
SPY: $375.70
QQQ: $311.86
QQQ Puts Expired worthless
SPY ATM P/L $76,676 SPY ITM P/L $52,707.50 (Over 100% ROI but did not beat QQQ, could restart but best option would be to hold in this scenario, in my opinion)
Current (10/28/2021)
SPY: $457.39
QQQ: $383.49
QQQ Puts expired Worthless
Total P/L for strategy ~$208,100 (currently outperforming both SPY and QQQ)
ATM Calls P/L $140,248 and ITM Calls P/L $93,230 (minus worthless QQQ puts ~$25,000)