## Premise
I'm bullish on CEG and thinking it heads back up and past $400 by end of year. I want to take advantage but only want to dedicate about $10,000 to this play.
## Typical LEAP Leverage
If you were considering outright buying 100 shares and waiting, for the same price you could buy 3 year-long calls at 78 delta or so, for a return of 2.3x just buying shares.
This has some big downsides though - no shares to take advantage of if numbers keep going up, and a ticking clock against you (an incredibly expensive clock if held past halfway).
I do like this sometimes if the stock is small enough, despite the downsides. But with only 10k to invest and a potentially longer than 1 year time span the LEAP approach doesn't sound very appealing.
## Mixed Spreads
If we rephrase "going up $60 in a year" as "on average, going up $5 a month", that's a pretty strong framework for spreads. You can write aggressive $10 call debit spread every month for maximum profit, and a couple $5 trailing put credit spreads to make the IV "free".
Instead of leveraging the money, we are getting the leverage by opting into the same thesis several times over.
## Buying shares and DCA
The way I imagine this, you follow a "50%" rule -- you start out buying shares with $5000 and the other $5000 is split between put credit and call debit spreads, closing and reopening for profit at every opportunity. All profits from your options are invested 50/50 - half go into DCA'ing more shares, half go back into increasing your risked capital for more spreads.
Yes, if your original thesis is wrong, you're bound to lose some spreads - but if the thesis is wrong then you lose money anyway.
## Summary
Based on my estimates, with a little bit of luck, the result of this strategy could end up netting same number of shares as buying outright and almost my original capital back in cash - or about 1.8x just buying shares. Without the time risk and at the end I own shares for further upside.
What do you think? Is there a name for this kind of setup, have you tried it, am I missing some obvious pitfalls?