Back in November 2021, this post was a single line: “SPY 2022 $500.” That was the whole idea. SPY was trading around $467, the market had been going up for a year and a half, and buying long-dated SPY calls looked like an easy way to ride it.

It didn’t work out on that timeline, and how it didn’t work out is a better lesson about LEAPS than the original idea, so here it is.

What SPY LEAPS are

LEAPS are just options with a long life, usually more than a year to expiration. A SPY LEAPS call gives you the right to buy 100 shares of SPY, the S&P 500 ETF, at a fixed strike until a date one to two (or more) years away.

People use them as a cheaper stand-in for owning the shares:

  • Less money up front. A call costs a fraction of 100 shares of SPY, so the same capital controls more of the index.
  • A known worst case. You can’t lose more than the premium.
  • Time to be right. With a year or two on the clock, time decay is slow at first, so short-term dips don’t hurt as much as they do with monthly options.

The catch is the same leverage that makes them attractive. If SPY doesn’t get above your strike plus what you paid by expiration, you can lose the whole premium, even if the market is up overall.

What actually happened

SPY finished 2021 at about $475. Then 2022 turned into a bear market: rising rates and inflation pushed SPY down to the high $300s by October, and it ended the year around $383.

So a SPY call with a $500 strike expiring at the end of 2022 would have expired worthless. Not a little short. Worthless.

And yet the call itself wasn’t wrong, just early. SPY crossed $500 in early 2024. A LEAPS call with the same $500 strike but a 2024 or 2025 expiration would have survived the 2022 drawdown and come good.

What I took from it

  1. Expiration matters more than the strike. Being right about the level and wrong about the timing loses the same money as being plain wrong. If you’re buying LEAPS for a long-term view, buy enough time for that view to play out, plus a buffer for a bear market in between.
  2. Deeper in the money is more forgiving. A $500 strike with SPY at $467 needs the market to rally just to get back to zero. A strike below the current price costs more but behaves much more like the shares, with far less risk of going to zero.
  3. Size it as if it could go to zero. Because it can. The 2022 drop was a normal bear market, not a crash, and it was enough.

If you want to see how a long call’s break-even and payoff work, the long call guide walks through it, and the options profit calculator will chart your own strike and premium. For the same kind of lesson on individual stocks, see my tech LEAPS experiment.