Tail SP 500 Call Options

I basically agree with this analysis. As someone with a bit of an options background, I'll try to flesh this out a bit:

1) The calls are cheap in implied vol terms. Depending on what you buy, you'll probably pay around a 13-15 implied vol. (Note that some brokerages will tell you it's even cheaper, but they are probably forgetting dividends). 

2) The spreads in the calls are extremely wide. If you pursue this strategy, do not pay the offer. You should try to get filled somewhere around mid market (although you will have to aggress a little). 

3) The calls have the potential to make large returns if the market merely reprices implied volatility. For instance, the 10k Dec 2029 call - trading around 170 right now with an IV of 14.9 - would be worth $370 if long dated upside vol went to 20 and $600 if it went to 25. 

 

A case against this type of trade is made here https://www.lesswrong.com/posts/yFkNYyspBBqfSeBx9/against-using-stock-prices-to-forecast-ai-timelines [LW · GW]

Relevant quote: "Fourth, and quite importantly, it is not obvious whether expectations of transformative AI would raise or lower stock prices. This is because, as described in the previous subsection, stock prices reflect the present-discounted value of future profits; and advanced AI may raise those future profits, but – as the central thesis of this piece argues – advanced AI would also raise the interest rate used to discount those profits. The net effect on stock prices is not immediately obvious."

I'm skeptical about this. I think a doubling of SPY requires one or a suitable combination of the following:

1. A doubling of the fraction of money that sits in the stock market relative to all money, in the sense of M2. (o1 tells me that we're at a ratio between 0.5 and 1.0, where ratios >1.0 are possible.)

2. A doubling of SP500 market cap relative to all global stocks' market cap, expressed in USD. (The data I get from Perplexity indicates that this ratio is currently at 0.47.)

3. A doubling of global M2 money supply expressed in USD.

Basically these quantities multiply to SPY by a straightforward Fermi-type estimate. Which one of these are you betting on with AI? Isn't a doubling in the first or second a bit implausible?

Maybe I'm missing something? I'm no economist, and I also haven't carefully checked the data used in the first two items.

Or perhaps your bet is on a doubling of the first? I'd be worried that a ratio of >1.0 indicates overextension of the stock market, but I'm not sure.

I own lots of SPY/SPX calls and agree with this perspective. I think QQQ calls also look pretty good (and have done great over the last year).

Thanks. The tax treatment is terrible. And I would like more clarity on how transformative AI would affect S&P 500 prices (per this comment [LW(p) · GW(p)]). But this seems decent (alongside AI-related calls) because 6 years is so long. 

If you think SPY will go up because it's gone up historically, there's more direct ways to get leverage on SPY than buying a 2030 call. If all you thought was that AI will change everything, SPY doesn't seem like the right thing to buy -- wouldn't you want something with more exposure to AI? 

The market seems to underestimate the extent to which Micron (MU) is an AI stock. My only options holdings for now are December 2026 MU calls.

I agree this looks promising and is the reason I bought long-dated SPY calls a few weeks ago (already up by 30%). But I would feel more reassured if I felt I could understand why such an opportunity persists. What is the mental state of the person on the other end of this trade?

Can you share the spreadsheet/code on which the calculations are based?

What are you specifically planning to accomplish?

In a post-ASI world, the assumption that investment capital returns are honored by society is basically gone.  Like the last game in a very long series of iterated prisoner's dilemma, there's no longer a need to Cooperate.  There's still time between now and then to invest, but the generic "more long-term capital = good" mindset seems insufficient without an exit strategy or final use case.

Personally, I'm trying to balance various risks regarding the choppy years right before ASI, and also maximize charitable outcomes while I still have some agency in this world.

I agree with this and think it's interesting (I actually already have a nice block of SPY leaps)

That said, I have far more conviction in NVDA and similar assets, so I think my total profit from either strategy would work out to be about the same

Like NVDA could 10x, this could 50x, but I'm gonna put 5x as much in NVDA