Leverage in retirement accounts?
I want to get moderately leveraged exposure to the S&P500 index in my retirement accounts (125%) and hold for 25-35 years.
I’ve looked into a few strategies and I’m hoping to get a gut check.
Strategy 1: CME Index Futures
This seemed like the most efficient strategy with low overhead. Pay roughly the risk free rate for leveraged index exposure, keep the position backed by short term treasuries like SGOV or an interest bearing money market account to offset the cost of opening positions and roll the contracts quarterly. *Except* brokerages that offer futures trading in an IRA require the positions to be backed by settled cash, and that would not be earning interest. The requirement is about 20% of the total position. Once I take that dead cash into account, the effective cost of leverage is actually quite bad. That strikes futures out for me
Strategy 2: DITM Leaps
The key advantage I see DITM calls is having a cap on losses. I would roll the positions a year before expiration re-open new ones. They seem to offer efficient leverage, but potentially wide bid-ask spreads make and calculating future “theta decay” make it difficult for me to understand what my effective cost of leverage actually is. With $115,000 in one of my IRAs I’d have to open one 350 C SPY contract to get the exposure I want at basically the risk free rate.
Strategy 3:
2x long LETFs. Great, but I don’t love the uncertainty of volatility drag. I’d hold 75% of my account in VOO and 25% in SSO and just let it rip. The biggest pro is that it’s easy to manage and easy to rebalance to maintain my target exposure.
Is my understanding of the cost of index futures correct?
Am I overestimating the complexity and impact of options pricing algorithms?
Am I too afraid of volatility drag? The LETF route is nice and maybe the simplicity is worth it.