If you’re early career, have a stable job, and have more than ~3 months of savings but not enough to retire, then lifecycle investing already recommends investing very aggressively with leverage (e.g. 2x the S&P 500). This is not speculation, it decreases risk due to diversifying over time. The idea is as a 30yo most of your wealth is still in your future wages, which are only weakly correlated with the stock market, so 2x leverage on your relatively small savings now might still mean under 1x leverage on your effective lifetime portfolio.
In 2026, most of your long-term financial risk comes from your job being automated, which will plausibly happen in the next 5 years. If this happens, your salary will go to zero while the S&P 500 will probably at least double (assuming no AI takeover) [1]. If automation takes 20 years, the present value of your future income is ~10 years of salary. This makes exposure to the market (beta) extremely important. If you have 2 years of salary saved, the required leverage just to break even whether automation takes 5 years or 20 is something like 4x.
However, we can do better; betting that a price movement will happen in a defined time frame is exactly what options are for. We want them to be as long-dated as possible because the market basically expects the economy to be normal forever. So what to actually buy?
This contract will profit if SPY (which tracks the S&P 500) goes up by more than ~50% in the next 2.5 years. The implied volatility is only 15.4%, which means you don’t lose much in expectation if historical trends hold, and the spreads are tight enough that it’s easy to buy. Most likely it will expire worthless, but if SPY somehow doubles it will return 80x [2]. [edit: Dec 2028 options are now out, which seem better]
To buy them, you need to get options approval from your brokerage (usually level 1 or 2 for long call options), then search for SPY options, select a call option with a strike price of 30-50% above the current price and an expiration date as far in the future as possible, check that the bid-ask spread is acceptably narrow (<10% or so), and submit a market order while the market is open (9:30am-4pm ET weekdays).
What to do with them afterwards is out of scope of this post, but there’s no need to even look at them more than 1-2 times per year.
These are SPX index options, which are somewhat tricky to buy [3] but are available 5-6 years out and are therefore far better if you put significant probability on automation between 2.5 and 6 years from now.
Currently I have 30% of my net worth in 2-year SPY options, 30% in semiconductors and the rest in Wealthfront for tax loss harvesting. This is partly for speculation, but it seems reasonable for most people with 2 years of savings to have 10% of their net worth in SPY options or 20% in SPX options [4] for hedging purposes alone.
[1] The S&P 500 is 80% of the US stock market, so probably captures most of the gains of automation. This would fail if most of the gains go to private companies, or if the economy is automated but still only grows at like 10%/year
[2] at current prices, SPY is 683, so if it doubles to 1366 the option will be worth (1366-1000)/4.47 = 81.8x
[3] Spreads are super wide so to get better prices you would want to make a limit order at midpoint and increase the price over a few days. Also not every broker will let you buy them (Fidelity and IBKR work but not Schwab) and 40% of all gains are taxed as short term, unless you buy them in an IRA account.
[4] Higher for SPX options because they’re longer dated, so you don’t need to roll them forward as frequently.
Maybe it could raise interest rates, but I also have TLT (long dated treasury bonds) put options for this possibility. TLT has a duration of ~16 years, so if the interest rate goes from 4.9% to 15%, TLT will crash by ~65%. Also, when full automation actually happens, stocks will go up even if they went down slightly due to expectations of automation.
I had a bit of the same reaction (logic being many loose their jobs, income craters, good demand craters, corp earning crater stock price higher????). But I kind of see it from a I don’t have a good handle on AI and equity market levels in the future so maybe stick to a strategy that historically makes sense.
I would only add some slight shifts to the suggestion. While it is also an open question for the average investor as to buy-hold versus timing the market works well, I do think most here can think though well enough to consider timing for the option allocation. Simple mean-reversion type entry points might increase the odd tempered by where one things the overall market is in the cycle.
Two additional considerations in favour of long-dated call options:
(h/t @Ryan Kidd) This acts as a hedge against the devaluation of your income. Imagine two investment portfolios: one is “AGI-pilled” (i.e. long-dated call options, semiconductors, etc) and the other is “business-as-usual” (i.e. real estate, S&P 500). Suppose further that they have the same distribution over returns, from your perspective. Then you should buy the AGI-pilled portfolio, to hedge against the loss of income due to AGI.
Caveats: Maybe income is higher in AGI worlds than in BAU worlds? This isn’t crazy, but unlikely. See Capital in the 22nd Century (Phil Trammell and Dwarkesh)
The value of the SP 500 is the market’s expectation of the long-run returns. So when you buy a 2 year call option, you aren’t making a bet that AGI will cause revenue to jump 2x, you are only making a bet that the market will expect future discounted revenue to jump by 2x. That is, this is more like timelines on when the market will become AGI-pilled rather than when AGI arrives.
Yes! Everyone should be sure to investigate the different tax treatments of SPX and SPY options, though—despite their near-equivalence economically, they are NOT equivalent according to the U.S. Government. (It goes beyond the short/long taxation mix)
I think IBKR might let Americans trade HKEX index options out to 2030 but it would probably be a hassle. Otherwise there are options on FXI, a Chinese large-cap ETF, which look less liquid than SPX options and only go out 2 years with an IV of 32% or so. I don’t think FXI is worth it because China isn’t in a position to get AGI in the next 2 years if the US doesn’t.
Private American companies seem like the bigger risk from my perspective. As examples, many expect Anthropic/OpenAI to IPO this year, but if AGI is expected to be priced into public markets within ~2 years, that seems like a very small window for the leading AGI companies to not be able to secure private funding. And surely they won’t IPO if they can lock in sufficient funding privately, right? Plus all the other private AI companies.
If I understand correctly, you are advocating for using a call only strategy (as opposed to a (synthetic) long strategy) to achieve higher leverage than would otherwise be possible?
> This is partly for speculation, but it seems reasonable for most people with 2 years of savings to have 10% of their net worth in SPY options or 20% in SPX options [4] for hedging purposes alone.
To clarify, you mean 10% of net worth being in this specific contract (SPY280616C01000000)? So roughly 15:1 leverage using options?
Readers should note this has very strong returns if you get that 50%+ return, but isn’t straight leverage—the median outcome here is about a 12.7% reduction in portfolio value in next 2.5 years relative to pure SPY.
Yes buying volatility is intentional. If I thought more I would fine tune things, but it’s not so important to gain 20% when spy goes up 10% because that probably doesn’t mean loss of your future salary.
I should clarify that I mean closer to 0.2 years of salary than 10% of whatever your net worth is, if you just want to hedge your automation risk, given the potential loss is a fixed ~10 years of salary. On second thought it should maybe be less than this due to various factors. To give a proper recommendation I would have to do some math, which I might do if this becomes a longform.
Why trust your prior over the prior of the market/hedge funds? By this I mean why expect that this isn’t already priced in? AI (and AGI) is a big enough news story now such that I would expect hedge funds to be thinking about things like this. At recruiting events, I’ve asked quants how they’re thinking about this exact question and I usually got pretty decent AGI pilled responses.
It is certainly possible that the market hasn’t priced this in, but my prior is in the vast, vast majority of cases, there is some quant that has already sucked out any potential gains one could get.
It’s crucial for the argument that it’s priced in. You own a risky asset, your job. The market values that risk at $0, because you can diversify it away. Investing in assets that profit when you lose your job is how you do that.
The way wealth accumulates forces you to be overexposed to the market near retirement and underexposed now. That’s more $0-valued risk. It’s a practical problem you can fix with leverage.
Mainly due to various frictions like not knowing if the different tax treatment is acceptable, and the fact that they often cost over $30,000 each. Also due to luck, my SPY options are up over 100% so I don’t want to sell them until I need to roll them in ~December, and buying SPX options on top of that would leave me overexposed. This is plausibly a mistake though.
In 2026, most of your long-term financial risk comes from your job being automated, which will plausibly happen in the next 5 years. If this happens, your salary will go to zero while the S&P 500 will probably at least double (assuming no AI takeover)
I’m not sure this is true. In a scenario featuring widespread automation of white collar work, you’re going to have all kinds of churn in the economy and it’s really unclear how that translates into stock market winners and losers. Many people seem to assume that the big winners will be incumbent tech giants, in which case, yea, the S&P 500 will go way up. But big economic changes are often good for upstarts rather than incumbents, and it’s worth pointing out that all the frontier labs today other than Google are a) privately held and b) relatively recently founded. The profits from automating your job might well flow to some startup that doesn’t even exist yet, and that same startup might kill off the giants of the S&P.
Most people should buy long-dated call options:
If you’re early career, have a stable job, and have more than ~3 months of savings but not enough to retire, then lifecycle investing already recommends investing very aggressively with leverage (e.g. 2x the S&P 500). This is not speculation, it decreases risk due to diversifying over time. The idea is as a 30yo most of your wealth is still in your future wages, which are only weakly correlated with the stock market, so 2x leverage on your relatively small savings now might still mean under 1x leverage on your effective lifetime portfolio.
In 2026, most of your long-term financial risk comes from your job being automated, which will plausibly happen in the next 5 years. If this happens, your salary will go to zero while the S&P 500 will probably at least double (assuming no AI takeover) [1]. If automation takes 20 years, the present value of your future income is ~10 years of salary. This makes exposure to the market (beta) extremely important. If you have 2 years of salary saved, the required leverage just to break even whether automation takes 5 years or 20 is something like 4x.
However, we can do better; betting that a price movement will happen in a defined time frame is exactly what options are for. We want them to be as long-dated as possible because the market basically expects the economy to be normal forever. So what to actually buy?
This contract will profit if SPY (which tracks the S&P 500) goes up by more than ~50% in the next 2.5 years. The implied volatility is only 15.4%, which means you don’t lose much in expectation if historical trends hold, and the spreads are tight enough that it’s easy to buy. Most likely it will expire worthless, but if SPY somehow doubles it will return 80x [2]. [edit: Dec 2028 options are now out, which seem better]
To buy them, you need to get options approval from your brokerage (usually level 1 or 2 for long call options), then search for SPY options, select a call option with a strike price of 30-50% above the current price and an expiration date as far in the future as possible, check that the bid-ask spread is acceptably narrow (<10% or so), and submit a market order while the market is open (9:30am-4pm ET weekdays).
What to do with them afterwards is out of scope of this post, but there’s no need to even look at them more than 1-2 times per year.
These are SPX index options, which are somewhat tricky to buy [3] but are available 5-6 years out and are therefore far better if you put significant probability on automation between 2.5 and 6 years from now.
Currently I have 30% of my net worth in 2-year SPY options, 30% in semiconductors and the rest in Wealthfront for tax loss harvesting. This is partly for speculation, but it seems reasonable for most people with 2 years of savings to have 10% of their net worth in SPY options or 20% in SPX options [4] for hedging purposes alone.
[1] The S&P 500 is 80% of the US stock market, so probably captures most of the gains of automation. This would fail if most of the gains go to private companies, or if the economy is automated but still only grows at like 10%/year
[2] at current prices, SPY is 683, so if it doubles to 1366 the option will be worth (1366-1000)/4.47 = 81.8x
[3] Spreads are super wide so to get better prices you would want to make a limit order at midpoint and increase the price over a few days. Also not every broker will let you buy them (Fidelity and IBKR work but not Schwab) and 40% of all gains are taxed as short term, unless you buy them in an IRA account.
[4] Higher for SPX options because they’re longer dated, so you don’t need to roll them forward as frequently.
Is this true?
It has been claimed:
Prior discussion: Tail SP 500 Call Options.
I currently have 7% of my portfolio in such calls.
Maybe it could raise interest rates, but I also have TLT (long dated treasury bonds) put options for this possibility. TLT has a duration of ~16 years, so if the interest rate goes from 4.9% to 15%, TLT will crash by ~65%. Also, when full automation actually happens, stocks will go up even if they went down slightly due to expectations of automation.
I had a bit of the same reaction (logic being many loose their jobs, income craters, good demand craters, corp earning crater stock price higher????). But I kind of see it from a I don’t have a good handle on AI and equity market levels in the future so maybe stick to a strategy that historically makes sense.
I would only add some slight shifts to the suggestion. While it is also an open question for the average investor as to buy-hold versus timing the market works well, I do think most here can think though well enough to consider timing for the option allocation. Simple mean-reversion type entry points might increase the odd tempered by where one things the overall market is in the cycle.
Two additional considerations in favour of long-dated call options:
(h/t @Ryan Kidd) This acts as a hedge against the devaluation of your income. Imagine two investment portfolios: one is “AGI-pilled” (i.e. long-dated call options, semiconductors, etc) and the other is “business-as-usual” (i.e. real estate, S&P 500). Suppose further that they have the same distribution over returns, from your perspective. Then you should buy the AGI-pilled portfolio, to hedge against the loss of income due to AGI.
Caveats: Maybe income is higher in AGI worlds than in BAU worlds? This isn’t crazy, but unlikely. See Capital in the 22nd Century (Phil Trammell and Dwarkesh)
The value of the SP 500 is the market’s expectation of the long-run returns. So when you buy a 2 year call option, you aren’t making a bet that AGI will cause revenue to jump 2x, you are only making a bet that the market will expect future discounted revenue to jump by 2x. That is, this is more like timelines on when the market will become AGI-pilled rather than when AGI arrives.
Yes! Everyone should be sure to investigate the different tax treatments of SPX and SPY options, though—despite their near-equivalence economically, they are NOT equivalent according to the U.S. Government. (It goes beyond the short/long taxation mix)
Can you describe what you think the important inequivalencies are?
The main way I see this strategy failing is if American companies specifically fail to capture an AGI takeoff, vs e.g. Chinese companies.
I think IBKR might let Americans trade HKEX index options out to 2030 but it would probably be a hassle. Otherwise there are options on FXI, a Chinese large-cap ETF, which look less liquid than SPX options and only go out 2 years with an IV of 32% or so. I don’t think FXI is worth it because China isn’t in a position to get AGI in the next 2 years if the US doesn’t.
Private American companies seem like the bigger risk from my perspective. As examples, many expect Anthropic/OpenAI to IPO this year, but if AGI is expected to be priced into public markets within ~2 years, that seems like a very small window for the leading AGI companies to not be able to secure private funding. And surely they won’t IPO if they can lock in sufficient funding privately, right? Plus all the other private AI companies.
If I understand correctly, you are advocating for using a call only strategy (as opposed to a (synthetic) long strategy) to achieve higher leverage than would otherwise be possible?
> This is partly for speculation, but it seems reasonable for most people with 2 years of savings to have 10% of their net worth in SPY options or 20% in SPX options [4] for hedging purposes alone.
To clarify, you mean 10% of net worth being in this specific contract (SPY280616C01000000)? So roughly 15:1 leverage using options?
Readers should note this has very strong returns if you get that 50%+ return, but isn’t straight leverage—the median outcome here is about a 12.7% reduction in portfolio value in next 2.5 years relative to pure SPY.
Yes buying volatility is intentional. If I thought more I would fine tune things, but it’s not so important to gain 20% when spy goes up 10% because that probably doesn’t mean loss of your future salary.
I should clarify that I mean closer to 0.2 years of salary than 10% of whatever your net worth is, if you just want to hedge your automation risk, given the potential loss is a fixed ~10 years of salary. On second thought it should maybe be less than this due to various factors. To give a proper recommendation I would have to do some math, which I might do if this becomes a longform.
Why trust your prior over the prior of the market/hedge funds? By this I mean why expect that this isn’t already priced in? AI (and AGI) is a big enough news story now such that I would expect hedge funds to be thinking about things like this. At recruiting events, I’ve asked quants how they’re thinking about this exact question and I usually got pretty decent AGI pilled responses.
It is certainly possible that the market hasn’t priced this in, but my prior is in the vast, vast majority of cases, there is some quant that has already sucked out any potential gains one could get.
[Edit: reworded for clarity]
It’s crucial for the argument that it’s priced in. You own a risky asset, your job. The market values that risk at $0, because you can diversify it away. Investing in assets that profit when you lose your job is how you do that.
The way wealth accumulates forces you to be overexposed to the market near retirement and underexposed now. That’s more $0-valued risk. It’s a practical problem you can fix with leverage.
Why are you 30% in SPY if SPX is far better?
Mainly due to various frictions like not knowing if the different tax treatment is acceptable, and the fact that they often cost over $30,000 each. Also due to luck, my SPY options are up over 100% so I don’t want to sell them until I need to roll them in ~December, and buying SPX options on top of that would leave me overexposed. This is plausibly a mistake though.
I’m not sure this is true. In a scenario featuring widespread automation of white collar work, you’re going to have all kinds of churn in the economy and it’s really unclear how that translates into stock market winners and losers. Many people seem to assume that the big winners will be incumbent tech giants, in which case, yea, the S&P 500 will go way up. But big economic changes are often good for upstarts rather than incumbents, and it’s worth pointing out that all the frontier labs today other than Google are a) privately held and b) relatively recently founded. The profits from automating your job might well flow to some startup that doesn’t even exist yet, and that same startup might kill off the giants of the S&P.
So anyone who doesn’t do this can expect to become irrelevant? :/ would suck if true
Edit: downvoters, please clarify?
No. If your job is irrelevant, then you’ll be glad if you bought shares in the company that automated it away.
[Edit: reworded for clarity]