I suppose you could do this. But you also have enough money that you don't need to play games. Why not just buy the 500 index fund with your $250k and hold it forever? What does this all really gain you? I don't know what your spending is like, but with that much money you could just have a reasonable spending and retire with your money safe in index funds (even if they do dip at some point).
I tried to explain this in my post -- this is not my retirement money. This is my savings, and as such I am little bit more risk adverse. Plus I am believe I will get a better entry point to be long the market, but don't to not just sit and wait.
My spending is high right now as we have two kids that won't graduate for awhile. This taxable account will ultimately help augment my kids college 529 plans (in 6 and 9 years) and is my overall FU money as it exceed my mortgage on my house.
Personally, I think the likelihood of SPY going down to 170 is very low. And 185 is still not that likely. It's much more likely to hit 300 than 170.
We were at 185 not more than 8 weeks ago. If I got assigned at 185, I would be ok with that.
If you like SPY at 185, why did you put your $250k into it 8 weeks ago when it dipped?
Tell me you haven't forgotten the gut-wrenching Armageddon that was S&P < 1900 .... :O
And then thread titles in our own forum near the late January / early February lows:
"About to sell everything. Talk me off the ledge (or push me off) please!"
"Many indicators indicating a recession coming in 2016"
"The Stockmarket Rollercoaster Continues"
"Just liquidated my entire portfolio..."
In all seriousness, most people here respond pretty calmly, and I can't blame anyone for getting a little nervous or having minor panics about their money. But as (I think) you're alluding to, it's a very easy behavioral trap to fall in: anxiously awaiting a "dip", and then realizing that very negative narratives accompany said dip.
Regarding the options strategy:
Including TLT in any of it introduces a new source of complexity in that you're betting on the shape of the yield curve given that TLT is the very long end.
As far as selling SPY puts, something I'm not inherently opposed to, I don't think I'd choose
now to do it with so little volatility incorporated into the options prices. VIX is at about 15 right now... Here's something much simpler if you would like to take more risk, just not at current valuations:
value the S&P 500. discounted cash flow, however you want. Imagine you came up with 1750, as an example. Instead of selling SPY puts, leave your play money in cash or a conservative short term bond etf (not TLT), and if SPY falls to your level, buy it.