Maybe the comparison of SPY underlying vs. SPY calls will be a different comparison. But that's not what I am comparing. I am looking at XSP call option vs. SPY call option.

Yes, I was comparing the option to the long stock (fund) without leverage. Because that discussion was about the total cost of the leverage.
The strategy as described, if I followed it correctly, was based on very unrealistic estimates of the cost of the leverage. It isn't going to be anywhere near 1%. In general switching from stock to ITM calls will hit your breakeven by the prevailing interest rate on the strike, plus the foregone dividends on the entire position, plus more based on the moneyness/optionality/implied volatility.


Random example, (as you note it doesn't make much difference which options you're using)--SPY versus SPY ITM calls.
SPY closed at $512.01.
In the next year the market has $6.55 in anticipated dividends baked in, in effect reducing your breakeven a year from now to $505.45. By comparison, a $250 March 2025 call on SPY with about 2:1 leverage would cost you (midpoint) around $270.85, for a breakeven of $520.85. A buyer would pay a bit more because of the bid/ask gap, but let's ignore that.

The difference in breakevens between buying the stock and buying the call is $15.39. The amount of money you have to put up today differs by $241.16. So, in effect, you're paying interest of $15.39 on a loan of $241.16, which is 6.381%. Expiry is just a hair over a year away, so that's about 6.11%/year annualized rate. i.e., the roughly half portion of your position which is "borrowed" (the leverage part) has to rise by that rate before you break even.

(For myself, I calculate the implied loan rate to be a tiny bit lower, because I use the after-tax amount of the dividends foregone when estimated the "loan" cost. I pay 30% on US source dividends, so in reality I'm not foregoing as much if I opt for calls rather than stock)

Jim