Zhelko Dimic
Careful bull
BTW, these kinda DITM calls are good to survive nuclear winter of no movement for cpl years, they're otherwise poor use of capital. Yet, better use of capital than shares.
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BTW, these kinda DITM calls are good to survive nuclear winter of no movement for cpl years, they're otherwise poor use of capital. Yet, better use of capital than shares.
Good strategy. Also, if you are working from a 401K or IRA where short term vs long term capital gains are not an issue, you can harvest money from deep in the money leaps which are far deeper than necessary for getting the leap at near zero time value. For example I could sell a J19 120 call and buy a J19 150 call and maintain my same earning potential but have less money invested. I don't get a full $3000 per option back in the move because those 150s are still selling with a $3 time value, but if I sell my 120 leap at $313 and buy the 150 when the stock is trading below $310, I can often harvest $3000 per option. Today was a perfect day for doing this because throughout the day we saw an overall downslope to the trading and when half a million shares were shorted at Fidelity at noon, it strongly suggested we weren't going to see an afternoon rally.
The danger of using DITM leaps as shares substitutes happens if you ever see a nasty drop in share prices where the stock is trading for a prolonged period of time at a price below your strike price. That would be a 50% or greater drop for me. In such a case, you can't inexpensively roll your leaps forward to the next year's leaps. With stock, you just ride out a multi-year deep plunge and ride the stock back up when it recovers. Also, since DITM leaps are leveraged trades, you're best off leveraging when the stock is at a low point ($180 recently) than at a potential high point.
I subscribe to the Chickenlittle approach, which is to leverage into DITM leaps when the stock looks like it has bottomed out, and then convert those DITM leaps to shares before the stock reaches its peak. You're then riding up with a leveraged position and riding down with a deleveraged position. The tough part is forcing yourself to deleverage soon enough.
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Zhelko Dimic
Careful bull
Firstly, my discussion does not concerns itself with tax consequences (I mostly use TFSA/RRSP accounts in Canada)
Now, I agree with most of the stuff you're saying.
Except that I can't reliably execute any of the strategies you describe
. If I could, such skill would lend itself to trading, which perhaps is more lucrative than investing. Anyhow, I don't do that (anymore).When replacing options, I use multi-leg strategy that guarantees execution of both legs simultaneously, I just specify diff I want to pay. I can often trade at a median price of the spread. Multi-leg option execution is a rather new feature of TD Direct platform(not Ameritrade, or whatever you have down south).
And, mistaken or not, I hear in your reasoning assumption that this is a levered trade, implicit assumption that I'd use all/most of the capital.
I don't approach it that way. I start from the point that I figure how many shares I can afford and want to buy. Then I get corresponding number of contracts (shares/100). And there is 30-50% of the cash left, depends how deep in the money strike is. That cash gives me opportunity to lever, but that is not automatic decision by any means. It's usually separate in time. Last time I added significant exposure was on the March 23rd, when I played for the Ichimoku cloud bounce. But I can't do that consistently, so it was a bit of a gamble, if it dropped under 240, I'd have dropped that additional exposure and then some. Sitting around 130% now with some cash on the sidelines. Some of the cash I used for AMZN at around $800, lucky me
I do want to call in the fact, that if you don't leverage, you will lose equal or less nominal $ by holding this kind of assets vs stock, so your description of danger is correct when you're leveraged, but otherwise it's not. Now, most ppl do this for leverage, but you don't have to.
For example(assume SP $300 for ease of calucation), If I buy 10 contracts of $150 strike TSLA, instead of 1000 shares($300K), I will pay around $150-$153K, deploy about 50-51.5% of the capital.
If stock dropped 50%, I would lose around 150K in shares, but probably around 120K in options, as options would recover some time value and be priced around $30 (price for Jan 19 if Tesla was 150 - sounds about right?)
Furthermore, if Tesla dropped to $100, I would have lost $200K in shares, and loss in options is limited to invested $150-$153K, but option would still probably be worth some $10, so loss would be around $140K
Taken to logical extreme, if TSLA goes to 0, I lose 150-$153K in options, but $300K in shares
So DITM calls are actually safer, if you don't leverage yourself
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Zhelko Dimic
Careful bull
Yeah, I would definitely add some provisos in case any newbie casually reads this thread.
Zhelko Dimic
Careful bull
No. I am familiar with some of your heart-stopping stories involving options.It feels you casually read my posts
Zhelko Dimic
Careful bull
Those stories are the reason that I landed in a model I described tonight. If you read my posts, you'll find that I recommend not to leverage.
Fingers crossed! Definitely respect someone who has learned the hard way.
So you are not currently leveraged? Margin or options?
So I had an exchange with Ihor Dusaniwsky, who provided some insight into the shares availability data and highlighted reasons why the data might not be an accurate predictor of changes in short interest. I've been following Ihor on Twitter for some time, and as a disclosure item, he is quite a bear on Tesla. He is also obviously trying to promote services of his company, so generally would be somewhat dismissive about methods to track short interest, unless it is a paid service from the L3 Partners. Having said this, I believe that he offered a good insight on the subject.
For those not familiar with Twitter, read posts **bottom** to top.
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As a sequel to the exchange with Ihor Dusaniwsky, I finally decided to spend some time to try to see how Nadaq data and information from Ihor correlate (or not) with the Fidelity shares available for shorting data.
For those not following this for a while, I did a similar exercise a while back, trying to correlate Fidelity shares available for shorting data with the L3 Partners data. Back then the correlation was plausible, suggesting that Fidelity data could be roughly responsible for around half (quoting from memory) of the shorting activity as reported by L3 Partners.
Trying to get such a comparison with the short interest data provided by Ihor today, as well as with the 3/31 and 4/13/2017 data from NASDAQ, however, seem to indicate that Fidelity shares available for shorting data is *not* a reliable source for tracking short interest, as in both cases changes in availability *exceeded* changes suggested by NASDAQ and L3 Partners data. This indicates that a lot of changes in Fidelity availability during the last 2.5 weeks were *not* linked with actual shorting and perhaps can be explained by other activities which Ihor mentioned in his posts.
For those not following this for a while, I did a similar exercise a while back, trying to correlate Fidelity shares available for shorting data with the L3 Partners data. Back then the correlation was plausible, suggesting that Fidelity data could be roughly responsible for around half (quoting from memory) of the shorting activity as reported by L3 Partners.
Trying to get such a comparison with the short interest data provided by Ihor today, as well as with the 3/31 and 4/13/2017 data from NASDAQ, however, seem to indicate that Fidelity shares available for shorting data is *not* a reliable source for tracking short interest, as in both cases changes in availability *exceeded* changes suggested by NASDAQ and L3 Partners data. This indicates that a lot of changes in Fidelity availability during the last 2.5 weeks were *not* linked with actual shorting and perhaps can be explained by other activities which Ihor mentioned in his posts.
Excellent point, geneclean55. Here are a few:
* Dealing with leaps requires discipline that isn't necessary when holding shares. If you're in for the long haul, you need to roll the leaps forward about once a year. If you wait too late and plan to roll close to expiration and then the stock takes a tumble, you will take a financial hit compared to if you had rolled the stocks forward earlier.
* Deep in the money leaps aren't as liquid as stock. You can get out of all your shares in 30 seconds. Selling leaps at unattractive strike prices (too deep in the money) cannot happen quickly unless you're willing to take less for the leaps than they're otherwise worth
* If you forget about a leap and it expires, you are sugar out of luck
If you use leaps to leverage:
* If you think riding TSLA stock down on its bad days is thrilling, try riding a position leveraged in options down on such a day (a real toboggan run)
* Leverage is your friend if the stock price is going up and it is your enemy when the SP is going down. For this reason, you only want to leverage your holdings when you have strong confidence that the SP will be going up. Sugar happens, though. We all get surprised sometimes.
* Leveraging a position requires confidence. You need the will to leverage when the stock price and sentiment are low, the will to hang in there when there's a further, unexpected dip, and you need the discipline to deleverage when the stock price is high and your emotions are in conflict with your plan or your observations.
* Both Zhelko and I have been over the falls in a barrel with leveraged positions. Fortunately, Tesla found its mojo again and we both recovered. Others won't necessarily be so lucky. If you plan to try your hand at options for the purpose of leveraging, I strongly suggest starting with a relatively small portion of your portfolio. You will likely lack a full appreciation of the dark side of leveraging with options until you have gone over the falls at least once. Please do so with a small enough position that allows you to recover.
LargeHamCollider
Battery cells != scalable
Fidelity shares borrowed predicted 4.37x actual NASDAQ data and 4.43x what S3 Partners showed.
It looks like your data actually is useful it just over predicts by ~4.4x.
If this ~4.4x multiple holds for a few more data points your data will become a seriously useful tool. Thankyou for doing this @vgrinshpun.
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Fidelity net numbers for this week would seem quite a bit more plausible if you omit the one shot 500k and 1,000k "borrows" we saw.
Yeah, I think the very 'precise' numbers of 500k, and 1000k made people suspicious of underlying activity at Fidelity on those days.
The thing is that when I did previous analysis. as I mentioned, the availability data suggested 0.5x of shorting that was reported by L3 Partners. So it looks like there is no *consistent* good correlation. I agree that data is useful, but it seems that interpreting it is more of an art, than science.
I am actually thinking whether we can organize a group subscription to the L3 Partners short interest data. I can see it as a worthwhile effort if they provide data on *daily* changes in short interest. I understand that their conclusions are also could not be 100% accurate, but combining this data with Fidelity availability data might give us enough of an insight. My main interest is being able to pick up consistent covering activity (rolling squeeze) and be able to determine when it is falling off to try to pick good exit point for short to medium term trading.
Moderator Input:
I will suggest that you and others with an interest in Co or in any other metals or other basic inputs dive deep into the 100-odd posts of the "Resources Angle" thread. There has been a good deal of discussion, some of it very good*, regarding esp. battery inputs in this thread over its three-year existence.
To throw out a spoiler, my own inputs there, and that of a number of others, can be summarized as that no supply crunch reasonably can be expected, and that there are a varied and geographically diverse set of sources of Co such that any unrest in DRCongo or elsewhere need not be likely to be a problem.
Lastly, a small correction: there is effectively no byproduct Co from Li extraction nor is there ever likely to be some - a very small amount of Co theoretically could be associated with spodumene-derived Li but that is highly of academic interest only. It certainly is associated with Ni, as you also wrote.
Link here: The Resource Angle
*not just my own entries, of course
LargeHamCollider
Battery cells != scalable
Welp, so much for that. Though I'd still like to see a few more comparisons to NASDAQ data, it's reported every two weeks so we could get a statistically significant number of data points in a reasonable time frame.
What would a subscription to L3 Partners data cost?
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