If you shift substantial portions of your portfolio based on “having a pretty good idea” it will probably bite you eventually. That applies to both decreasing the time remaining and to increasing the strike prices. I bought a lot of J18’s $220’s when the SP was $160 and $170. When Tesla announced that they were pulling the M3 production ahead and the SP decreased I thought that was backwards. How could they possibly miss it badly enough to be in worse shape than not trying? So I rolled my $220’s to $280’s. Before I did that I considered all of the potential catalysts and thought that “the SP will probably go up by the spring of 2017”. Huge mistake! I could have easily gotten out of the $220’s profitably for most of the time I held them. So please be careful increasing your leverage on options to try to capture more money based on short term trading. I decided that my big mistake was doing that based on thinking that the SP would probably increase”. Now I believe that I should not even purchase more than a small lottery ticket play with options unless I am extremely confident that they will increase in value enough to make a substantial profit well before they expire.
Before you change your option strategy please ask yourself two questions:
1. Are you completely confident that the SP will increase enough 3-8 months before they expire to make this strategy profitable?
2. If you are so confident what has changed to increase your confidence that the options will be profitable before they expire? I said changed because if you were that confident why didn’t you have that additional leverage before?
I appreciate your thoughts here. I'm confused about your experience though. You said you rolled your $220s to $280s anticipating a rebound by spring 2017. We sure did get quite the rebound and then some by spring 2017. Your $280s would have been extremely profitable by then. What am I missing? What actually happened?
I'm certainly appreciating the conservative approach with TSLA the more experience I get with it. It's just such a completely unpredictable ride in the short and even medium term. To think I can just predict it will be much higher in a few months, so why not load up on June calls, is pretty naive. Much better to be conservative and go longer term than you think you need to. That's what I thought I was doing with the June calls. I have been very tempted by the March and April calls, and even picked up a small amount of those. The June timeframe seemed as close to a certainty as you can get. But, it's not that easy. That's really not conservative enough with TSLA.
With the calls, I use the option calculator to see where they will be priced based upon a projected share price at a given future point in time. I create a spreadsheet with lots of different options and analyze them. They can still be very profitable even within 3 months of expiration. For calculations, I've been going with what I thought were reasonably conservative price points, such as $360 and $380, at various points such as mid December, mid January, mid February, etc... From there, I pick the call and strike price that looks the most balanced in terms of profit and some protection from things not playing out the way I expect. Clearly, there is much more risk and potential reward to this approach than DITM long term LEAPs. It's not for everyone, especially those who are retired. I'm still relatively young with a high income, so I'm more accepting of risk than some others for sure. But, this may not turn out to be a smart approach come spring 2018. Thanks for the warning!
