$360 Strike Calls w/ Dec 17 Expiration

[Nb1277]

TSLA has performed extraordinarily well as of late. As a shareholder, I'm very pleased. Unfortunately for me, though, I got concerned of a broad market pullback a little while back and put a collar $290/$360 collar on my TSLA position (Oct 17 exp). I've been watching and thinking as the price climbed higher thinking there may be a near term pullback but indications seems to be that Tesla will continue to roar forward.

So, would you recommended buying calls with $360-$400 strike or perhaps a call spread in an attempt to capture a likely move higher around the model 3 launch? I'm thinking November or December 2017 expiration?

I'm somewhat capital constrained but have a position I could sell to fund this purchase on which I'm up (slightly but will not be taking a loss on sale). The concern around simply buying to close to the $360 calls is that they're worth quite a bit more now than when I sold them so I'd prefer to avoid that loss, particularly since there's a chance the price is below $360 at October expiration.

 

[Jonathan Hewitt]

There's several things you could do but they all suck at this point. Since the share price is ~$360 right now the $360 calls have the most extrinsic value of almost any option that month (ATM options have the most extrinsic value) That's a lot of extrinsic value you would have to buy back. I think it's probably all going to depend on the Model 3 ramp at this point so whatever you do should be based on how likely you think the Model 3 ramp will be better than expected. There's some people here thinking TSLA will go to $500 or more by the end of the year if things go swimmingly well.

Another option you could do is to roll the $360 call to a higher strike at a farther out month that is the same value as your current $360. This would give you more room to the upside before your shares got called away. I wouldn't do this though because I personally think the farther out we go the more likely TSLA will be higher than it is today and it would probably be better to reallocate your capital sooner rather than later. I liked your idea of bringing in additional capital from elsewhere to add long deltas but this may overweight your exposure to TSLA and be more risky than you want. Bringing in extra capital opens up a bunch of new choices.

The safest thing for you to do would be just to wait it out and hope TSLA is under $360 come expiration. I think this is only likely if TSLA botches the Model 3 ramp but that is the risk you took when you put on the collar. You would be very sad if TSLA kept shooting up but you at least wouldn't lose any money?

Sorry I didn't have a magic answer for you.

I'm not trying to be a jerk but this may help you next time you want to put on a collar, or maybe it won't:
Do Collars Choke Profits?

 

[Nb1277]

Thanks @Jonathan Hewitt that is the kind of perspective I'm looking for...just another opinion or two, three etc. Two heads better than one thing. And no offense taken. You're right, in hindsight, the collar was not a good idea but hindsight is 20/20. I understand the function of a collar but where I was (very) wrong is my high level of confidence that Tesla wouldn't hit $360 anytime soon. I felt that any minor hiccup in Model 3 production would be an a steep slope down, albeit temporarily. Now I'm not in a great position. Anyways, I'm up a decent amount so not the end of the world just not preferable. I've been considering rolling them out more for tax reasons than anything else (a few more months gets a couple more lots into long term territory). Thanks again for the thoughts and insight!

 

[pz1975]

I agree to just leave it for now. We aren't at 360 now and there is no guarantee we will be there in December. Lots of things (macro and Tesla-related) could happen between now and then. The worst would be to buy it back now at a premium and then watch the stock fall later - would add real losses on top of paper losses. Worst case scenario by leaving it is you make some profit but not as much as you could have. FOMO (fear of missing out) is a strong emotion and not good for smart trading.

I sold some Jan 2018 calls at 241 and have total FOMO for them now even though they were like 80% profit. I'm trying to work through the emotion to try to handle it better in the future so I don't make stupid impulse buys based on emotion.