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Advanced TSLA Options Trading

Discussion in 'TSLA Investor Discussions' started by smorgasbord, Apr 23, 2013.

  1. smorgasbord

    smorgasbord Active Member

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    Now that we've got a thread for newbies, it seems appropriate to have a thread where we discuss advanced options trading on TSLA.

    My first idea was a "sell TSLA and enter a Syn Long, plus a spare Call" - but with the stock up so much recently, I'm thinking a better first post is "lock in some gains on Calls you own."

    Let' say you were lucky/smart and purchased the May $35 call on March 25 for $3.25. Today that Call is worth around $16.50. That's a tidy profit. But, do you sell today and risk losing any upside should Tesla take a run to $55 or even $60? What if TSLA drops to $40 in early May due to conference call reaction? You'll only earn a couple bucks.

    One strategy is to roll to a higher strike. Sell your May $35 Call for $16.50 and buy a May $49 Call for $4.30. You'll lock in $12.50, and still be able to profit just as much as before should TSLA stay above $49 come May 18. You lose almost no upside and you gain downside protection in that you've guaranteed a profit of $9.25 no matter what.

    If you have other option ideas, specifically for TSLA, please share them.
     
  2. Citizen-T

    Citizen-T Active Member

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    I'm in pretty much the exact situation you described. I just sold the last of my May 18 calls that I paid $1.85 for at $9 even. I was worried about missing out on additional upside. Your suggestion of rolling into a higher strike makes sense to me. I'm looking at the chain now...what do you think is a good strike in my case?

    I suppose I could do the May 18s at $55 strike for $1.85. That would extract all my profit (minus trading fees).
     
  3. mrbry

    mrbry Member

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    Yep, same here, I've been rolling my calls up when they get deep in the money for exactly the reasoning you point out (they all initially started out as a synthetic long). I just leave the short puts alone. My plan is to use the profits as it comes back down (whenever that happens) to increase the position and rinse/repeat the same rolling strategy when it runs up again after that.

    - - - Updated - - -

    I'm generally averse to buying premium so I try to keep it to a minimum that I'm comfortable with. Especially so when it's a front month option. So maybe choose something with less premium or further out in time.

    (also FYI just to avoid confusion, generally saying May 18s implies strike price of 18. The day of month is usually left out especially if only the monthly options are being traded.)
     
  4. Citizen-T

    Citizen-T Active Member

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    Thanks. As you can probably tell, I am by no means an advanced options trader. I have dabbled in calls for some time now, but only to get extra leverage when I want to own more shares than I have cash for in the short term. But, at this point I am thinking it is something I should learn more about.
     
  5. deonb

    deonb Active Member

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    I also like the rolling to the higher strike. I had April $40's, rolled them to May $48's and re-rolled them today to May $55's. Twelve-folded the initial number of contracts. Sitting out for the rest and seeing what happens to the short squeeze.

    I just close my eyes to the value right now now and consider the initial investment when it was on the low side. So that it doesn't feel like I'm quite gambling with 5 figures :eek:.

    At this point a small short squeeze would net me a Model S. A decline would mean I'm only out a grand or so from the initial layout. I can live with either result...

    Funny, if I had to do a money transfer in order to buy that amount of $55's I would have NEVER done it. There's a different psychology at work when you roll up. :wink:
     
  6. Nicu.Mihalache

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    Next time you manage to roll them up, keep at least twice or three times the initial investment as cash / profit :) - you could avoid a very nasty aftertaste if the thing does not work out. You would have gains in any situation, cannot do much better than that!
     
  7. Eberhard

    Eberhard #421 Model S #S32

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    What is an easy way to get additional profit from the hight lending rates for the share? simple sell you share at current price, sell a PUT Option at the same base price as you buy a CALL Option. This is an syndetic buy. You will get around $3 profit because of the hight lending fees. With this you can get full profit of letting, not sharing your profit with stock brokers.
     
  8. mrbry

    mrbry Member

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    Yep, this is the synthetic long we've been talking about.

    (I assume by "base" price you really mean "strike" price.)
     
  9. smorgasbord

    smorgasbord Active Member

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    Reasonable. Some people like to buy back their Put options when 90% or so of the potential profit has been made. For me, the decision comes down to how you feel about buying more stock should it decline to the strike level. If there are months to go until expiration and you've made 90% of the max profit (remember, these are sold Puts so the most you can make is what you initially sold them for), it often doesn't isn't worth the margin/cash reserve to keep the position open - take the profits and invest it another play.
     
  10. deonb

    deonb Active Member

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    How do you get $3? When TSLA was at $52.50 today, the $52.50 calls were at $3.20 and puts were at $4.40.
     
  11. smorgasbord

    smorgasbord Active Member

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    This made me think: one reason to not roll your profitable calls is because you actually want the shares. Right now it looks like the April $40s would be a lock to get you purchasing shares at a significant discount to market. You would then have the opportunity to have that investment for the long term, which means that your $10 gain on day of purchase would, if Tesla holds up, be taxed at the long term capital gains rate, whereas the option income would be short-term. That does introduce more risk of the stock declining from its current level, both before expiration as well as after you purchase the shares.

    Note that selling puts and buying calls are both good ways to accumulate more shares of a stock you want, but don't want to actually buy at today's market prices.
     
  12. mrbry

    mrbry Member

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    Yep, good point. I basically buy it back based on how far out the option is and how much premium has eroded. The further out it is, and the more it has eroded, the more likely I'll buy it back. I have to balance it with the premium I'm burning from the newer less in the money calls.
     
  13. kenliles

    kenliles Active Member

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    good thread- thanks smorg

    I play the bulk of investment in long dated LEAPS (6-24 months) as stock replacement; then smaller amounts in short dated swings and occasionally put sell if I want to accumulate some shares.
    For LEAPS/sock replacement, I'll maintain a minimum long position, then add to it on major pullbacks that at most doubles that position. Really like the roll-over-up-and-out strategy for these, similar to current discussion for short-dated calls. Normally I wouldn't do this so early, but the huge jump coupled with (D)ITM Calls having such low time value components (evidently due to shorts trying to cover) forced my hand today.
    I rolled all my J14 $30 C into J15 $40 C and my J15 $30 C into J15 $45 C. Converting the profits to cash while maintaining most of my long position and moving out another year to boot. I'll use part of the cash profit to add to this position on any pullbacks, while playing with some short term OTM calls in case of short squeeze.

    So clearly I would subscribe to the current discussion by rolling up and out. However, a caution on this - I think we are in a mini short squeeze and wouldn't recommend rolling too far up in strike. It 'feels' to me TSLA has moved to a $40-$45 support level (the rest currently under short pressure).
     
  14. Causalien

    Causalien Reaper of Trolls

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    I have a suspicion that one of you did the may 50 put and call trade...
     
  15. K Hall

    K Hall Member

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    I was trading May 50's today.
     
  16. smorgasbord

    smorgasbord Active Member

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    Just for fun, here are some TSLA put options that pay pretty well or net you shares for less than $35. If you're looking to acquire more Tesla or make some money trying and failing, these might be worth looking into:


    Code:
    Symbol	   Expiration		Strike		Stock Price	Last	Bid	Ask	Days	Break-Even $	Break-Even %	Return %	Annualized %
    TSLA	20140118 - Jan 14	41.00		51.01		0.00	5.90	6.20	269	34.95		31.48%		14.76%		20.02%
    TSLA	20131221 - Dec 13	40.00		51.01		4.90	5.00	5.30	241	34.85		31.68%		12.88%		19.50%
    TSLA	20140118 - Jan 14	40.00		51.01		5.40	5.40	5.80	269	34.40		32.56%		14.00%		19.00%
    TSLA	20140118 - Jan 14	39.00		51.01		0.00	5.00	5.30	269	33.85		33.64%		13.21%		17.92%
    TSLA	20130921 - Sep 13	37.00		51.01		2.50	2.55	2.75	150	34.35		32.66%		7.16%		17.43%
     
  17. kenliles

    kenliles Active Member

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    Excellent. Thx smorg. I'm in the market for some, good timing
     
  18. smorgasbord

    smorgasbord Active Member

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    #18 smorgasbord, Apr 25, 2013
    Last edited: Apr 25, 2013
    On Dec 5, 2012 I posted the following:

    Back on April 16th, I bought back the $32 Puts for $0.50 because they had earned more than 90% of their max potential, so why take the risk for fifty cents?
    Today I rolled the $32 Calls to a $49 strike. I got $20 for my old $32 Calls, while the new $49 Calls cost me $5.30.

    So, I spent $0.50 + $5.30 = $5.80 but received $1.35 + $20 = $21.35, for a net locked-in profit of $15.55. Plus, I have June $49 Calls, so I can still participate in any future upside from here (actually, I'm already $3 in the black there!), but I have no possible downside on this trade now.

    So, a nice textbook ending to a synthetic long position - lost the downside, locked in some profits, can now still profit from future upside. Win-win-win!

    If I wanted more shares, I could have just closed the Put (or let it ride to expiration), and then exercised the Call to buy TSLA at $32 in June. That would be a good, reasonable long term play, which would have the potential to turn the $20 profit into a long term capital gain if I were to hold those shares until June 20, 2014. But, this trade was done with my "short term" money (I already own a chunk of shares for the long term), so my intent is to grab the short term money to re-deploy again.

    Now I'm almost rooting for Elon's upcoming announcements to have the same impact as the previous financing announcement, which will give me a chance to sell some more Puts at a nice price!
     
  19. kenliles

    kenliles Active Member

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    that's where I'm at as well- have some puts sell ideas ready- but decided to wait on the announcement. I think it will be a good one for current S owners, but the stock will pull back a little on the news- best guess

    nice move on your trade by the way
     
  20. deonb

    deonb Active Member

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    Here's a question to you.

    TSLA is obviously considered crazy volatile. So why would a covered call strategy have such a relatively low yield?

    Right now the May yield is 5.6%. June yield is 6.7%. That's not the numbers I expect from my days of trading volatile internet stocks. I would have thunk it over 7%.

    What gives?
     

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