Advanced TSLA Options Trading

[Acmykguy]

Buy the near term and sell the further out one? I may have to think about that one, it doesn't make sense to me at first glance (only been doing options since april).

Long Calendar Call Spread | Calendar Spreads - The Options Playbook

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http://www.optionsplaybook.com/option-strategies/long-straddle/

This is what I am playing today, just too many unknowns and the price swing up or down will be large and violent.

 

[Jonathan Hewitt]

Long Calendar Call Spread | Calendar Spreads - The Options Playbook

That play involves selling the near term, buying the longer term one, same strike? I can the one you described working, too. You'd basically hold onto both as IV goes up into the earnings report and then close them out before the earnings report? The AUG 135 should go up in value from IV going up more than the SEP 145, but I'm not sure about how the stock price going up or down would affect each call in conjunction with the IV change...

 

[Acmykguy]

That play involves selling the near term, buying the longer term one, same strike? I can the one you described working, too. You'd basically hold onto both as IV goes up into the earnings report and then close them out before the earnings report? The AUG 135 should go up in value from IV going up more than the SEP 145, but I'm not sure about how the stock price going up or down would affect each call in conjunction with the IV change...

To help you understand how stock price effects the IV , you need to understand the Greeks. Here is a link to explain it better. Every option has them and need to be looked at prior to buying an option.

Option Greeks Explained In Simple Language

 

[Jonathan Hewitt]

Right, but depending on how much change you have in each area the overall effect could work for you or against you, which is hard to predict, IMHO. The AUG call has the higher theta and will lose value faster as time goes by (works against you) but also has a lower vega, so won't go up in value as quick as IV goes up as the SEP call (works against you). So if you buy the AUG call it's going to depreciate faster than the SEP call as time goes by, assuming no change in stock price and assuming IV stays the same or goes up. It looks to me like the only way you can win is if the stock price stays under the SEP call strike? If that is what you think is going to happen then it would be a good play.

Or did you mean to sell the AUG call and buy the SEP call?

I guess what I'm trying to ask is what you expect the stock to do and how you would play thorugh the play once you initate the position depending on if you were right or wrong.

 

[smorgasbord]

Or did you mean to sell the AUG call and buy the SEP call?

Yeah, typically on a Long Calendar Call Spread you sell the close to expiration call and buy the further call. However, note that typically those Calls have the same strike, which means it's most suitable for stocks whose prices you expect to remain stable. What Acmykguy's talking about is a mix of strike prices and expirations. So, you get some of the Bull Call Spread behavior (limited risk and limited upside) and some of the Calendar Spread behavior. That might work for TSLA, but it's pretty darn complicated, and I don't see Tesla as the kind of stock you invest in to make some money off of Time Value.

With both spreads, if you think the stock is going to shoot up, you simply buy back the sold call and then you have a purchased call with unlimited upside. However, to really profit from that, you need to make that decision when the stock dips because that's when the sold call can be bought back for less than you sold it for. Thats exactly the opposite of what your instinct will tell you to do, so it'll take guts. If you wait until the stock starts to rise before buying back the call, you'll pay more to buy it back than you sold it for, in which case you'd have been better off only buying a call in the first place.


EDIT: Just a note to those not familiar with a Bull Call Spread. It's roughly equivalent to buying the stock and then selling a Covered Call. Selling Covered Calls are considered a "safe" strategy since you can only lose money you've already spent (no margin calls). With the Bull Call Spread you've spent less money than if you were to buy shares, so it's even less risky. With Tesla pushing all time highs and some people having fear of it dropping below $100 (or lower), then a BCS will let you enjoy some run up from here without the risk of the stock tanking to half it's current value.

 

[Acmykguy]

Predictions for tomorrow price movement?

 

[Jonathan Hewitt]

What Acmykguy's talking about is a mix of strike prices and expirations. So, you get some of the Bull Call Spread behavior (limited risk and limited upside) and some of the Calendar Spread behavior. That might work for TSLA, but it's pretty darn complicated, and I don't see Tesla as the kind of stock you invest in to make some money off of Time Value.

Ah, thanks! I'll stay away from that trade...Any thoughts on the "calendar put spread" I posted on the last page? If I'm missing something and it's really stupid please someone tell me. I'd rather be called stupid then lose lots of money, haha.

 

[deonb]

I'm trying to plan a play for the earnings release. I expect a movement of at least 10% either way the day after, but betting mostly on the upside.

My intent is to create the setup a little while before close on the 7th, using August 10th options. I would like it so that on 10% downside, I'm dead even, and on the upside I have exponential potential.

Let's say I play with ~$10k.

And let's suppose next Wednesday before closing the stock price is at $120 (but this really works for any price). Using today's options prices and premiums and doubling it for buy, but keeping it the same for sell (expecting more volatility that week until the point of announcement, and then rapid dropoff after), I get:

Buy 40 x $108 puts at $0.65 each = $2600.
Buy 10 x $125 calls at $2.00 each = $2000.
Buy 50 x $130 calls at $0.70 each = $3500.
Buy 200 x $140 calls at $0.10 each = $2000.

A 10% drop to $108 will yield back the $10k
A 10% raise to $132 will yield about $25k

Of course any movement more than 10% is gravy. Repeat of Q1's 20% up will yield $125k. Repeat of yesterdays crash will yield $30k.

Of course the risk is the price will stay dead even at $120 and I'd have lost part or all of the initial $10k (ok with that).

Does anybody else have a better strategy than this that you care to share?

 

[mershaw2001]

Hi Deonb, I like your setup. I won't be betting on the same occurrence as you, as I think the move will be significant but smaller in magnitude. Has your experience been that prices will only be double what the current friday prices are now? I was looking over other stocks that are equally volatile (nflx) and trying to get a sense of the value of forward (normal) week prices to earnings week prices. My take is that you'll actually see a 5-7 fold increase in the price of these options, not a 2 fold increase, and I think this will drastically change your strategy.

 

[Norse]

I'm trying to plan a play for the earnings release. I expect a movement of at least 10% either way the day after, but betting mostly on the upside.

My intent is to create the setup a little while before close on the 7th, using August 10th options. I would like it so that on 10% downside, I'm dead even, and on the upside I have exponential potential.

Let's say I play with ~$10k.

And let's suppose next Wednesday before closing the stock price is at $120 (but this really works for any price). Using today's options prices and premiums and doubling it for buy, but keeping it the same for sell (expecting more volatility that week until the point of announcement, and then rapid dropoff after), I get:

Buy 40 x $108 puts at $0.65 each = $2600.
Buy 10 x $125 calls at $2.00 each = $2000.
Buy 50 x $130 calls at $0.70 each = $3500.
Buy 200 x $140 calls at $0.10 each = $2000.

A 10% drop to $108 will yield back the $10k
A 10% raise to $132 will yield about $25k

Of course any movement more than 10% is gravy. Repeat of Q1's 20% up will yield $125k. Repeat of yesterdays crash will yield $30k.

Of course the risk is the price will stay dead even at $120 and I'd have lost part or all of the initial $10k (ok with that).

Does anybody else have a better strategy than this that you care to share?

thanks for the setup, I think we can all be say that it will move that day, hopefully up

 

[Realist]

Buy 40 x $108 puts at $0.65 each = $2600.
Buy 10 x $125 calls at $2.00 each = $2000.
Buy 50 x $130 calls at $0.70 each = $3500.
Buy 200 x $140 calls at $0.10 each = $2000.

As I have said in another thread, this is how the Instis make money.

You are paying huge premiums and anything between 105-130 will cost you almost all the money you invested. I

 

[deonb]

As I have said in another thread, this is how the Instis make money.

You are paying huge premiums and anything between 105-130 will cost you almost all the money you invested. I

Yeah, I remember that post:

Buying options no matter calls or puts is the worst thing you can do now.

You are paying a very high premium due to the high volatility. When volume and vola comes down prices of options will drop.

This is how the instis make money.

All I can say to that is that I'm very glad I ignored you, and I hope most other people did as well. I realized the biggest one-day % gain in my overall portfolio since Q1 in the 12 hours directly following your post. All due to the "worst thing you can do now".

 

[Realist]

Yeah, I remember that post:



All I can say to that is that I'm very glad I ignored you, and I hope most other people did as well. I realized the biggest one-day % gain in my overall portfolio since Q1 in the 12 hours directly following your post. All due to the "worst thing you can do now".

Have you realized your gains yet?

I guess not. With that kind of strategies you will loose most of your invested money in the long term.

 

[deonb]

Have you realized your gains yet?

I guess not. With that kind of strategies you will loose most of your invested money in the long term.

Of course I have.

I changed the majority of it back to shares yesterday at $116 which means I now have 50% more actual TSLA shares than I had on Friday.

I've also taken out 30 times more cash than I've initially invested in Tesla (in order to pay for my Model S). Which I feel ok about, since I'm up 8000% since April.

All due to those evil evil volatile options... yeah. Got to avoid those.

 

[Realist]

Of course I have.

I changed the majority of it back to shares yesterday at $116 which means I now have 50% more actual TSLA shares than I had on Friday.

I've also taken out 30 times more cash than I've initially invested in Tesla (in order to pay for my Model S). Which I feel ok about, since I'm up 8000% since April.

All due to those evil evil volatile options... yeah. Got to avoid those.

Well congrats. Just don't get too greedy.

 

[Jonathan Hewitt]

All I can say to that is that I'm very glad I ignored you, and I hope most other people did as well. I realized the biggest one-day % gain in my overall portfolio since Q1 in the 12 hours directly following your post. All due to the "worst thing you can do now".

Agreed. Bought 10 AUG $105 calls when stock was around $109.50 on Tuesday and sold them yesterday at EOD for a 55% gain on them in only 24 hours time. Not a huge move compared to the rest of my portfolio and definitely not as good as a move as it sounds like you made but I was being a little cautious in choice of strike price and how much I wanted to put on the line. Either way, my portfolio is worth more now than the last time TSLA was at $120.

Please post any further thoughts on options plays as we get closer to the earnings report! Like you said, as long as it's not a large % of your overall portfolio it can be worth trying a play like the one you mentioned.

 

[Acmykguy]

Here is an interesting read. Something to consider if you follow technical anyalisis.

Tesla (TSLA): Technicals in Charge Here

 

[Causalien]

Here is an interesting read. Something to consider if you follow technical anyalisis. Tesla (TSLA): Technicals in Charge Here

Next fib level is at 150. One thing to notice is that the premiums for a call spread for 2014 and 2015 is the same.and is only slightly higer than the August spread. Which means all the premiums are only pricing in q2. It might make more sense to buy 2015 spreads.

 

[toastypasta]

I need to learn how to do these crazy options trades.

 

[ggr]

I need to learn how to do these crazy options trades.

Doing crazy options trades is actually quite easy! ;-)