Advanced TSLA Options Trading

[Mario Kadastik]

Due to IV crash, I like the thought of selling NTM puts before the earnings call. Since it is unclear how much of a beat is priced in, this might be the safest way of harvesting the knowledge that they certainly are not underperforming.

Thoughts on that? Vanilla November expiry best?

Yes, usually the best way to extract profit from IV crash is to sell options. As in this case we're all fairly sure that TSLA is going to beat one could indeed consider as part of a strategy the selling of ATM or NTM puts. If you want to expose yourself to a bit more risk and reward, then also possibly slightly ITM, but probably the highest combination of time value, IV and total value of put is on the ATM puts. If you want some security and still benefit from the IV crash you can sell slightly OTM puts as those will still be priced fairly highly due to the exploding IV just before earnings.

I personally would probably use the Nov 8th options as those will have very fast time decay immediately after the IV crash as well requiring the stock to drop hard. You can estimate what kind of movement is priced in by taking the combined value of call and put for the ATM strike. Let's say TSLA is at $190 and the call and put together are worth $25 then you can expect that the market is pricing in a move of $25 in either direction (otherwise you could just buy the straddle). I'd not do it for TSLA, but for some companies reporting earnings I've sold the straddle assuming that the move itself will not be as large as the expectation and it has worked in about 2/3 cases. For the case where you miss you can try to time the next days volatility to reduce the loss or just close the wrong leg at market open.

All of those plays mostly work to benefit from the imminent collapse of IV the day after earnings. Of course one cannot make it fully secure, but you either make a prediction on the direction of the move or the magnitude. If you hit you win if you miss you may get out fast enough with close to no loss thanks to the IV collapse. If the miss is hard, well then you risk a significant loss (if you sell $185 put and the stock drops to $150 in AH trade, then you're looking at a $3500 per contract drop that is probably far above the premium you got). Of course none of us expect a drop at all

 

[InTheShadows]

So I feel like I graduated to the advanced thread today.

Yesterday I had no cash left for trading. However with the big pullback of tsla I wanted to do a short term call. So I created a delayed bull call spread with some deep itm dec calls I have with csiq to get some cash.

I used 90% of the cash to buy weekly $165 tsla calls for 2.80, once they got filled I created a GTC order to close 1/2 of them for 5.90 to get all my money back.

That filled this am then I bought back my spread on csiq for a 7% loss.

I then created a GTC close on the remaining weeklies for 6.60. Those filled and netted me a 220% gain on the tsla. So now I have another nice chunk of cash to redeploy.

I could have been more aggressive with the final closing (I almost planed on 9.80 for the last half) but I didn't want to get too greedy and risk a pullback tomorrow and have the remainder expire worthless and leave me roughly break even.

 

[DonPedro]

So in anticipation of the earnings I decided to load up ahead of the run up. I wanted to get in before the street does its research and realizes that another blowout quarter is upcoming. This was Friday afternoon, then Monday morning I got slammed by the interim volatility.

My takeaway is that the next time I want to trade on earnings expectations in Tesla, I will do a calendar spread to take out the random volatility.

 

[Gtoffo]

So I feel like I graduated to the advanced thread today.

Yesterday I had no cash left for trading. However with the big pullback of tsla I wanted to do a short term call. So I created a delayed bull call spread with some deep itm dec calls I have with csiq to get some cash.

I used 90% of the cash to buy weekly $165 tsla calls for 2.80, once they got filled I created a GTC order to close 1/2 of them for 5.90 to get all my money back.

That filled this am then I bought back my spread on csiq for a 7% loss.

I then created a GTC close on the remaining weeklies for 6.60. Those filled and netted me a 220% gain on the tsla. So now I have another nice chunk of cash to redeploy.

I could have been more aggressive with the final closing (I almost planed on 9.80 for the last half) but I didn't want to get too greedy and risk a pullback tomorrow and have the remainder expire worthless and leave me roughly break even.

Congrats. When you wrote about your play on the other thread I liked it straight away. Ballsy....risky....but I think you had good odds. Definitely an all or nothing kind of trade.
And nice job closing the trade today. That takes discipline only some have. I've learned that lesson the hard way: sell as early as possible when the price spikes, and don't look back. You had a defined strategy since the start and that was the key of your success. Nice job.

 

[InTheShadows]

Congrats. When you wrote about your play on the other thread I liked it straight away. Ballsy....risky....but I think you had good odds. Definitely an all or nothing kind of trade.
And nice job closing the trade today. That takes discipline only some have. I've learned that lesson the hard way: sell as early as possible when the price spikes, and don't look back. You had a defined strategy since the start and that was the key of your success. Nice job.

It was risky but the money from the original spread was just over 2% of what I had in the account. Csiq looked like it had taken a breather and the spread was less than half that call position and 6 strikes higher.

I have had my lessons with short term calls that ended up worthless. (I hope I don't have any more) I'm glad I didn't go for my aggressive plan, lots of lost value on those calls tomorrow if the stock doesn't go up anymore.

 

[Jonathan Hewitt]

It was risky but the money from the original spread was just over 2% of what I had in the account. Csiq looked like it had taken a breather and the spread was less than half that call position and 6 strikes higher.

I have had my lessons with short term calls that ended up worthless. (I hope I don't have any more) I'm glad I didn't go for my aggressive plan, lots of lost value on those calls tomorrow if the stock doesn't go up anymore.

Congrats! I thought about doing something like that but would've had to use margin. I don't like making bets like that when I know it's money I would have to pay back... I did buy some November 150s yesterday and sold today for 22% profit. I figured it was very low chance the stock would be below 150 post ER so if the stock kept going down today I'd be able to recover the calls in November. It also was relatively high delta so I'd be able to catch a lot of the rebound today if there was one (there was). The profit raised my portfolio value just over 1%, haha. I sold when TSLA was around $170, if I had gotten it closer to $174 I would've done much better.

 

[Gtoffo]

Hey guys,
I think it's time to revive this thread. Is anyone implementing some defensive strategies regarding TSLA? I'm still very long with both stock and leaps and so far I've had no protection. However I'm near the point at which I'll be forced to sell if the stock goes down significantly, so I'm devising a contingency plan if the stock does down from here. Any ideas/suggestions?

 

[ZenMan]

I don't see many options.

1). Sell out of the money calls 1 month out. If this is truly the bottom and we rally somewhat, then your shares could be called away.
2). Buy PUTS. Expensive insurance.

What other options are you considering?

 

[kenliles]

my only defensive strategy for these kinds of moves is to roll out further in LEAPS both time and strike (delta tracking reduction)

 

[Gtoffo]

2). Buy PUTS. Expensive insurance.

How about bear put spreads to lower the cost of the insurance? I've never tried a similar strategy but it looks good on paper....

 

[ZenMan]

How about bear put spreads to lower the cost of the insurance? I've never tried a similar strategy but it looks good on paper....

How about hedging using the expected range bound price action? You might miss out on a large upswing, but you can reduce your basis and would protect somewhat against further downside. Wait for a tesla bounce to the mid 140s, and then sell one month out 155 or 160 calls. At one month out I'd think you could get $5-7 per contract. After you sell the calls, watch for another downswing and then buy the calls back after the call price drops 50%. Then repeat if Tesla swings up again. To do this you have to set your targets and maintain them. I got greedy last week and was waiting for $147 price and missed out on the upswing entirely.

 

[Gtoffo]

How about hedging using the expected range bound price action? You might miss out on a large upswing, but you can reduce your basis and would protect somewhat against further downside. Wait for a tesla bounce to the mid 140s, and then sell one month out 155 or 160 calls. At one month out I'd think you could get $5-7 per contract. After you sell the calls, watch for another downswing and then buy the calls back after the call price drops 50%. Then repeat if Tesla swings up again. To do this you have to set your targets and maintain them. I got greedy last week and was waiting for $147 price and missed out on the upswing entirely.

Sounds like a lot of work and a lot of good timing required.... I'm not very disciplined so I need to choose strategies which are "fire and forget" as much as possible. That's why I like spreads usually. I'm not worried about tesla long term but I need to make sure I can through the hump of the next few months (before Q4).

I'm thinking of setting up a cheap put spread for some low strikes that would kick in if we fall significantly offsetting my losses if we go that low (at least partially). I wouldn't do it if I could afford it....but if TSLA drops some more I would be forced to cut my losses.

 

[ZenMan]

Sounds like a lot of work and a lot of good timing required.... I'm not very disciplined so I need to choose strategies which are "fire and forget" as much as possible. That's why I like spreads usually. I'm not worried about tesla long term but I need to make sure I can through the hump of the next few months (before Q4).

I'm thinking of setting up a cheap put spread for some low strikes that would kick in if we fall significantly offsetting my losses if we go that low (at least partially). I wouldn't do it if I could afford it....but if TSLA drops some more I would be forced to cut my losses.

You don't have to actively buy / sell the calls. Wait for a bounce, sell the 155 or 160 call and forget until expiration. You'll either sell the stock at $160 plus option premium (price looks good right now), or you'll pocket $500 for each contract you sold. $5/share isn't a minuscule amount of downside protection.

 

[kenliles]

Sounds like a lot of work and a lot of good timing required.... I'm not very disciplined so I need to choose strategies which are "fire and forget" as much as possible. That's why I like spreads usually. I'm not worried about tesla long term but I need to make sure I can through the hump of the next few months (before Q4).

I'm thinking of setting up a cheap put spread for some low strikes that would kick in if we fall significantly offsetting my losses if we go that low (at least partially). I wouldn't do it if I could afford it....but if TSLA drops some more I would be forced to cut my losses.

or buy some LEAPS and go to SLEEPS

 

[ZenMan]

You don't have to actively buy / sell the calls. Wait for a bounce, sell the 155 or 160 call and forget until expiration. You'll either sell the stock at $160 plus option premium (price looks good right now), or you'll pocket $500 for each contract you sold. $5/share isn't a minuscule amount of downside protection.

I wanted to make sure I gave credit to Kevin99 for the above idea. He discusses this strategy on his investnaire site.

 

[Gtoffo]

You don't have to actively buy / sell the calls. Wait for a bounce, sell the 155 or 160 call and forget until expiration. You'll either sell the stock at $160 plus option premium (price looks good right now), or you'll pocket $500 for each contract you sold. $5/share isn't a minuscule amount of downside protection.

Doesn't look worth it to me at all. I want to protect myself against the possibility of a deep drop....not kill my upside potential to profit 5 bucks (which won't cover at all the losses as 5$ is barely more than 3% of movement!).... especially since I think a rebound is more likely than a big drop.

All risk, no gain.

So far I'm still sitting on my long position....I'll wait to see what happens today... It's hard to find the strength to bet against Tesla....even though it's just a hedge....

 

[smorgasbord]

Thought I'd resurrect the thread - as 20/20 hindsight proves yet again that selling calls on a racehorse stock like Tesla is not a good idea - unless you're convinced that the stock is completely overvalued and has no-where to go but down. But, in that case, you should probably just sell the stock.

Stock price insurance comes from buying Puts, not selling Calls. And yes, buying Puts is expensive because of the still-massive short interest, so it's just not worth it unless you actually want to short Tesla.

 

[Mario Kadastik]

Selling calls is to enhance your position once the stock has run up a lot. I sood and bought back calls multiple times after TSLA broke 170. Just a few weeks out 180 calls. Due to the massive runup the premiums were high and rhey were covered with calls. Once TSLA corrected back down even intra day I bought them back for profit. This basically playing the short corrections with worst case being that you have to give your hedged spread away at this profit level. Not a bad choice.

 

[smorgasbord]

Selling calls is to enhance your position once the stock has run up a lot.

I respectfully disagree. All selling covered calls does in that case is limit your upside. You can try to play the game where you sell calls, then buy them back cheaper, but if the stock runs away from you, you're either buying them back at a higher price, or selling Tesla stock at a lower price. Not a good choice.

 

[sleepyhead]

I respectfully disagree. All selling covered calls does in that case is limit your upside. You can try to play the game where you sell calls, then buy them back cheaper, but if the stock runs away from you, you're either buying them back at a higher price, or selling Tesla stock at a lower price. Not a good choice.

And I respectfully disagree with your opinion. I have been selling dozens of calls against my TSLA positions from when it crossed $140 in December and I have enhanced my returns because of it.

The secret is choosing the correct expiration date and strike price. I have had some issues with a couple of calls going deep ITM, but those can be rolled forward until the stock eventually corrects.

It is a lot easier to make money selling calls than buying them.