So I have a lot of Jan 15 $200 LEAPs. Half are covered to make delayed construct spreads, the other half are open. Since its less than a year till they expire, what would the benefit be to covering these calls, as described, at higher strikes as opposed to just selling and rebuying the same strike calls? I assume the benefit, if they were further than a year out , would be long term capital gains. Another benefit might be that you don't have to try to time the tops and bottoms as the shorter term covered call will hopefully just expire. Any other reasons?
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Advanced TSLA Options Trading
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So I have a lot of Jan 15 $200 LEAPs. Half are covered to make delayed construct spreads, the other half are open. Since its less than a year till they expire, what would the benefit be to covering these calls, as described, at higher strikes as opposed to just selling and rebuying the same strike calls? I assume the benefit, if they were further than a year out , would be long term capital gains. Another benefit might be that you don't have to try to time the tops and bottoms as the shorter term covered call will hopefully just expire. Any other reasons?
Johann Koeber
Happy Owner
Well it's likely we'll gap up today so those who sold too close strikes might get to roll them or buy them back at a loss. Rolling right now might not be a good idea as earnings is coming up. Johann, aren't you worried that Tesla will be above $200 post-earnings or is that 1/3 your hedge against a bad result? Because you know I actually bought those over the past few days as an earnings play
You are right Mario.
Full disclosure:
I bought the shares a few days ago at $170.36 on margin. I maxed out my account with IB. As we know they want cash for TSLA but they gave me some margin on my other holdings.
Then yesterday I sold the calls against these.
Therefore, if I loose the shares, I will have made circa 20 % on OPM (other people's money). Not too bad in my world.
Now if IB would give me margin on TSLA and some of my solar holdings ....
Instead I keep getting reminders by email from IB that my account, while still being margin compliant, is under 5 %.... and that they do not issue margin calls. I would not be confident going out on the limb any bit more.
This is what they write:
ALERT: Your account, while currently margin compliant, maintains qualifying equity (i.e., Equity with Loan Value) at a level only 5% above that which is required. Please note that IB does not issue margin calls and should this cushion erode and your account no longer remain margin compliant, it will be subject to forced position liquidations. To ensure continued compliance, please consider depositing additional funds to increase equity and/or closing or hedging positions to lessen margin exposure. Further note that funds in transit or subject to a credit hold are not considered when liquidating positions.
Mario Kadastik
Active Member
Well you have a valid case where it's kind of win-win I write covered calls when it's a win-win-win situation
Basically when TSLA ran from 140 to 172 in short order I sold Jan 31st $180 calls against my positions. My logic was that if TSLA keeps going up the delta increase of my lower strike calls is that much bigger that I still gain money albeit slower. If TSLA goes sideways my DITM LEAPs will not lose much, but the sold calls will lose time value and if TSLA goes down I get some hedging effect buffering the correction (which I assumed would come). Once the stock did correct (I kept selling them on the way up all the way to 182) and I thought it was a semblance of bottom I bought the calls back netting a nice 50-70% gain on them basically considering it a win no matter if the stock goes down more or up. When it went up again I re-sold those calls effectively riding this elevator multiple times. Had it gone more down or kept sideways I'd have booked profits and still been better off than just keeping going naked long.
Right now I'm 100% naked calls. I did liquidate some yesterday during the runup that I had purchased at the bottom ($165) to reduce the position size and keep a lower cost average.
I write covered calls when it's a win-win-win situation Basically when TSLA ran from 140 to 172 in short order I sold Jan 31st $180 calls against my positions. My logic was that if TSLA keeps going up the delta increase of my lower strike calls is that much bigger that I still gain money albeit slower. If TSLA goes sideways my DITM LEAPs will not lose much, but the sold calls will lose time value and if TSLA goes down I get some hedging effect buffering the correction (which I assumed would come). Once the stock did correct (I kept selling them on the way up all the way to 182) and I thought it was a semblance of bottom I bought the calls back netting a nice 50-70% gain on them basically considering it a win no matter if the stock goes down more or up. When it went up again I re-sold those calls effectively riding this elevator multiple times. Had it gone more down or kept sideways I'd have booked profits and still been better off than just keeping going naked long.
Right now I'm 100% naked calls. I did liquidate some yesterday during the runup that I had purchased at the bottom ($165) to reduce the position size and keep a lower cost average.
Dude you seriously need to stop debating semantics because it is a fruitless exercise. A Bull Call Spread, aka, debit spread, aka vertical spread is commonly understood to be a spread with options of the exact same expiration date:
http://www.optionseducation.org/strategies_advanced_concepts/strategies/bull_call_spread.html
You can sell "covered calls" against LEAPS or Futures, because you are selling a call that is "covered" by either the underlying or a derivative of the underlying.
Anyway, this discussion is pointless and I am done debating semantics. Selling calls against LEAPS is as much a bull call spread variant as it is a covered call. You can't argue that the strategy is a BCS variant but not a covered call. As far as semantics go you can't say that the strategy is one but not the other.
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I sold the 185 when TSLA was around 174, and the 182.5 when it was at 176.
But the reason why I do things depend on overall market conditions and I have no fast rule why I choose a certain strike or expiration date. It all depends on market conditions and what I have in my portfolio. Even though I sold the calls, I would love to see them expire ITM.
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Yes, the write does use the LEAPS position to collateral the call-sell. Absolutely no maintanence margin required.
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Are you sure about that?
I ended up covering a quarter of my position in these for $1.52 this morning for a quick 17% gain.
Any particular reason you bailed out of those so quickly? Felt the money was better used elsewhere or that it was no longer a good bet?
It actually cost me money to cover, so it is not about using money elsewhere.
I just thought that TSLA will not go down much lower, so I sold a little and put in some lower limits incase TSLA went down even further. I only covered 25% of the calls I sold yesterday.
The reason why I covered the short call today is because in less than 30 minutes (in market trading time) I made 17% or 1/6 of maximum gain, i.e. 100%. There is still 4.5 weeks left till expiration, so when you get 1/6th of maximum reward in 30 minutes, you have to take the gain.
I sold a weekly 185 to get some cash back.
pz1975
Active Member
Aren't you worried with the FRB announcement at 2:00 EST that the market (and thus TSLA) could jump quickly either way? I am avoiding selling calls or puts for now because I don't want to be left holding the bag if the stock jumps purely due to macroeconomic (and unpredictable at this time) reasons. I personally think the news will be positive but that is just a gut feeling and I am not willing to place any bets based on that. I bought some weekly puts before close yesterday and sold them for a nice (25%) profit after opening today. I could have held longer but like you always say, taking profit is never a bad idea!
Mario - sleepy
got it- thanks very much- I'll give this a toe-in-the-water on the next run up; looks like a lower risk way to capture/hedge on run-ups without reducing long term positions;
If TSLA goes up I win, if it goes down I get to keep the premium and win this bet. The only way I lose is if TSLA goes up a lot in a very short period; and I just bought some weekly $190s just in case for a very short term trade.
My prediction is that the Fed will either reduce taper to $5b or hold steady at $75b. Initial reaction will be market up followed by a sell-off one minue later, followed by panic buying for the rest of the day.
But everyone thinks that the Fed will taper another $10b, and if that happens I don't know what will happen in the market. A lot of volatility for sure.
Mario Kadastik
Active Member
yep- market generally moving down some on the news;
TSLA holding up nicely though- relative
No, you need to be clearer about what you're saying. When you say "Covered Call" everyone reading rightfully assumes you're buying/holding stock and writing calls against it.
Sorry it annoyed you to have to explain what you're really doing. We don't all have the time to day trade.
And now you are making stuff up. How about you actually read what I wrote, before you accuse me?
The first time I referred to selling calls against options as a "covered call" is in this post in response to kenliles question about selling covered calls against LEAPS:
Advanced TSLA Options Trading - Page 35
There is absolutely no ambiguity here, except for what you created. What I wrote is pretty straightforward and clear.
The problem lies with you. You are wasting everyone's (and especially my) time on TMC playing these games with semantics.
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I spent a good chunk of this morning uncovering some of my weekly covered calls just in case Elon drops a bomb on us in Munich. Looks like I made a good decision so far, but I might be selling those calls for more later in the day to generate some income if TSLA gets too rosy.
You waste your own time.
You had used the correct phrase earlier. Now you're just spinning this into snippiness. Enjoy the time-out.
mershaw2001
I'm short the short sellers
hey sleepyhead, i ended up selling the 192.5's for tomorrow for just a little bit of cash, like 35 cents per contract (all of my shares are covered with contracts in the 220 range for march and june, these are just naked sold options). I think that the chance of a pop of 10 dollars on any announcement for tomorrow is too much. I would have gone a week farther out but I have a margin call to settle tomorrow so i have to buy these back within 24 hours. I think you made the right move buying the contracts back and then selling them after the pop into the forward week.
I haven't heard much chatter on selling puts for capturing all the premium built into TSLA options. Part of my portfolio is really supposed to be for that house down payment, meaning I should look for ways to grow it with little risk. Let's say I have $18,000 towards a downpayment, I can sell cash-secured puts, today, for strike price $180, Jan 15 Expiry for around $41.45. Assuming the price of TSLA is above $180, I make 23% (about 24% Annual equivalent let's say). Between $140 and $180, I can buy back the puts and still gain from a lot to a little.
I view the likelihood of TSLA being above $140 by January as close to 100%. And honestly if the price of tesla is under $140 in 2015 I would sell all my possessions and buy stock, if not options, anyway. Does anyone see a flaw in my logic or have a better suggestion, maybe one that takes less capital and still involves Tesla? I view this as a passive strategy too, which is nice, since I work accounting hours and April is right around the corner. I have done this once before with September puts when the price was in the $130's and I made 2/3rds of the premium back in a couple weeks (having option premium on your side is an amazing phenomena, haha). If anyone see's a more short term expiry as more viable, or not selling puts at all, but some other passive strategy, your thoughts would be very well received
Actually, I looked at prices and getting that put price looks untenable. Lets go with the 165s Jan15s for 31.72. Still a 20% annual return.
I view the likelihood of TSLA being above $140 by January as close to 100%. And honestly if the price of tesla is under $140 in 2015 I would sell all my possessions and buy stock, if not options, anyway. Does anyone see a flaw in my logic or have a better suggestion, maybe one that takes less capital and still involves Tesla? I view this as a passive strategy too, which is nice, since I work accounting hours and April is right around the corner. I have done this once before with September puts when the price was in the $130's and I made 2/3rds of the premium back in a couple weeks (having option premium on your side is an amazing phenomena, haha). If anyone see's a more short term expiry as more viable, or not selling puts at all, but some other passive strategy, your thoughts would be very well received
Actually, I looked at prices and getting that put price looks untenable. Lets go with the 165s Jan15s for 31.72. Still a 20% annual return.
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Mario Kadastik
Active Member
I kind of missed out on the TSLA run-up partially last year because I was trying to buy the stock by selling puts. I sold them since April 2012 basically 1 strike OTM and raked in about 70% of the stock purchase price by the time I abandoned it in a year or so and start to buy calls because the stock was moving up way too fast to benefit from puts (I sold puts many times a month buying back the prior ones for peanuts during the run-up). I always sold the next months puts as weeklies weren't available until I think TSLA crossed to $100(?).
So this strategy does work indeed, your risk basically is that if TSLA crashes for whatever reason you are obliged to buy it at the strike (i.e. if there is a catastrophic event), but that's not too much different from owning stock though stock you might be able to trade out during pre-market or after-hours while holding short options you're stuck.
So this strategy does work indeed, your risk basically is that if TSLA crashes for whatever reason you are obliged to buy it at the strike (i.e. if there is a catastrophic event), but that's not too much different from owning stock though stock you might be able to trade out during pre-market or after-hours while holding short options you're stuck.
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