I already have small amounts of OTM calls that should cover those types of gains if the stock shoots up. What cinches it here is that if the stock stays exactly the same price for the whole year I make 20%. My account is usually 2/3rds cash and I have been looking for somewhere to stash some of it away to forget about yet still beat the market. It's hard to explain why I don't want to simply buy shares, maybe it's because I had 200 shares at 28$ cost average and sold them at 77. I haven't seemed to be able to buy and sell shares since in any logical manner. I see this strategy as providing as much return as shares, possibly more, with literally zero downside risk (in my mind). Hopefully any upside is captured by my OTM calls.
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
Advanced TSLA Options Trading
- Thread starter smorgasbord
- Start date
-
- Tags
- TSLA
I already have small amounts of OTM calls that should cover those types of gains if the stock shoots up. What cinches it here is that if the stock stays exactly the same price for the whole year I make 20%. My account is usually 2/3rds cash and I have been looking for somewhere to stash some of it away to forget about yet still beat the market. It's hard to explain why I don't want to simply buy shares, maybe it's because I had 200 shares at 28$ cost average and sold them at 77. I haven't seemed to be able to buy and sell shares since in any logical manner. I see this strategy as providing as much return as shares, possibly more, with literally zero downside risk (in my mind). Hopefully any upside is captured by my OTM calls.
mershaw2001
I'm short the short sellers
I was selling puts for a while but stopped for 2 reasons.
1) there wasn't enough liquidity for my taste, and i need to move money in and out of tesla relatively frequently and rapidly (even though tesla has really good option liquidity)
2) tesla has a nasty habit of gapping up and gapping down, which make selling short term (under 2 months) a horrible strategy. If it gaps up 20 dollars, you made a fraction of the profit you would have made holding calls or shares. If it gaps down, you lose big whereas your loss would be limited with calls.
1) there wasn't enough liquidity for my taste, and i need to move money in and out of tesla relatively frequently and rapidly (even though tesla has really good option liquidity)
2) tesla has a nasty habit of gapping up and gapping down, which make selling short term (under 2 months) a horrible strategy. If it gaps up 20 dollars, you made a fraction of the profit you would have made holding calls or shares. If it gaps down, you lose big whereas your loss would be limited with calls.
Yea, you definitely need to pick a put that's way out, enough that TSLA's volatility becomes irrelevant.
I think #2 only really applies if you intend to buy to close. But if you are willing to accept assignment of the shares, I think selling puts could be a very good accumulation strategy. In the case of a big downward movement, whatever: if you wanted to hold shares anyway, you are just reducing your cost basis. On high volatility, you could turn right around and sell covered calls too, further reducing your cost basis.
mershaw2001
I'm short the short sellers
Dha, absolutely agree, but I've been moving in and out of tesla daily and weekly, so I don't ever really hold till they are assigned. For everyone here who is going long term, it makes sense to sell the OTM put that is 10 above the strike and let it go a year. If i had that luxury, I would take it.
So tell me if this is right. Right now the bid is 43.95 for Jan 15 $190 puts. Say I sell 100 common shares for $17,800 and add $1200 to cover selling one $190 put (no margin). Next January, there are two possibilities:
1) The share price is below 190 and so I buy the shares back for $19,000 - $4,400 contract premium = $146/share.
2) The share price is above 190, so I keep my $17,800 and pocket $4,400 premium = $22,200 or enough to buy back my 100 shares at $222/share.
It seems to me that, relative to holding 100 shares of common stock, if the share price is between $146 and $222 in January 2015 then it is a good trade, otherwise it is a bad trade. Is this correct?
Yes, this is right. At $146 you break even on your put trade, and you're better off than holding the stock by $32 / share.
At $222, the received premium would be equal to the opportunity cost of just holding your 100 shares. For this reason, I don't think selling long-dated puts makes much sense if you're long-term bullish. Although there are some exceptions. For example, if you are on margin, selling puts will give you cash up-front and reduce your margin debt (and interest), while buying shares (or calls) requires up-front capital.
On short or medium time scales and during periods of high volatility, I like selling puts because it lets you harness the power of IV and theta decay to hedge your cost basis (assuming assignment of shares is an acceptable outcome).
Last edited:
Check to make sure that, when you sell puts, you don't have to put aside all the cash needed in case the put is exercised against you. If you do have this "cash cover" requirement, selling puts ties up a huge amount of capital.
Causalien
Prime 8 ball Oracle
I recommend having the cash to cover the exercise event. Selling puts over your ability to cover the exercise with cash is the the strategy that broke the most amount of trader in my experience.
This is why that whenever I do this, I always buy another leg about 20% out in case I am wrong.
This is why that whenever I do this, I always buy another leg about 20% out in case I am wrong.
This is my thinking. What I do is consciously keep the cash to the side in case the 100 shares per contract are assigned at my stock price, and I use the cash generated by the sale towards this amount, if that makes sense.
I didn't quite understand your 2nd sentence regarding "another leg". I am slowly learning different option trade possibilities but I can't quite figure out what your 2nd leg entails.
Causalien
Prime 8 ball Oracle
My bad. I mean to say. Buy a OTM put whose strike is 20% out from the strike you sold. In cases like TSLA where volatility premium dwarfs time premium, I'd buy a 2 month otm put while selling 1 month itm put (twice here, once per month).
In my search to improve my options skills/knowledge, I ran across John Carter from simpleroptions.com. I previously linked to a video where he did a million dollar day trade on TSLA on the day of the Detroit auto show 6900 pre-announcement (How to Trade Earnings Pre Announcments). What struck me was that he entered his trade after the 6900 announcement and rode it all the way, exiting just at the right point.
Anyway, he's got a free webinar he's hosting tonight 8pm EST (5pm PST) on catching the big trade. It should be pretty good. Here's the link:
Free Webinar: How To Architect The Trade
Also, on the bottom of that page there's a recorded 90-minute webinar from before taking about catching the big trade. Tonight's seminar is part II on the big trade.
(If you're interested in some paid courses, i had an idea of creating a mini private library with a few other folks. pm me if interested.)
Anyway, he's got a free webinar he's hosting tonight 8pm EST (5pm PST) on catching the big trade. It should be pretty good. Here's the link:
Free Webinar: How To Architect The Trade
Also, on the bottom of that page there's a recorded 90-minute webinar from before taking about catching the big trade. Tonight's seminar is part II on the big trade.
(If you're interested in some paid courses, i had an idea of creating a mini private library with a few other folks. pm me if interested.)
Last edited:
Just opened an iron condor expiring today.
Bull put spread 245/242.5
Bear call spread 255/257.5
Max profit if stock closes today between 245 and 255 is $0.45. Max pain is $2.05.
I'll update later on how I exited my previous positions on MS upgrade day and how it turned out.
Edit: corrected and made things more clear.
Bull put spread 245/242.5
Bear call spread 255/257.5
Max profit if stock closes today between 245 and 255 is $0.45. Max pain is $2.05.
I'll update later on how I exited my previous positions on MS upgrade day and how it turned out.
Edit: corrected and made things more clear.
Last edited:
NuclearPowered
Member
That's right. I'm still getting used to the 200s. And writing on my iPhone in bed doesn't help.
When will you look to close the bull put spread to mitigate any potential loss? I am holding an identical 242.5 237.5 position. Watching my margin erode...
I just exited my bull put spread but kept my bear call spread. But I wouldn't advise following me in any trades as this is experimental.
NuclearPowered
Member
Not following. I put this trade on yesterday. I was just wondering if you have developed any rules of thumb yet.
I don't have any rules as of yet. But when the trade breaks down far beyond my expectations and I'm at risk of max loss if I don't do anything, then I'll consider closing positions.
I closed out the bear call spread as well so the trade is done. Risk/reward was no longer appealing. Since I exited the bull put spread at under $246, I incurred a loss of $0.50 ($0.20 credit, $0.70 debit when closed). On the bear call spread side (I exited at slightly above $249) I gained $0.12 ($0.25 credit, $0.13 debit to close). Total loss on trade $0.52.
Similar threads
- Locked
- Poll
