Advanced TSLA Options Trading

[ckessel]

On the bright side we kept them when they were down as much as 75%.........I am going to ride mine a bit more. The 300s are the only ones underwater for me now, so if we can keep the momentum going we could get closer to breaking even on those. :wink:

Even if I kept them until they broke even, that'd mean the stock was somewhere near $270 (comparing it relative to where the $18 cost basis I paid is against the current price). In which case, I'd break even while the stock had gone up 20%. Still not good.

The idea of LEAPS as stock replacement seemed sound, but I feel like I must have failed in the implementation. I bought very out of the money, which is all time value which steadily drops. If it'd take 20% growth every 5-6 months to combat time decay, that doesn't seem like a terribly good option.

Now, if I'd bought fairly ITM options, I think I'd be showing a decent profit. For example, there's only a $7 premium on Jan 2016 $125s. If the stock moved 20% in 6 months on those, I'd be doing pretty well (better than pure stock). So, I'm guessing LEAPS would be fine, but not to buy so OOTM?

Edit: I dumped my Jan 2015's at around the $246 mark for about 50% loss, so now I'm trying to figure out how I want to reinvest that for the next time around. I'm currently thinking I'll wait 30 days to avoid the wash rule...which of course means the stock will rise 50% in the next 30 days and you should all buy like crazy.

 

[AlMc]

Even if I kept them until they broke even, that'd mean the stock was somewhere near $270 (comparing it relative to where the $18 cost basis I paid is against the current price). In which case, I'd break even while the stock had gone up 20%. Still not good.

The idea of LEAPS as stock replacement seemed sound, but I feel like I must have failed in the implementation. I bought very out of the money, which is all time value which steadily drops. If it'd take 20% growth every 5-6 months to combat time decay, that doesn't seem like a terribly good option.

Now, if I'd bought fairly ITM options, I think I'd be showing a decent profit. For example, there's only a $7 premium on Jan 2016 $125s. If the stock moved 20% in 6 months on those, I'd be doing pretty well (better than pure stock). So, I'm guessing LEAPS would be fine, but not to buy so OOTM?

Correct. Way OTM LEAPS work great when you 'know' the stock will continue to appreciate fairly steadily. I agree with you overall and will adjust my strategy to reflect some ITM, ATM and $30-$50 OTM 2017s LEAPS depending on the stock price when they are released in November.

So, you selling the 300s soon? (today??)...Just curious, I will hang onto mine hoping for a little short squeeze help over the next couple weeks.

 

[ckessel]

So, you selling the 300s soon? (today??)...Just curious, I will hang onto mine hoping for a little short squeeze help over the next couple weeks.

Yep sold after the jump this morning, we'll see if I regret it. If I get out now, I have something to reinvest, but if it dropped again I'd be completely out. Figured it's better to roll something forward into a new plan than gamble any further and potentially have nothing.

The wash rule is pain in the ass. There's lot of room to run. There's also lots of room to do nothing while the market waits to see if Tesla really does get the line ramped up and waits on the X.

 

[chickensevil]

Edit: I dumped my Jan 2015's at around the $246 mark for about 50% loss, so now I'm trying to figure out how I want to reinvest that for the next time around. I'm currently thinking I'll wait 30 days to avoid the wash rule...which of course means the stock will rise 50% in the next 30 days and you should all buy like crazy.

Sidebar on wash sales and taxes, why wouldn't you just be better off buying new options and gaining all that lost money back? if you get a 100% gain to counter your 50% loss wouldn't that be better than some deduction on your taxes? At what point is the break even here of where you would better benefit? Assuming you have a reasonable expectancy for stock movement.

 

[ckessel]

Sidebar on wash sales and taxes, why wouldn't you just be better off buying new options and gaining all that lost money back? if you get a 100% gain to counter your 50% loss wouldn't that be better than some deduction on your taxes? At what point is the break even here of where you would better benefit? Assuming you have a reasonable expectancy for stock movement.

Heh, yea, that'd be awesome

What would you recommend for 100% gain in the next few months? Because damn near every time I've tried to pick an option for that in the last year it's been 100% loss. The LEAPS approach was supposed to be a more conservative play with options...and I suppose it was only 50% loss this time.

 

[InTheShadows]

Back on March 25th the stock was about $220 and I bought a bunch of Jan 2015 LEAPS. Today, the stock is $25 higher and those Jan 2015 options are worth barely 50% of their original value. LEAPS as stock replacement and rolling them seemed like a sound strategy, but I guess it would have to have been 2016 LEAPS to have any shot at working?

They have lost time value since then and the other thing is iv is still pretty low. It was massive when we bought those things this spring. (SMH, expensive lesson learned, I hope.) With the stock moving like it has been if we keep this up the iv will start rising and so will the value of our LEAPS. I'm keeping mine. I sold my August 260's I bought back in march today though.

If we hold above 245ish I think we will be looking to chase the ath of 265. However I don't see it this month and we might cascade into a dip if we hit 250, so that's why I sold my August calls today.

 

[uselesslogin]

Even if I kept them until they broke even, that'd mean the stock was somewhere near $270 (comparing it relative to where the $18 cost basis I paid is against the current price). In which case, I'd break even while the stock had gone up 20%. Still not good.

The idea of LEAPS as stock replacement seemed sound, but I feel like I must have failed in the implementation. I bought very out of the money, which is all time value which steadily drops. If it'd take 20% growth every 5-6 months to combat time decay, that doesn't seem like a terribly good option.

Now, if I'd bought fairly ITM options, I think I'd be showing a decent profit. For example, there's only a $7 premium on Jan 2016 $125s. If the stock moved 20% in 6 months on those, I'd be doing pretty well (better than pure stock). So, I'm guessing LEAPS would be fine, but not to buy so OOTM?

Edit: I dumped my Jan 2015's at around the $246 mark for about 50% loss, so now I'm trying to figure out how I want to reinvest that for the next time around. I'm currently thinking I'll wait 30 days to avoid the wash rule...which of course means the stock will rise 50% in the next 30 days and you should all buy like crazy.

You won't get as much leverage but I think replacing stock with LEAPS makes sense if the delta of the LEAPS in 0.75 or so. If you were to do that today the strike price for Jan 2016 LEAPS would be $150 or so. I will admit I am more aggressive than that with TSLA but at least that is a frame of reference for what is relatively conservative for the strategy.

 

[FANGO]

They have lost time value since then and the other thing is iv is still pretty low. It was massive when we bought those things this spring. (SMH, expensive lesson learned, I hope.) With the stock moving like it has been if we keep this up the iv will start rising and so will the value of our LEAPS. I'm keeping mine. I sold my August 260's I bought back in march today though.

If we hold above 245ish I think we will be looking to chase the ath of 265. However I don't see it this month and we might cascade into a dip if we hit 250, so that's why I sold my August calls today.

I did stock replacement at the same time, but I replaced it with very wide otm call spreads, then when we went down I bought back the short leg and booked a profit. I plan to sell the short leg again if IV goes up...maybe, anyway. I bought some more otm calls when we were down too. So I'm down on the very very otm calls, but up on the otm calls which I bought more of. All in all I've broken somewhat even, which is about where I would be with stock, only I had less money on the line in terms of margin debit.

So maybe that's something people could try?

 

[ckessel]

Well, starting to regret selling those at $246. I can just never seem to get the right end of timing no matter what. I suppose I could buy the 2016 LEAPS now, but then I can't take any loss on today's sale until I roll the 2016's sometime next year.

And the last couple times I felt I should get back in or miss out, TSLA crashed...

 

[AlMc]

Well, starting to regret selling those at $246. I can just never seem to get the right end of timing no matter what. I suppose I could buy the 2016 LEAPS now, but then I can't take any loss on today's sale until I roll the 2016's sometime next year.

And the last couple times I felt I should get back in or miss out, TSLA crashed...

Bright side; At least you did not sell them when TSLA was at 230!

 

[GasDoc]

I sold the majority of my Jan15 calls (cant call them LEAPS anymore!) between 248-250 today

I did the same after my Jan15 310's were GREEN again!

My Jan16 260's are looking really good. Can't remember who suggested buying those on the big dip a while back but thanks for that gem of advice!

 

[pz1975]

I did the same after my Jan15 310's were GREEN again!

My Jan16 260's are looking really good. Can't remember who suggested buying those on the big dip a while back but thanks for that gem of advice!

This is a good reminder for us all: when we get the big dips, as long as the Tesla-story hasn't changed, LOAD UP ON LEAPS! Sometime I try to time the dips by buying shorter-term calls hoping for a quick rebound but I usually end up losing $ overall because market timing is impossible. Looking at my 2016 LEAPS, they have gone from 60% red to almost break-even in the last few months. For LEAPS, market timing of these dips and spikes become irrelevant as long as the overall trend is up.

 

[chickensevil]

Heh, yea, that'd be awesome

What would you recommend for 100% gain in the next few months? Because damn near every time I've tried to pick an option for that in the last year it's been 100% loss. The LEAPS approach was supposed to be a more conservative play with options...and I suppose it was only 50% loss this time.

Don't look at me, I still haven't touched options. I have been slowly working to understand the ins and outs because they seem simple but are vastly complex and I am not willing to risk losing a ton of money just yet. This was one of those pries into understanding them a bit more... I will sulk back into the shadows again and continue watching you all risk your money

 

[BlueTan85]

Don't look at me, I still haven't touched options. I have been slowly working to understand the ins and outs because they seem simple but are vastly complex and I am not willing to risk losing a ton of money just yet. This was one of those pries into understanding them a bit more... I will sulk back into the shadows again and continue watching you all risk your money

I'm with the chicken on options. Never touched 'em. LEAPS sound great and all but I've never found a simple, clear, straightforward step-by-step explanation. As soon as everything seems to make sense, one discovers a gotcha. Kind of like Linux.

 

[chickensevil]

I'm with the chicken on options. Never touched 'em. LEAPS sound great and all but I've never found a simple, clear, straightforward step-by-step explanation. As soon as everything seems to make sense, one discovers a gotcha. Kind of like Linux.

If Linux is a good example, then that means the only way to actually learn is going to be the hard way... unlike Linux there is actual real loss by messing something up with options. There is no reboot or restore or rebuild option

 

[pz1975]

I'm with the chicken on options. Never touched 'em. LEAPS sound great and all but I've never found a simple, clear, straightforward step-by-step explanation. As soon as everything seems to make sense, one discovers a gotcha. Kind of like Linux.

If you want to learn options, the only real way is to try it. My advice would be to buy a Jan2016 LEAP (maybe with a strike price 10% above stock price at the time you buy) at some point (or wait for Jan2017 LEAPS available in November) and just watch what happens to it. Obviously you'd want to wait until the stock "dips" to do so (could sell some stock to pay for it). It increases profit potential and loss as the stock goes up and down. Doing the LEAP option is safe because there is a huge amount of time to recover if the stock goes down. The main thing would be to roll out (sell it and buy LEAP(S) 1 year further out) at around 5-7 months before the expiration date, preferably at a higher point of stock price (like right now for the Jan15 calls (used to be LEAPS when bought)) to maximize gains.

 

[DaveT]

Back on March 25th the stock was about $220 and I bought a bunch of Jan 2015 LEAPS. Today, the stock is $25 higher and those Jan 2015 options are worth barely 50% of their original value. LEAPS as stock replacement and rolling them seemed like a sound strategy, but I guess it would have to have been 2016 LEAPS to have any shot at working?

I hate to say it but I think you need to make better analysis/calculations before you enter into such positions. You really ought to have a spreadsheet for various scenarios and understand your risks. To buy 300 strike Jan15 options at end of March when stock was $220 (btw those aren't LEAPs but are options expiring in a bit over 9 months after you bought them at the end of March), you really need to have very strong confidence that the stock is going to $350-400 by Jan15 expiration. And this is right after the stock was in the 120s in November and nearly doubled to $220. Even if there was a possibility that the stock would be at $350-400 by Jan15 expiration, you shouldn't make decisions off of a small possibility. It really needs to be a very strong likelihood of that happening, and even then you need to understand the risks involved.

I've said this before, but OTM LEAPs really ought to be purchased only when you think the stock is really undervalued and you're going to see a major rise in the stock price in a relatively short period of time (ie., 6-12 months out, but you give yourself another cushion in time as well). If the stock is fairly valued (ie., $200-230 at end of March) and you buy deep OTM mid-term options (ie., 300 strike Jan15) then you're most likely going to lose all your money. The big question though is how you weren't able to see that or what your assumptions were.

 

[AlMc]

If you want to learn options, the only real way is to try it. My advice would be to buy a Jan2016 LEAP (maybe with a strike price 10% above stock price at the time you buy) at some point (or wait for Jan2017 LEAPS available in November) and just watch what happens to it. Obviously you'd want to wait until the stock "dips" to do so (could sell some stock to pay for it). It increases profit potential and loss as the stock goes up and down. Doing the LEAP option is safe because there is a huge amount of time to recover if the stock goes down. The main thing would be to roll out (sell it and buy LEAP(S) 1 year further out) at around 5-7 months before the expiration date, preferably at a higher point of stock price (like right now for the Jan15 calls (used to be LEAPS when bought)) to maximize gains.

Good advice: Other things to consider: Yes, you have the potential for very large gains but also large losses with LEAPS. With stock, as long as the company does not go 'belly up' you always have something of value. With LEAPS, if you get a big dip you could potentially lose your entire invested amount. Overall, LEAPS have been good to me. I agree with pz1975 that it is best to buy something close to the current price. Just buy 1 0r 2 and get a feel how the price changes with time and stock price change. I learned by reading, asking questions and then just trying.

none of us knows each other's finances and risk level that we are comfortable with....So, I would start very small

 

[ckessel]

The big question though is how you weren't able to see that or what your assumptions were.

There was a lot of discussion here at the time about LEAPS as replacement, the rolling strategy and such. The late March price was a decent drop off the ATH and the feeling seemed to be that it was then undervalued and we'd be moving up slowly over time, so the J15 options made sense even if it was just to roll them 3-5 months later. Folks were talking about the J15 300s at that time, which seemed a reach to me, but my understanding was the high strike let you get maximum leverage and you were going to roll them so you got back a lot of the time value later. What I didn't really grasp was the high strike level and the impact of IV changes on that time value.

The IV drop killed a lot of the time value. TSLA's IV had ran high for a long time before hitting the lull in the last few months. And clearly late March didn't end up being anywhere near the bottom of the drop. Given what I thought I understood at the time, I thought I'd made a purchase that was reasonable.

I've been up front saying that I must have failed in the implementation, both as reflection and warning I suppose. It's a bit of rubbing salt in the wound to take that reflection and add "The big question though is how you weren't able to see that..." :frown:

 

[DaveT]

There was a lot of discussion here at the time about LEAPS as replacement, the rolling strategy and such. The late March price was a decent drop off the ATH and the feeling seemed to be that it was then undervalued and we'd be moving up slowly over time, so the J15 options made sense even if it was just to roll them 3-5 months later. Folks were talking about the J15 300s at that time, which seemed a reach to me, but my understanding was the high strike let you get maximum leverage and you were going to roll them so you got back a lot of the time value later. What I didn't really grasp was the high strike level and the impact of IV changes on that time value.

The IV drop killed a lot of the time value. TSLA's IV had ran high for a long time before hitting the lull in the last few months. And clearly late March didn't end up being anywhere near the bottom of the drop. Given what I thought I understood at the time, I thought I'd made a purchase that was reasonable.

I've been up front saying that I must have failed in the implementation, both as reflection and warning I suppose. It's a bit of rubbing salt in the wound to take that reflection and add "The big question though is how you weren't able to see that..." :frown:

Sorry if it sounded like rubbing salt in a wound. I was just sincerely trying to help you evaluate the decision and share a different perspective.

Btw, I'm not a fan of the rolling LEAPs program as stock replacement plan that was discussed here.

- - - Updated - - -

Actually I re-read my last sentence in the prior post and I apologize. It was not phrased in the right way.

I think I'm just frustrated at the decision-making process when people here were buying deep OTM options/LEAPs during the LEAPs as stock replacement talk here a while back.