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Advanced TSLA Options Trading
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pz1975
Active Member
Wrong (IMHO) way to look at it. The point of the options was leverage; you get many more options for your dollar laid out than if you had bought shares or deeper-in-the-money options. That is why @pz1975's advice is good, assuming of course that you expect the price of the stock to continue rising (and that it then does...). The danger is that if TSLA suddenly drops back to, say, $310, and stays there, at least some of your current options would still be worth something, but if you've sold-and-rolled the new options are probably worthless.
It's very rare to want to actually exercise the options. The main reasons to exercise would be to lock in a low price and start the clock on long-term capital gains, which could be tax advantageous. Otherwise you're pretty much better off selling them while they still have time value.
Mario Kadastik
Active Member
Rolling after a raise is usually reasonable to do with some % of the cash. So let's say you buy a $300 call for $20, stock rises to 350 you sell the call for $65 and reopen two new positions $20 each. Now you've pocketed $25 (x100), which is $5 more than your initial investment and you've opened two more new positions. If they don't pan out, well you're still $500 richer.
Menifeer
Member
Having been on this ride before, I sold October 19th $350 Calls (vs a 2020 Leap position) on Friday (Aug 3) for $31/share. That protects me to about $320 on the downside and allows a rise to $380 before I feel any regret.
If the price rises above $380, I can roll to a later date (and gain more time premium in the process).
In any event, I have the $31/share to play with…
If the price rises above $380, I can roll to a later date (and gain more time premium in the process).
In any event, I have the $31/share to play with…
What do you mean "(vs a 2020 Leap position)"? Is it just that you own 1 LEAP for each Oct 19th call that you sold?
Menifeer
Member
Yes. For each Oct Call sold, I own a 2020 Leap (with strike prices from $100 to $300). As far as the broker is concerned, owning the Leap is the same as owning the stock with regards to selling Call options.
Brokers allow options trading based on being convinced of the client’s understanding of how they work (you must apply for the ability to trade them and claim that you know what you’re doing…).
Typically, selling options requires ownership of the shares or the ability to obtain them at a favorable price. Some experienced traders with significant assets are allowed to sell Calls without being “covered” by shares or Call options/Leaps. It’s all about the brokerage protecting itself from losses and not going afoul of the SEC rules.
SP is already at 348. there is always risk that your 2020 Leap will get called.
Multiple scenarios/strategies with options, but selling calls that are very close might not always work (when SP starts going vertical)
In most cases having to roll means that your position is against you, or you did not make the intended profit/margin.
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Menifeer
Member
“SP is already at 348. there is always risk that your 2020 Leap will get called.”
Not really much chance of them being exercised against me. If/when the time value approaches zero, I’ll roll them and receive another infusion of cash. The option holder will sell the option instead of exercising as long as it has time value.
“Multiple scenarios/strategies with options, but selling calls that are very close might not always work.”
Very true! If it always worked, everyone would do it all the time. We’ll see how this particular trade goes.
“In most cases having to roll means that your position is against you, or you did not make the intended profit/margin.”
That statement is generally true if you’re an option buyer. As a seller, having to roll would not be a bad thing. It means my underlying Leaps have increased in value considerably more than the ones I sold, a net profit. If the stock price really spikes upward, I can miss out on some of the gain, but I don’t expect the stock to skyrocket the way some here do. I expect a replay of the last couple years. The last (many) times it’s risen to these levels, bad news has surfaced and pushed it back down.
Not really much chance of them being exercised against me. If/when the time value approaches zero, I’ll roll them and receive another infusion of cash. The option holder will sell the option instead of exercising as long as it has time value.
“Multiple scenarios/strategies with options, but selling calls that are very close might not always work.”
Very true! If it always worked, everyone would do it all the time. We’ll see how this particular trade goes.
“In most cases having to roll means that your position is against you, or you did not make the intended profit/margin.”
That statement is generally true if you’re an option buyer. As a seller, having to roll would not be a bad thing. It means my underlying Leaps have increased in value considerably more than the ones I sold, a net profit. If the stock price really spikes upward, I can miss out on some of the gain, but I don’t expect the stock to skyrocket the way some here do. I expect a replay of the last couple years. The last (many) times it’s risen to these levels, bad news has surfaced and pushed it back down.
Wait it out. TSLA will not continue to go straight up like a Falcon 9. There will be pullbacks and sideways trading between now and expiry. Come October you can roll up if needed or you might be able to buy back for less than you received in a month or so as some of the time premium decays.
1. stop looking at it.
2. don't trade options on impulse if it's going to make you this worried.
Yes. For each Oct Call sold, I own a 2020 Leap (with strike prices from $100 to $300). As far as the broker is concerned, owning the Leap is the same as owning the stock with regards to selling Call options.
Brokers allow options trading based on being convinced of the client’s understanding of how they work (you must apply for the ability to trade them and claim that you know what you’re doing…).
Typically, selling options requires ownership of the shares or the ability to obtain them at a favorable price. Some experienced traders with significant assets are allowed to sell Calls without being “covered” by shares or Call options/Leaps. It’s all about the brokerage protecting itself from losses and not going afoul of the SEC rules.
I see -- so come October 19th, if the share price is $351 you'll manually exercise the leaps and forego any remaining time value on them in order to satisfy the calls? Or do you plan to roll forward indefinitely (or at least until they look like they'll expire worthless)?
Menifeer
Member
No. I won't be doing anything with my 2020 Leaps.
If the share price is below $350 on October 19th, the October 2019s I sold will expire worthless. End of story. Drinks are on me!
If the stock stays above $350 and the time value of the Oct Calls gets to about $1/share, I'll close the position to avoid an assignment (either by simply purchasing to close or by rolling to a later date and maybe a higher strike price). Like you suggest, I'll likely roll forward until something expires worthless.
Assignment isn’t necessarily a bad thing. For example, if the stock is at $360 when assigned, I’ll purchase shares to cover the short position caused by the assignment. I’ll record the sale at $381 (the $350 strike price + the $31 option premium) and the purchase at $360 for a $21/share gain.
If the price is significantly above $381, I'll likely miss out on some gains, but I'm not expecting that outcome.
So it appears Elon has frozen the options markets, at least for the Jan 2019 400 and Jan 2020 400 calls I hold. Their value essentially was on an assumption that the stock would be worth more than $420 in Jan 2019 or Jan 2020. So how much are they worth? What would happen to them if Tesla goes private?
Mario Kadastik
Active Member
Options are a contract for purchase/sale at a date and at a price. That's all. If you speculate on them that's your gambling. Once a buyout offer comes and is confirmed the options will behave as if it's expiration date and stock price is the buyout price. You lose all time value.
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