Advanced TSLA Options Trading

[Liz G]

@Causalien

What is a fib level?

Sorry, total novice investor here just trying to follow you guys.

 

[DonPedro]

Doing crazy options trades is actually quite easy! ;-)

Lol yes. A favorite of mine is to enter a Sell To Close order when I really meant to add to a position (easy to do because that is the default trade that shows up in the trading software). The really annoying thing is that the limit is then ofc totally off, and I end up costing my position the market maker's bid price.

Another good one is to do a completely different expiration date than intended, or a put when I wanted a call or vice versa.

Worst of all is of course the "momentary inspiration" trade, which happens after a particularly dramatic movement of the share price, whereupon a strong gut feeling says to hurry up and do a particularly clever move. It never is.

 

[fjm9898]

Worst of all is of course the "momentary inspiration" trade, which happens after a particularly dramatic movement of the share price, whereupon a strong gut feeling says to hurry up and do a particularly clever move. It never is.

God so many times have i done this haha.

 

[Causalien]

@Causalien

What is a fib level?

Sorry, total novice investor here just trying to follow you guys.

Fibonacci retracement level. It is from Technical analysis. The 150 level (rounded down from 151) is calculated by both me and another member on this forum in a previous discussion. So it's safe to say it is the right level. As to how to use it, everyone is different. I usually buy a call spread with the current price to the fib level and sell a put spread to fund it.

 

[Twiddler]

God so many times have i done this haha.

As performed by me today by placing a large Jul 120 call when the price hovered back around 120.00, thinking I would take it back off at 120.50. I then watched every tick down from there. Alas I am now holding into tomorrow (OPEX). Wondering how I will sleep tonight :-/

 

[InTheShadows]

I have some TSLA on margin. Since I have level 2 options permissions would it be better to de-leverage my stock position a little so I can buy some calls? What about setting up another investment account and using it for options so I don't end up with short term tax gains?

 

[Nixx]

I'm trying to plan a play for the earnings release. I expect a movement of at least 10% either way the day after, but betting mostly on the upside.

My intent is to create the setup a little while before close on the 7th, using August 10th options. I would like it so that on 10% downside, I'm dead even, and on the upside I have exponential potential.

Let's say I play with ~$10k.

And let's suppose next Wednesday before closing the stock price is at $120 (but this really works for any price). Using today's options prices and premiums and doubling it for buy, but keeping it the same for sell (expecting more volatility that week until the point of announcement, and then rapid dropoff after), I get:

Buy 40 x $108 puts at $0.65 each = $2600.
Buy 10 x $125 calls at $2.00 each = $2000.
Buy 50 x $130 calls at $0.70 each = $3500.
Buy 200 x $140 calls at $0.10 each = $2000.

A 10% drop to $108 will yield back the $10k
A 10% raise to $132 will yield about $25k

Of course any movement more than 10% is gravy. Repeat of Q1's 20% up will yield $125k. Repeat of yesterdays crash will yield $30k.

Of course the risk is the price will stay dead even at $120 and I'd have lost part or all of the initial $10k (ok with that).

Does anybody else have a better strategy than this that you care to share?

I was considering something like this or just playing a straddle with a few extra long calls. I am curious how you came up with those prices, though. Dd you just look at the prices of the July 27 options? I assume the options that include the aug 7 release will have a much higher volatility premium. I'm guessing they will be double that price until aug8th.

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As I have said in another thread, this is how the Instis make money.

You are paying huge premiums and anything between 105-130 will cost you almost all the money you invested. I

I love your contrarian comments,realist.... But claiming we shouldn't use options in the advanced option thread seems a bit too... Contrarian

 

[gym7rjm]

I'm trying to plan a play for the earnings release. I expect a movement of at least 10% either way the day after, but betting mostly on the upside.

My intent is to create the setup a little while before close on the 7th, using August 10th options. I would like it so that on 10% downside, I'm dead even, and on the upside I have exponential potential.

Let's say I play with ~$10k.

And let's suppose next Wednesday before closing the stock price is at $120 (but this really works for any price). Using today's options prices and premiums and doubling it for buy, but keeping it the same for sell (expecting more volatility that week until the point of announcement, and then rapid dropoff after), I get:

Buy 40 x $108 puts at $0.65 each = $2600.
Buy 10 x $125 calls at $2.00 each = $2000.
Buy 50 x $130 calls at $0.70 each = $3500.
Buy 200 x $140 calls at $0.10 each = $2000.

A 10% drop to $108 will yield back the $10k
A 10% raise to $132 will yield about $25k

Of course any movement more than 10% is gravy. Repeat of Q1's 20% up will yield $125k. Repeat of yesterdays crash will yield $30k.

Of course the risk is the price will stay dead even at $120 and I'd have lost part or all of the initial $10k (ok with that).

Does anybody else have a better strategy than this that you care to share?

Hi deonb. I think we are in for a blowout earnings so I am looking into executing something similar to this. Will you adjust this play if the stock continues to climb significantly leading into the release? Lets say we are sitting at 135 as an ath the day of earnings, do you think this would dampen potential upside even with a killer earnings?

 

[austinEV]

Another good one is to do a completely different expiration date than intended, or a put when I wanted a call or vice versa.

I bought a put instead of a call exactly once. It immediately moved in my new "wrong direction". I quickly closed it for a profit and thanked the angel that watches over fools with option enabled accounts.

 

[sleepyhead]

I'm trying to plan a play for the earnings release. I expect a movement of at least 10% either way the day after, but betting mostly on the upside.

My intent is to create the setup a little while before close on the 7th, using August 10th options. I would like it so that on 10% downside, I'm dead even, and on the upside I have exponential potential.

Let's say I play with ~$10k.

And let's suppose next Wednesday before closing the stock price is at $120 (but this really works for any price). Using today's options prices and premiums and doubling it for buy, but keeping it the same for sell (expecting more volatility that week until the point of announcement, and then rapid dropoff after), I get:

Buy 40 x $108 puts at $0.65 each = $2600.
Buy 10 x $125 calls at $2.00 each = $2000.
Buy 50 x $130 calls at $0.70 each = $3500.
Buy 200 x $140 calls at $0.10 each = $2000.

A 10% drop to $108 will yield back the $10k
A 10% raise to $132 will yield about $25k

Of course any movement more than 10% is gravy. Repeat of Q1's 20% up will yield $125k. Repeat of yesterdays crash will yield $30k.

Of course the risk is the price will stay dead even at $120 and I'd have lost part or all of the initial $10k (ok with that).

Does anybody else have a better strategy than this that you care to share?

Your prices are off by at least an order of magnitude. Let me know when $140 calls are selling at $0.10 and I will personally buy 1000 contracts. They will be trading at more like $2-$5 on the day of earnings if the stock is at $120. IV goes up significantly about a week before earnings.

 

[Acmykguy]

So, while Syn Longs are still better than buying stock, they're not uber-tempting. Anyone looking at Covered Strangles?

For instance:
1) Have or buy 100 shares of TSLA, worth $90 each today.
2) Sell Jan '14 $80 Put for $15.30
3) Sell Jan '14 $120 Call for $8.20
You net $23.50 from the two sold options.

If TSLA drops below $80 in Jan 2014, you buy TSLA at an effective $56.50.
If TSLA rises above $120 by Jan 2014, you sell 100 TSLA at $120 for a profit of ($120-$90)+$23.50 = $53.50, or almost 60% gain in 8 months.
If TSLA rises above $90 but below $120, you keep your shares and pocket the $23.50. If you sell the shares at market you keep that profit plus another $23.50. So, if TSLA is $105 you make ($105-$90) + $23.50 = $38.50/share

Downsides:
a) If TSLA drops below $56, you're buying at more expensive prices.
b) If TSLA rises above $120, you're selling at the cheaper $120.

I would argue that if TSLA drops below $60, you'd be buying at market anyway, and similarly, if TSLA rises above $100, you'd be selling at market anyway. So this play keeps temptation away in a profitable fashion.

Comments?

Going way above 120

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I'm expecting much higher than promised production (at least 6K cars), and somewhat higher than expected gross margin. Actual profits will still be lacking, but looking at VINs it seems Tesla is making about 500 cars a week and from everything I hear, whatever they make gets sold. And, people are buying cars off the showroom floor and driving them home a few days later!

Correct ....just bought a second one with delivery in 5-7 days.

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Yeah, typically on a Long Calendar Call Spread you sell the close to expiration call and buy the further call. However, note that typically those Calls have the same strike, which means it's most suitable for stocks whose prices you expect to remain stable. What Acmykguy's talking about is a mix of strike prices and expirations. So, you get some of the Bull Call Spread behavior (limited risk and limited upside) and some of the Calendar Spread behavior. That might work for TSLA, but it's pretty darn complicated, and I don't see Tesla as the kind of stock you invest in to make some money off of Time Value.

With both spreads, if you think the stock is going to shoot up, you simply buy back the sold call and then you have a purchased call with unlimited upside. However, to really profit from that, you need to make that decision when the stock dips because that's when the sold call can be bought back for less than you sold it for. Thats exactly the opposite of what your instinct will tell you to do, so it'll take guts. If you wait until the stock starts to rise before buying back the call, you'll pay more to buy it back than you sold it for, in which case you'd have been better off only buying a call in the first place.


EDIT: Just a note to those not familiar with a Bull Call Spread. It's roughly equivalent to buying the stock and then selling a Covered Call. Selling Covered Calls are considered a "safe" strategy since you can only lose money you've already spent (no margin calls). With the Bull Call Spread you've spent less money than if you were to buy shares, so it's even less risky. With Tesla pushing all time highs and some people having fear of it dropping below $100 (or lower), then a BCS will let you enjoy some run up from here without the risk of the stock tanking to half it's current value.

Thanks smorgasbord......well said....My thoughts do not always make it to my fingers as well as I want.

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Doing crazy options trades is actually quite easy! ;-)

....with a bottle of wine!

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deonb, Can you tell us where you are finding price for the calls you are quoting? What month? I do not see anything remotely close in price to that.

 

[gym7rjm]

deonb, Can you tell us where you are finding price for the calls you are quoting? What month? I do not see anything remotely close in price to that.

I check right after his post and I believe he was using the July 20th options as a model to find what prices might look like for the August 10th weekly option. He then doubled the price to account for increased volatility going into earnings.

 

[deonb]

I check right after his post and I believe he was using the July 20th options as a model to find what prices might look like for the August 10th weekly option. He then doubled the price to account for increased volatility going into earnings.

Correct. The idea is to wait until the last day I could before buying options, and then buying ones that expire as soon as possible in order to minimize premiums.

That would mean August 10th options that have 2 days left on them. Extremely risky, but that's the point.

 

[retinadoc]

Simple Option Straddle for Earnings?

Telsa's earnings seems to be a very similar catalytic event to an FDA approval or ADCOM meeting for biotech stocks. The one scenario I can't see happening is that the stock remains stable through earnings which would make a straddle a very bad idea. In Biotech stocks this usually happens when the FDA suddenly decides to delay things another 90 days or a drug trial result is too convoluted for the Street to make sense of it.

Neither can happen with earnings. I personally think Elon will again take great pleasure in beating up the shorts and I will likely overweight on calls using puts as a hedge. Any thoughts?

 

[deonb]

Telsa's earnings seems to be a very similar catalytic event to an FDA approval or ADCOM meeting for biotech stocks. The one scenario I can't see happening is that the stock remains stable through earnings which would make a straddle a very bad idea. In Biotech stocks this usually happens when the FDA suddenly decides to delay things another 90 days or a drug trial result is too convoluted for the Street to make sense of it.

Neither can happen with earnings. I personally think Elon will again take great pleasure in beating up the shorts and I will likely overweight on calls using puts as a hedge. Any thoughts?

Possible, but it won't be cheap. I think the premium for the call + put side of the straddle will probably be over 10% of the stock price. I agree that it's unlikely that the stock remains stable through earnings, UNLESS the stock price runs up to $140 by then.

 

[sleepyhead]

Telsa's earnings seems to be a very similar catalytic event to an FDA approval or ADCOM meeting for biotech stocks. The one scenario I can't see happening is that the stock remains stable through earnings which would make a straddle a very bad idea. In Biotech stocks this usually happens when the FDA suddenly decides to delay things another 90 days or a drug trial result is too convoluted for the Street to make sense of it.

Neither can happen with earnings. I personally think Elon will again take great pleasure in beating up the shorts and I will likely overweight on calls using puts as a hedge. Any thoughts?

No puts necessary, just buy more calls instead.

 

[austinEV]

Yeah I have never understood the notion of buying calls "with some puts as a hedge". Assuming that the time value is about the same, I feel like thats betting on Roulette "black" and betting a little bit on "red" as a hedge. Just bet less on black, it has the same effect, right?

 

[Nixx]

Yeah I have never understood the notion of buying calls "with some puts as a hedge". Assuming that the time value is about the same, I feel like thats betting on Roulette "black" and betting a little bit on "red" as a hedge. Just bet less on black, it has the same effect, right?

because if the stock moves heavily in the wrong direction you still can make money. Lightening your position will just make you lose less

 

[toastypasta]

Someone teach me the iron butterfly.

 

[kenliles]

Someone teach me the iron butterfly.

In-A-Gadda-Da-Vida