Advanced TSLA Options Trading

[sleepyhead]

I did buy some weekly Aug30 $160 puts when the stock was around $171. This was more of a bet that the stock will turnaround quickly; I had a feeling it would. I sold about half my TSLA over the past 2 days.

Buying puts (while holding stock) is not really a good hedge. Selling covered calls is a little bit better, although I have never done that before.

Now I buy LEAPS and hedge by creating a bull call spread, hopefully a delayed construct spread. When I hold stock, I just buy and sell whenever and not worry about tax consequences. It is easier to do so in IRA or 401(k), but in my taxable accounts I don't take tax implications into decision making either.

 

[viperboy]

Actually, there are two reasonable strategies involving BOTH the buying and selling of Puts:

1) Bull Put Spread: Sell a high strike put and buy a low strike put.
For example, you could Sell a TSLA $170 Sept Put for $15.50 and Buy a TSLA $140 Sept Put for $2.60. If TSLA is above $170 next month, you keep the $1290. If TSLA is below $140, you lose $710 ($2000-$1290).

where did you get the $2000 number from? 170-140 is 30 *100 is 3000. right? What am I missing here? (Thanks!)

 

[mershaw2001]

I'm going to agree with sleepyhead here. Every time I've held a spread looking for time decay and having a nice margin, that margin disappears in a flash in one or two days. I am now of the opinion once the spread has gone into the money it's best to close it for about 75% of the max value if you can get that. I have gotten bitten ALMOST EVERY time. It must be the law of regression to the mean- it rises up quickly (as I predicted because i opened the spread) but then comes down just as fast. For things like today, instead of closing my long term spreads, I entered into a margin call when tesla was 172 by selling a bunch of 180/195 weekly credit spreads. The 1500 dollar requirement blew through the little remaining margin buying power I had left and left me with a 10k house margin call. The plan is that the options will expire before the margin call needs to be resolved, or I'll close it tomorrow.

------
actually i might end up being more and more a fan of this as I think about it more and more, it's essentially legging into a condor and takes advantage of the major time decay of the options.

Open long spread 145/165 september options for 7.87-2.63 = 5.24 back when the price was ~138. My max profit is 2000-524=$1476 When the price is now near the top end of the spread (when it was at 172) I then sold 180/195 for 2.47-.49=1.98 weeklies.
I think it might not be a good idea because these momentum stocks have a way of running up super fast and I could lose all my profits if it runs to 185 or 190 by the end of the week.

 

[Gtoffo]

I'm going to agree with sleepyhead here. Every time I've held a spread looking for time decay and having a nice margin, that margin disappears in a flash in one or two days. I am now of the opinion once the spread has gone into the money it's best to close it for about 75% of the max value if you can get that. I have gotten bitten ALMOST EVERY time. It must be the law of regression to the mean- it rises up quickly (as I predicted because i opened the spread) but then comes down just as fast.

Well guys I still haven't sold... I've still got 5$ of upside (33%) vs. a possible loss of 15$ (100%).... I'm taking the risk since it's one of my more speculative trades. I don't see great odds but I'm betting that only the worst case scenario would push TSLA below 140$ come september. We'll see what happens in the next few days.

EDIT: and thank you all for the advice!

 

[smorgasbord]

where did you get the $2000 number from? 170-140 is 30 *100 is 3000. right? What am I missing here? (Thanks!)

No, you're right. I had played with some different strikes and didn't catch all the places. I'll update the post, thanks.

 

[TD1]

I want to get really deep into Options, what should I read?
Are there any good Online courses? (which ones)
What would be the best way to get into Options?

Im willing to spent 30-40h/week


(Im asking it here and not in the Newbies Thread, because I expect a better response from Advanced Options Trader)

 

[InTheShadows]

I asked the same question few months ago. Here is the response. They have all been great reads.

 

[sub]

Can someone explain to me if this is a dumb idea or not....If I write a covered call on my current shares that I plan to keep for many years, and TSLA rises to the strike price where my shares could be called away (which I don't want), I could replace those shares at the strike price with my margin account until either my shares are called away or the option closed out. I see my risk being that the price falls back below the strike and I lose a little bit on share's I bought if i'm not able to sell quickly enough?

 

[mitch672]

Can someone explain to me if this is a dumb idea or not....If I write a covered call on my current shares that I plan to keep for many years, and TSLA rises to the strike price where my shares could be called away (which I don't want), I could replace those shares at the strike price with my margin account until either my shares are called away or the option closed out. I see my risk being that the price falls back below the strike and I lose a little bit on share's I bought if i'm not able to sell quickly enough?

The idea is not "dumb", but you can get caught in the execution and gapping up of the stock.

First, you can't necessarily replace your covered shares at the strike price, what if they rise significantly above it? You would have to pay carefull attention, and buy them before the strike price was reached... Why do it then?

This is the situation I am in now... Sold covered calls (Jan14 $165's) for $20 last week, when the stock was around $158.. It has since gapped up on several days, even hitting $171-172 once. When that happens, your covered calls are now worth more than you sold them for, so to close out the position, you have to pay more to buy them back, not really what you are hoping for. You can also wait it out, and hope it drops a bit, so you close it out near break even, or just let the shares be called away at expiration, you'll get the strike price plus whatever you sold the option for. Selling covered calls is an ok strategy in a stable stock, or a sideways market, or if you think it might drop a bit (allowing you to rebuy your sold call for less money, making a small profit). Ideally you want them to expire worthless though. I used this strategy a month ago, and the stock dropped $10, I was able to rebuy my calls for less, and made $2500, but there's no guarantee you'll be able to do that... If the stock rises, so does the price of the call.

 

[Causalien]

The idea is not "dumb", but you can get caught in the execution and gapping up of the stock.

First, you can't necessarily replace your covered shares at the strike price, what if they rise significantly above it? You would have to pay carefull attention, and buy them before the strike price was reached... Why do it then?

This is the situation I am in now... Sold covered calls (Jan14 $165's) for $20 last week, when the stock was around $158.. It has since gapped up on several days, even hitting $171-172 once. When that happens, your covered calls are now worth more than you sold them for, so to close out the position, you have to pay more to buy them back, not really what you are hoping for. You can also wait it out, and hope it drops a bit, so you close it out near break even, or just let the shares be called away at expiration, you'll get the strike price plus whatever you sold the option for. Selling covered calls is an ok strategy in a stable stock, or a sideways market, or if you think it might drop a bit (allowing you to rebuy your sold call for less money, making a small profit). Ideally you want them to expire worthless though. I used this strategy a month ago, and the stock dropped $10, I was able to rebuy my calls for less, and made $2500, but there's no guarantee you'll be able to do that... If the stock rises, so does the price of the call.

My suggestion for covered call is. Use an equivalent call options as your stock. Do not use your core stock holding as the "cover" for covered call.
Then do this strategy with half of the cover first. If you are expecting levitation (a la pre earnings movement). The other half should be sold once the total premium of the cover sold is equivalent to the total price of call bought. This way, your vertical call option strategy cost nothing. Only execute this on volatile stock and when you know with confidence that the price will be either frozen or up in the next few weeks.

A properly constructed option strategy should look like this. Where you have no red lines below $0.

 

[sub]

Yeah thanks, I realized it was actually an illogical strategy after posting the question and thinking about it for a minute. I know covered calls, as far as risk, is a good play if you don't mind selling your shares for the premium your getting. I feel the risk of losing my shares for the long run out weigh the small premium I can collect if they expire worthless. I'm learning options now so occasionally I have a stupid question like this and the answer comes to me shortly after asking it.

The other strategy I've been trying to work out is leaps vs shares. For example, if I were to buy the 110 Jan 15 leap that has a .82 delta, would 5 leaps be equivelant to 400 shares moving forward as far as capturing the gains? Is rolling the leaps over, say 6 months from now if they are in the green a good idea or just let them run? I know there is some cost to rolling them over. The upside to this is I can free up some funds to place else where while not giving up my leverage on the upside. The downside is time, but if I roll them before time starts becoming a factor I can limit that risk?

 

[DaveT]

I want to get really deep into Options, what should I read?
Are there any good Online courses? (which ones)
What would be the best way to get into Options?

Im willing to spent 30-40h/week

Check out this book, Options as a Strategic Investment: Lawrence G. McMillan: 9780735204652: Amazon.com: Books . It's very good and thorough. I'm currently going through it myself.

 

[sleepyhead]

Check out this book, Options as a Strategic Investment: Lawrence G. McMillan: 9780735204652: Amazon.com: Books . It's very good and thorough. I'm currently going through it myself.

Is that the book SNIPUS was recommending?

 

[DaveT]

Is that the book SNIPUS was recommending?

Yeah, I heard about it from the AAPL pdf from Ongba. It's a big, fat book but well-written. There's a chapter on taxes I read the other day and it was helpful.

 

[keithz]

I have 22 March $200 Calls. Anybody else think that's a reasonable bet right now?

 

[Causalien]

Just realized what what has been hampering my TSLA trades. My brokers only give 5% margin for TSLA options. Which is a lot less than even the worst I've seen before, which is 25%. At this point, I might contemplate taking a tax hit and convert this to cash so I can maneuver better. Are any others seeing the same thing?

 

[Johann Koeber]

I am split between 170 and 200. So I got them both.

We will have 2 earnings reports by then. Even if TSLA cannot keep up the pace it has shown in the past 6 months, I do see potential to go to 200 and beyond in that time frame.

60 percent chance.

O % chance that I am right. Do your own research.

 

[Jonathan Hewitt]

As far as march goes, right now I have two $150s, three $175-225 bull call spreads, and two $200s. The bull call spread breakeven point is $185, with a 400% return if TSLA ends at $225 or higher.

 

[mershaw2001]

OK I've got a problem and I could use some advanced help. I have a $15,000 margin call due tuesday, which is about 15% of the account value. As part of my portfolio, I own 4 deep in the money september calls with a strike price of 60, worth 109 dollars each. However, fidelity doesn't consider options marginable to my knowledge. I could sell other securities (don't want to) or move money to the account (don't have money). So instead, I want to exercise those options. Theoretically, the value of the stock is 400*169=$67600 and the stock has a 40% margin requirement, so that should by my calculation require 0.40*67600=27,040 and free up 4*109=$43600 that was being held in the calls, the difference being 16000 and settling my margin call.
Fidelity says I can sell the options and then buy the stock in the manner above, to settle the call. However, they will not let me exercise the options, which should be theoretically exactly the same play, citing that I don't have enough margin buying ability because I'm in a margin call. But my argument is that this should take me out of the call! I feel like I'm stuck here, because I don't want to sell the options and buy the common stock because I'll get stuck with short term capital gains that I wouldn't have if i exercised the calls. Can anyone see their point of view? The margin buying power shouldn't be an issue if the action takes me out of the call, in my opinion. But then again, my opinion matters not. I think they are arguing that I need $6000 per contract to exercise, and I think they are missing the fact that it brings in a security that only requires 40% margin requirements.

 

[DonPedro]

OK I've got a problem and I could use some advanced help. I have a $15,000 margin call due tuesday, which is about 15% of the account value. As part of my portfolio, I own 4 deep in the money september calls with a strike price of 60, worth 109 dollars each. However, fidelity doesn't consider options marginable to my knowledge. I could sell other securities (don't want to) or move money to the account (don't have money). So instead, I want to exercise those options. Theoretically, the value of the stock is 400*169=$67600 and the stock has a 40% margin requirement, so that should by my calculation require 0.40*67600=27,040 and free up 4*109=$43600 that was being held in the calls, the difference being 16000 and settling my margin call.
Fidelity says I can sell the options and then buy the stock in the manner above, to settle the call. However, they will not let me exercise the options, which should be theoretically exactly the same play, citing that I don't have enough margin buying ability because I'm in a margin call. But my argument is that this should take me out of the call! I feel like I'm stuck here, because I don't want to sell the options and buy the common stock because I'll get stuck with short term capital gains that I wouldn't have if i exercised the calls. Can anyone see their point of view? The margin buying power shouldn't be an issue if the action takes me out of the call, in my opinion. But then again, my opinion matters not. I think they are arguing that I need $6000 per contract to exercise, and I think they are missing the fact that it brings in a security that only requires 40% margin requirements.

You are right in practice, they are right in principle. Your cash requirement comes ahead of the arrival of the shares by three days (I think it is). There is some (highly theoretical) risk there - the stock could tank, or there could be some problem with the counterparty.

Any service-oriented organization would let you do it. They won't. I'd give it up.

Can you transfer some funds to stay in the account during the exercise? Leverage a credit card?