Advanced TSLA Options Trading

[MikeC]

Hi everyone, been reading the investors' round table and the threads before it for some time, rarely post just read. Have a question about options:

Been thinking about buying some LEAPs calls Jan 2022 ~520 Strike. Was thinking about buying before Q1 Earnings release as there is a chance it could skyrocket the stock price very quickly. If that doesn't happen I'd still have ~2 years for stock price to grow. I'm very new to options and only know what I've read briefly on the internet (I do understand the massive risk and possibility it could make my position worth $0). So was wondering if the price were to rocket quickly would the lower strike options grow by a larger % or would all options grow equally? Would I rather have a 520 or 650 Strike price if the price goes flying upwards after earnings?

Also any thoughts on the specific 1/2022 520 Strike call would be appreciated as well. Picked up some literature on options hoping to read more next couple of days (happy to take recommendations for literature), but appreciate your thoughts.

(I've read risk disclaimers time and time again and I am very risk tolerant.)

Thanks in advance.

Short-term is more leveraged than long-term, higher strikes are more leveraged than lower strikes. The more leverage, the larger percentage increase or decrease. So the 650s will increase more than the 520s on a percentage basis if the share price jumps.

Re: the 1/22 520 call, you can see from the option chain below that the bid-ask spread is $7.90 (74.30-66.40), whereas for the 500 strike, it's $3.15 (76.70-73.55) and for the 600 strike, it's only $0.50. You're likely to get taxed (slippage) more by the market makers with the 520s since you will be buying closer to the asking price and farther from the "true" midpoint price - both when buying and again later when selling.

Generally, strikes with higher open interest (OI = 837 for the 500s; 86 for the 520s; 1054 for the 600s ) will have narrower bid-ask spreads, and round numbers tend to have the highest open interest. So my advice would be to consider the 500 or 600 strikes instead of the 520s.

 

[mrwuffles]

Could use some advice here. I know the basics (the Greeks), but not sure about strategy for LEAPS. I have 1/21 $420 calls I bought in November for $43 that are up to $113. Break even is at $463. I think TSLA should be well above that in 1/21, but there are always shorts and other market forces at play that undermine TSLA SP.

To illustrate, these calls were paid for from a 1/21 bull call spread I bought last Jan and sold in November (knew my income would be lower last year than this year). Last June, I knew TSLA was worth way more than $180, but enough others didn't that much options were nearly worthless.

All that said, would you look in profit right now even with higher capital gains tax, or roll the dice and hope it beats theta decay by November 2020 when I can pay less to Uncle Sam?

 

[Tyler34]

I'm curious, is anybody considering 6/22 calls as a leveraged "lock in" of a potential FSD milestone, not necessarily full FSD?

The premium for 500c is high - 166/share, which means SP needs to be $666 for you to make any money if you hold to expiration.

Considering that GF4 will be approaching or operational, we could see a move similar to the current just based on scaling of the total production volume.

So, the likelihood of that SP is not low, I think.
_________________________
Lets say SP is $800 in 2 years 5 months.

Then at expiration you make (800-666)*100 = $13,4k or 80% of $16.6k invested.

If you hold shares, 800/490(today), you make 63%.
_________________________
What if there's an FSD breakthrough and shares go 5x?

Say, 800x5=4000.

The call will get you (4000-666)*100=$333,400 for $16,6k invested or 20x.

5x with shares, 20x with call. The benefit significantly outweighs the risk.
____________________
What is a break even SP with shares?
It's about $756.

Shares 756-490/490=0.54
Call 756-666/166=0.54

So, if SP in 2 years 5 months is less than $756, shares will outperform the call.

If it's less than $666, you could lose the entire $16.6k
_______________________
Risks?

-Recession (maybe you can sell early and salvage some money?)
-WW3
-taking private (Elon said the ship has sailed)


Now, I can see that @Lycanthrope and @3lon4mars will laugh me in the face and say that they make 40x in 3 months. Fine.

Maybe it is for the risk averse people like me, so I can improve performance over shares without too much risk.

Feel free to criticize.

People in this thread need to realize there is more to options than just buying puts or calls. Consider the scenario in my screenshot where as long as we end up above 430 you make money and have a lower price where you start making big profits. And it uses less margin than the 16k you just laid out in your trade.

 

[kengchang]

People in this thread need to realize there is more to options than just buying puts or calls. Consider the scenario in my screenshot where as long as we end up above 430 you make money and have a lower price where you start making big profits. And it uses less margin than the 16k you just laid out in your trade. View attachment 498112

Well, the thing is Buying Call and Selling Put is if it doesn't go your way, there's potential of a big payout.

 

[Tyler34]

Well, the thing is Buying Call and Selling Put is if it doesn't go your way, there's potential of a big payout.

Stock would have to go to 270 for this to be a worse trade than just buying a 500 call.

 

[M3Rider]

People in this thread need to realize there is more to options than just buying puts or calls. Consider the scenario in my screenshot where as long as we end up above 430 you make money and have a lower price where you start making big profits. And it uses less margin than the 16k you just laid out in your trade. View attachment 498112

Thank you for the example.

I need to submit a new form for advanced trading strategies with the broker. A year ago I didn't ask for most of this stuff, because did not know how to use it and did not want to get into too much trouble to start with. I think they didn't make some other options available to me, because I claimed no experience.

A disagree from @Hock1 without explanation is really NOT helpful.

 

[UnknownSoldier]

I'm only approved for Level 1 or whatever options trading anyways. I can pretty much sell covered calls/puts and buy straight calls and puts. More advanced strategies require me to level up to Level 2 or 3. So I've just been buying a few contracts at a time of slightly OTM calls with an expiry a month in the future. The 1/31 $425 calls I have are doing rather nicely at the moment. I bought them when the SP was $420. This rally has been incredible. I'm still unsure when I'm going to sell these but it's either going to be immediately before earnings or immediately after obviously.

The SP is rising so quickly that trying to buy slightly OTM calls is an exercise in whack-a-mole, if I'm too slow it's already ITM. And no one knows where the top is at this point. This is looking like the Bitcoin frenzy that took BTC from zero to over $18,000 in a year. I just hope there won't be a corresponding crash after this rally is spent.

 

[Hock1]

Thank you for the example.

I need to submit a new form for advanced trading strategies with the broker. A year ago I didn't ask for most of this stuff, because did not know how to use it and did not want to get into too much trouble to start with. I think they didn't make some other options available to me, because I claimed no experience.

A disagree from @Hock1 without explanation is really NOT helpful.

You must have missed my multitudinous rants over the past 2 years. I disagree with screwing around with options as a general matter. My many years of personal investing and managing money for others have taught me that buy-and-hold is really the only way to build wealth over time.

 

[ggr]

Stock would have to go to 270 for this to be a worse trade than just buying a 500 call.

You are not just wrong, you are dangerously wrong. Once the stock goes below 430, the put side (which you are short) gets more valuable by $100 per contract for every dollar the stock moves. I'm not seeing the actual prices in your screenshot, maybe I'm missing something, but at stock price of $400 I'm prepared to bet you'd be in serious financial difficulty, unable to buy back the put and certainly unable to buy the stock someone would dump on you. Actually well before that, because of the margin call.

I agree with @Hock1.

 

[M3Rider]

You must have missed my multitudinous rants over the past 2 years. I disagree with screwing around with options as a general matter. My many years of personal investing and managing money for others have taught me that buy-and-hold is really the only way to build wealth over time.

Ok, I can understand this POV.

I'm not risking everything, I only got about 25% of my trading acct in calls.

My retirement account is 100% shares.

This 25% calls is doubling my overall acct returns compared to shares % going up daily.

I also consider my calls less risky, since most of them are long term.

I've lost some short term calls on the way to 180, but I made that back and the interesting part is that my 2 years call bought >1 year ago on the premise of GF3 first went to worthless, but now performs the same as shares and has room to grow and perform better, so this shows me long term has less possibility of a complete loss and a less risky bet.

 

[mrwuffles]

People in this thread need to realize there is more to options than just buying puts or calls. Consider the scenario in my screenshot where as long as we end up above 430 you make money and have a lower price where you start making big profits. And it uses less margin than the 16k you just laid out in your trade. View attachment 498112

Problem with selling puts is if you get assigned. I'm going to assume you watch it like a hawk but I don't, so long calls is where it's at for me. I've made money on buying puts too last year, but it feels dirty.

 

[MikeC]

Question: If I'm a little bit short on cash to sell a cash-covered put, is there anyway to use part of the premium from the sale to make up the difference?

E.g., Selling a 1/31 $550 P for ~$3,500 but holding only $53,500 cash. If you add the $3500 to that, it's $57k cash. This should be enough to cover the put but it doesn't look like my broker allows it.

I'm wondering if maybe a higher trading level would allow something like this to be done?

 

[ggr]

Question: If I'm a little bit short on cash to sell a cash-covered put, is there anyway to use part of the premium from the sale to make up the difference?

E.g., Selling a 1/31 $550 P for ~$3,500 but holding only $53,500 cash. If you add the $3500 to that, it's $57k cash. This should be enough to cover the put but it doesn't look like my broker allows it.

I'm wondering if maybe a higher trading level would allow something like this to be done?

For ETrade, the rule is:

- Equity and Narrow-Based Index Options:
Proceeds of the sale plus 20% of the underlying value less out of the money amount OR
proceeds of sale plus 10% of strike price, whichever is greater.

I'm not sure I actually understand this.

 

[Jayjs20]

Does anyone know what happens to a short strangle if the SP keeps going up like this as it approaches expiration? My account keeps going down (of course) and I'm practically readjusting my strikes every day now it seems. Today's readjustment from 545 c/p strikes to c/p 580 strikes costed me about 1400, and if the premiums I have sold goes to 0, that'll get me about 85k. So it goes cost me a bit each time I re-adjust, but not much. My expiration is Feb 7, so I only need to keep at this another 13 trading days.

As the SP keeps going up, the money in my account essentially gets converted into premium. At some point as it approaches expiration, it has to reverse, right? At some point, if I glue my strikes closely to the SP, the premiums should hit about 0 and I'll get most of it back, right? My main concern is that readjusting my strikes in the last week might cost a lot more then it does now. That ER is also a big question mark and I'm not sure what a large IV crash will do to my position.

 

[mongo]

Does anyone know what happens to a short strangle if the SP keeps going up like this as it approaches expiration? My account keeps going down (of course) and I'm practically readjusting my strikes every day now it seems. Today's readjustment from 545 c/p strikes to c/p 580 strikes costed me about 1400, and if the premiums I have sold goes to 0, that'll get me about 85k. So it goes cost me a bit each time I re-adjust, but not much. My expiration is Feb 7, so I only need to keep at this another 13 trading days.

As the SP keeps going up, the money in my account essentially gets converted into premium. At some point as it approaches expiration, it has to reverse, right? At some point, if I glue my strikes closely to the SP, the premiums should hit about 0 and I'll get most of it back, right? My main concern is that readjusting my strikes in the last week might cost a lot more then it does now. That ER is also a big question mark and I'm not sure what a large IV crash will do to my position.

A short strangle has unlimited risk. If SP keeps moving up, you will keep losing money,

Short Strangle (Sell Strangle) Explained | Online Option Trading Guide

 

[Jayjs20]

Thanks, I understand that, but that's not my question.

If I continue to re-adjust my strikes, they will stay at the money. Re-adjusting costs premium, but it's a minor amount compared to the overall premium gained. If I continue to keep my strikes at the money at the cost of premium, they should eventually head to 0, right? Everything I know about short strangles say I should be ok, but it's a bit unsettling seeing myself down 10-15k almost every day and still continue thinking that I'll hit a large profit in around 2.5 weeks.

 

[willow_hiller]

Thanks, I understand that, but that's not my question.

If I continue to re-adjust my strikes, they will stay at the money. Re-adjusting costs premium, but it's a minor amount compared to the overall premium gained. If I continue to keep my strikes at the money at the cost of premium, they should eventually head to 0, right? Everything I know about short strangles say I should be ok, but it's a bit unsettling seeing myself down 10-15k almost every day and still continue thinking that I'll hit a large profit in around 2.5 weeks.

I'm not an expert by any means, but maybe if we could we have some concrete numbers it would be possible to understand your situation better.

You started off by selling a strangle at some strike below 545, which netted you $85k in premiums immediately. And now as the SP is rising, you're closing the strangle at the previous strike price and opening a new strangle at the money? And the price difference between closing and opening each position is costing about $1.4k?

Depending on how many times you've adjusted the position, I think all of your losses so far are paper losses, but you will eventually end up with something significantly less than $85k.

 

[Jayjs20]

I'll end up with 250k minus the cost of whatever adjustments I have to make, in theory. It's just weird seeing the account's value drop so hard, so fast, when the account + premium value stays roughly the same. I'm down 30k the last 2 days. Clock's ticking and I'm supposed to regain that 30k plus another 60k (minus adjustment cost) or so in 2.5 weeks? It feels a bit weird.

 

[willow_hiller]

I'm down 30k the last 2 days. Clock's ticking and I'm supposed to regain that 30k plus another 60k (minus adjustment cost) or so in 2.5 weeks? It feels a bit weird.

Yes, you should receive the premiums from selling the options once they expire. So you are experiencing real losses with every position opened and sold for a loss; but as long as the premiums on the last strangle you sell are larger than your total losses, you'll end up black.

 

[ggr]

You're betting on low volatility, and volatility is absolutely the opposite of low. Why are you surprised that you're losing money?.