Advanced TSLA Options Trading

[gerebgraus]

I'm definitely not an option expert, I'm replying to this only because I haven't seen anyone else replying to you. I could be wrong, but here's my understanding:

In general, if there's any amount of time left on your option, it shouldn't make sense to exercise them*!

Imagine that by exercising them and selling the shares instantly you'd make $X. There's going to be a market maker, then, willing to pay *at least* $X for your options because they can get the same profit. I can't see any reason why they could be worth their intrinsic value *or less* at all.

Even if the bid/ask spread is very wide so deep ITM, market makers will often buy and sell from you much closer to the mid point than the bid/ask spread might imply. Even if you're not getting a "good" price, I can't possibly see how you could get less that *intrinsic value* (which is what you get if you exercise them early). Maybe start trying to sell at the ask, then "penny down" by editing the order and waiting a minute to see if any market maker buys it, then going a bit down again and so on (of course they're not going to buy them from you at the ask, but I'd start there anyway)...


*There are some rare cases where it makes sense, but they have to do with edge cases like dividend payments and such, and I don't think they apply to the problem at hand.

there might be tax ramifications as well, i.e. long term or short term profit. In very rare cases of deeply inside the money the market makers want more profit than the time value left in the option, and in that case even exercising and then immediately sell it make sense, but that is truly an edge case.

 

[UnknownSoldier]

These depends on the country.

Hence talk to an accountant.

In the US, after you have held shares for a year, it becomes long term capital gains. That is taxed at a flat 20% instead of your standard bracket. So I guess it would depend on if you think you can outrun the additional 4-8% in marginal taxes by selling the option and rolling it forward within the next year. This is interesting information and I should think about it today. Thank you to everyone who replied!

 

[KarenRei]

My understanding of the primary reason to exercise vs sell and roll is if you are trading in a taxable account and selling them would trigger short-term gains. My understanding is that if you exercise and then hold the call and related converted shares for more than a year in combination, then it becomes a short term capital gain.

Beyond that, I don’t know of any reason to exercise but there may be other reasons I’m unaware of.

Deep ITM calls are also rather illiquid. It's not very common, but you can end up in a situation where there's no buyers willing to pay more than the exercise value. Always compare the exercise value on deep ITM options to what you're bidding to sell the option for before doing so.

See my analysis at Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable and subsequent posts.

Edit: which is (as it was spread over two posts):

That battery module patent is really clever, I take my hat off to the patent lawyers who wrote that, it describes everything, while being opaque about what the real innovations are.

What I think it is describing is a new way to manufacture cells, a module at a time.

1. The cell casing for a group of modules is created as a single unit. [ cheaper, faster, no waste material ]
2. Those cells are filled with electrolyte in parallel. [ faster ]
3. Instead of an end cap, the collector plate(s) are used to seal the cell. [ cheaper ]
4. The collector plate(s) are used connect to the anode and cathode, and contain the circuitry to connect them in parallel. [ cheaper, more robust ]
5. Modules (collector plates) have overlaps, which allows them to be connected together in series. [ cheaper ]
6. Protection systems which where on a per cell basis are now on a per module basis. [ fewer redundant systems, cheaper ]
7. Optimisation of battery, module and cell at the same time. [ cheaper, faster, better energy density ]
8. Better more consistent cooling. [ longer lasting, higher power ]
9. Dry electrode cells (Maxwell) eliminate drying ovens, which may make this scheme possible.
10. "This system-level design may be performed such that all the discrete, high precision, high-part-count operations occur in the same part of the manufacturing process, whereby reducing complexity and improving net cell to system yield."

This was filed in March so given time for drafting, this is the state of Tesla's thinking about 9 (Edit: now 12) months ago. I'm not sure how solid state electrolyte fits in with this.

Yeah, that patent was a piece of work - my hat off to the lawyers who did that one It took me quite a while to dig through that one when it came out.

I generally agree with your analysis. One note, however: I think you're confusing "solid state electrolytes" with dry manufacturing. The latter is what Tesla purchased from Maxwell. Tesla has never expressed an interest in the former.

 

[ggr]

Deep ITM calls are also rather illiquid. It's not very common, but you can end up in a situation where there's no buyers willing to pay more than the exercise value. Always compare the exercise value on deep ITM options to what you're bidding to sell the option for before doing so.

Don't forget, though, that there are computers watching the spread too. Even though the bid/ask might not look like they are updated, you can put in a trade somewhere between them, and if a computer somewhere thinks it makes sense it will take it. So, if wanting to sell, start just below the current ask, and walk the price down until it executes. It's manually intensive, but will still get you a better result than exercising.

 

[dmunjal]

OTM Puts actually went up today. IV increased more than the underlying price?

 

[mrwuffles]

sorry didn’t get to this in time.

as the gauge moves from low risk to high risk (stock vs term options of 1+ yr) i try not to let tax implications get in the way, if a situation is critical enough.

Thanks! I held on and now that the binary event is over, I'm good until next ER. I'll probably switch to stock around then so I can be hands off and wait for it to hit $1T and fund my early retirement.

Wish I could have convinced my mom to put my inheritance in last summer, or even when it was around $450 and moving up every day. I'd be at 8 figures instead of 6, and figuring out how to become accredited and put money into SpaceX

 

[mrwuffles]

OTM Puts actually went up today. IV increased more than the underlying price?

People (shorts) never learn. Hopefully they get in and out quickly. On a long time scale, we all know TSLA is going up, which is why many of us do LEAPS. Today's decline thus far, based on it's speed and volume, seems to be mostly stop losses and algo trading based on the big momentum (probably group of shorts) created last night. Q1 might be bad, but Q2 and especially 3-4 (Y ramp) will likely be huge. I could also see them announcing that CyberTruck is ahead of schedule in Q3 or Q4, which would be a huge catalyst. April Battery Day might be priced in, especially since most of the shorts and bear analysts don't understand technology and how far behind the legacy companies are.

On the plus side, my limit buys may kick in.

 

[charlesgres]

Hi, one-week lurker here..

Also long on TSLA since 2016, and you can that quite literally: I hadn't even checked my shares for years.. (Also long on AAPL which performed quite nicely in the meantime, so I was focused on that..)
Luckily I caught the sentiment on TSLA beginning of December, so I picked up some call contracts June 2020 600, and rode them up to more-a-less 25x original value, so I am a happy camper..

That said, I am quite the amateur where it concerns options.. I only understand a fraction of what you guys are talking about, although this past week was very instructive..

Thing is, I am a bit in the dark as to how to track option price evolution and volumes and such, and how to research which are the good options to go for, etc..

So, was wondering whether you guys could point me to tools or online resources that can help me have a clear vision? Do you have tips and tricks that I should follow to maximize my gains (on upward trends obviously)?

Also, my June 600 calls are doing weirdly the last two days.. e.g. at 226 it says +15,50 wrt yesterday but yesterday it closed at 221, which was up 10 from Friday, but Friday it closed ar 217.. (Looking at Yahoo, which also doesn't properly show me graphs..) So, it's not making sense to me.. Anybody knows what's going in?

Thanks!

 

[Nocturnal]

Also, my June 600 calls are doing weirdly the last two days.. e.g. at 226 it says +15,50 wrt yesterday but yesterday it closed at 221, which was up 10 from Friday, but Friday it closed ar 217.. (Looking at Yahoo, which also doesn't properly show me graphs..) So, it's not making sense to me.. Anybody knows what's going in?

Thanks!

Congrats! I can't advise on the rest but volatility is dropping and so are options values.

 

[charlesgres]

So, was wondering whether you guys could point me to tools or online resources that can help me have a clear vision? Do you have tips and tricks that I should follow to maximize my gains (on upward trends obviously)?

For instance, just read about LEAP contracts.. where could I find the theta and delta greeks for all the options out there?

 

[willow_hiller]

For instance, just read about LEAP contracts.. where could I find the theta and delta greeks for all the options out there?

If you happen to have TDAmeritrade, their platform Thinkorswim let's you see all the greeks for options, as well as chart theoretical loss/gain for any option or combination of options given possible underlying prices.

 

[MikeC]

I have some calendar spreads, sold 2/21 350s against 1/2021 300s. The plan was to roll them up and out as they became in the money, but the share price ran away so quickly they're now so DITM I can't get any time value to roll them up and out and the current wide bid-ask spreads make it worse.

I'm thinking I will let the 2/21s 350s get exercised against shares I also hold. The plan would be to then use that cash to exercise the 1/2021 300s next year and end up with the same number of shares. This way I avoid having to deal with the wide bid-ask spreads and there's no time value to waste anyway. I'll then also have cash that I can sell short term puts against until January 2021 rolls around. I see the biggest risk as being if TSLA drops, I will be assigned shares and not have cash to exercise the 1/2021s.

Is this a sound strategy? Any risks I'm overlooking?

 

[EV forever]

For instance, just read about LEAP contracts.. where could I find the theta and delta greeks for all the options out there?

If you happen to have TDAmeritrade, their platform Thinkorswim let's you see all the greeks for options, as well as chart theoretical loss/gain for any option or combination of options given possible underlying prices.

Fidelity allows you to do the same - it took some time for me to get familiar with it since I am also quite new at this. Under the "News and Research" pull down, you can select options. You can get all the greeks, as well as Profit/Loss calculator that lets you simulate various options and combinations. It does take some time to get used to it and learn to use it effectively.

 

[jeewee3000]

For instance, just read about LEAP contracts.. where could I find the theta and delta greeks for all the options out there?

As others have mentioned, you find the greeks within your broker software platform.

In mine (European broker Binck, part of Saxo Bank) all members have access to the greeks with a 15 minute delay. To get realtime information you need to pay a monthly fee. (That US-options-data is called "OPRA")

Every broker is different of course, but that data generally is not free. That's why you can't just find it on Google (not to my knowledge).

 

[Jovian]

Hey everyone, I'm thinking about playing this upcoming earnings and trying to plan for it. How much of an increased premium on a 14 day contract will I generally be paying for a expiration a week after earnings over a regular premium of just two random trading weeks? (Are premiums usually 20% higher on earnings, 50% higher, 100% higher, etc?)

Thanks

 

[jeewee3000]

Hey everyone, I'm thinking about playing this upcoming earnings and trying to plan for it. How much of an increased premium on a 14 day contract will I generally be paying for a expiration a week after earnings over a regular premium of just two random trading weeks? (Are premiums usually 20% higher on earnings, 50% higher, 100% higher, etc?)

Thanks

Hard to put an exact figure on this because the premiums depend on so much more than the extra IV an anticipated earnings report generates.

If the stock is rangebound between 850 and 930 until the next ER, the IV added from swings will be lower than if we would return to below 700 and back to 960 in that same timeperiod.

That said, premiums are at least 20% higher for earnings, but that volatility is priced in now already. Given that ER is about two months away the premiums for options up to halfway april 2020 should be way lower than the premiums starting end of april, since the market expects the ER to happen no sooner than end of april. These premiums will adjust based on newer information becoming available (for example halfway april Tesla says ER will happen in the first week of May, that moment the premiums for calls expiring end of april should drop instantly).

So however you would like to plan it, playing ER with short term options requires a large price swing in the favor of your calls.

It might be better or just as good to watch the SP from now until end of march and averaging on options expiring halfway May. (in case you're bullish on ER, buy calls when we retrace to $700 for instance, in case you're bearish, buy puts on ATH)

The weeks leading up to ER, starting from the production and delivery report, often see price appreciation in the stock to anticipate the ER. With the above technique (buying in March), you'd already be able to take some profits ahead of ER if possible and lower your exposure. If your options bought in March are in the red, you could average down up until ER.

Not advice, just alternate strategies. But there is no fixed number by which option premiums are higher before ER. Depends on a lot of factors beyond your control.

 

[ckessel]

Not sure this counts as an advanced strategy, but...

I've ~50 shares. I have ~$25k to invest. And some 2021 DITM LEAPS I bought a while ago that aren't relevant as I'm just holding them, but they'll help deal with any maintenance requirements (tdameritrade).

I'm thinking of:
1) Selling a long term OTM put (say, $750-800)
2) Taking that cash, plus the cash I already have, to get to an even 100 shares
3) Repeatedly sell a relatively short term (weekly, biweekly, maybe monthly) OTM calls against those shares, depending on IV. If they get exercised, I'll sell a put for a point to buy back in (and close out the now much reduced put).

My goal is to do put those shares and my cash to work earning something, but something relatively low risk (well, barring TSLA completely going under).

Does that seem reasonable? Stupid? Somewhere in between?

 

[Sudre]

I don't know if this has been covered yet but I am confused. If the price drops enough again tomorrow I am going to buy a Call spread for June 2022 and wait this mess out. The problem is I am just starting to learn this whole spread buying thing and the prices right now are hay-wire. I am expecting a debt but since the prices are backwards in some cases I am getting a credit? Does it still perform the same or do I buy/sell backward in this case?

example:
June 27th, 2022
strike $1800 cost $57.15
strike $1750 cost $58.93 ?
strike $1700 cost $58.85 ?
strike $1650 cost $61.08

I know this is not truly accurate since the market is closed but I have been watching earlier today and this is happening.

 

[MikeC]

I don't know if this has been covered yet but I am confused. If the price drops enough again tomorrow I am going to buy a Call spread for June 2022 and wait this mess out. The problem is I am just starting to learn this whole spread buying thing and the prices right now are hay-wire. I am expecting a debt but since the prices are backwards in some cases I am getting a credit? Does it still perform the same or do I buy/sell backward in this case?

example:
June 27th, 2022
strike $1800 cost $57.15
strike $1750 cost $58.93 ?
strike $1700 cost $58.85 ?
strike $1650 cost $61.08

I know this is not truly accurate since the market is closed but I have been watching earlier today and this is happening.
View attachment 515860

I think it’s because those are so far out of the money, there is not a huge difference in value between the strikes even though they are far apart. In addition, the wide bid-ask spreads make their value ranges overlap even more. The market being closed may also skew the accuracy of the numbers.

I’m pretty certain you could never get a credit for buying a call spread, but it wouldn’t hurt to try for free money.

 

[ggr]

I wouldn't call this "advanced" but I just rolled some DITM calls (2x350 and 3x400 strikes) to be closer to ATM (3x700, 5x750 resp) to increase leverage and holding.