mershaw2001
I'm short the short sellers
Ok thanks for the answer. I forgot to add that they said the same thing about a 3 day window of risk. I'll just sell off other shares, non tesla. Thanks for the help.
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Advanced TSLA Options Trading
- Thread starter smorgasbord
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Causalien
Prime 8 ball Oracle
Sold a couple Jan '14 $160 Puts for $16.50 today.
I'm buying stock at $143.50 or making more than 35% annualized.
Seems like a no-brainer to me.
I'm buying stock at $143.50 or making more than 35% annualized.
Seems like a no-brainer to me.
sub
Active Member
Establishing any position that can make you money also has risk. The worst thing that happens in this case is that I end up buying a couple hundred shares of TSLA at $143.50. Even if TSLA tanks to $90, I can simply sit on my shares as I believe that medium term TSLA will be well above $143.50. So, I believe I can't lose money on this trade - I might just not be able to make as much if I waited for the stock to drop well below $143.50 before buying. However, that might never happen, so this gets me some pocket change.
Buying calls is another way to play these dips. I might do that next time, just for some variety.
What's ironic here is that the "Newbie" thread seems to have more advanced strategies than is typically discussed here.
Buying calls is another way to play these dips. I might do that next time, just for some variety.
What's ironic here is that the "Newbie" thread seems to have more advanced strategies than is typically discussed here.
I'm actually considering selling deep ITM puts as a way to buy shares in a few months when I do have cash on hand. I don't have cash on hand now to buy what I want (mainly solar right now), so am thinking of selling some Dec/Jan ITM puts and hoping the stock prices stay below (ideally only slightly below
) that level by the time the options expire that way I can have the option exercised and buy the shares. Pros - I can buy shares of XYZ stock at todays price in the future when I do have cash. Also, even if the stock rises above the strike, then I'll have pocketed the premium.
Cons - Stock tanks and I have to buy the stock at todays price even if the stock is well below.
I'm only planning on doing this with stocks I'd like to buy and hold, so that's why the "Con" scenario mentioned above isn't that big a deal for me.
Any risks I'm missing? Has anyone else tried this strategy?
Mario Kadastik
Active Member
The only downside I think is that you'll have a maintenance margin that you have to keep and at least for me it looks to be about 2x the market value of the options. If your net liquidation drops below that, then you might get a margin call and have to eliminate something before you'd like it... Also, if you go very deep ITM, then you'll just get the cash from price diff while you go only slightly ITM, then you get a time premium as well and therefore actually lower the price at what you buy it.
I tried this strategy throughout 2012 and part of 2013, but gave up finally as it never expired ITM
Of course I was selling ATM puts and Tesla kept going up. In 2012 I didn't mind too much as I was getting a nice % premium with almost no cost, but in 2013 I was pissed that I didn't get the shares assigned at some point as the run up was extremely nice I did start buying calls at some point in addition to selling puts and that gave more more exposure to the upside. Right now I have a few Dec 195 puts short with the expectation that they expire worthless just to have double gain on calls + sold puts just so that I can finance the calls to the upside against margin that is kept on the cash and options I own (no interest therefore). But I'm not planning on getting shares for it, yours is a safer strategy as you're basically getting the same exposure as buying the shares outright, but get it without having to spend the money now and have a potential to just have found money on the floor if it expires above your strike price.
Chickenlittle
Banned
have done this. Calls expensive and these are not. Picked nov exp strike 200 sold a large number about a month ago but not on margin. Have tied up a couple of million cash thinking I would buy the stock for about 168 considering the cash I got for selling the puts. I thought 200 would be in the money but found if I had not, I could have bought the stock close to this price, except cash was backing the puts and worse if the puts end up out of the money I can miss a short squeeze and not have the stock. So I guess the only "wrong" is the inability to take advantage of opportunities that arise. Yes I could have bought the puts back but when temporary decrease in price they get pricey to but back.I'm actually considering selling deep ITM puts as a way to buy shares in a few months when I do have cash on hand. I don't have cash on hand now to buy what I want (mainly solar right now), so am thinking of selling some Dec/Jan ITM puts and hoping the stock prices stay below (ideally only slightly below
Pros - I can buy shares of XYZ stock at todays price in the future when I do have cash. Also, even if the stock rises above the strike, then I'll have pocketed the premium.
Cons - Stock tanks and I have to buy the stock at todays price even if the stock is well below.
I'm only planning on doing this with stocks I'd like to buy and hold, so that's why the "Con" scenario mentioned above isn't that big a deal for me.
Any risks I'm missing? Has anyone else tried this strategy?
How do you decide what calls to buy? I use some guidelines for selling Puts (I posted upthread here), but don't know how to choose from among the variety of Calls to buy.
Mario Kadastik
Active Member
Well I guess it's somewhat related to gut feeling
It also depends how far out the date is and why I'm buying it. So if I want to do day trading for daily up down swings, then I buy ATM or one strike OTM options. If I want to make an ER play, then I try to buy as close to the money as I can stomach, but preferably during a deep dip or when the stock has consolidated at a level for a while pulling the IV down. For a highly volatile company like Tesla the IV usually means tough premiums on the calls. What I also do is delayed constructs so that if the stock moves up real fast for what ever reason (good news, upgrade, what not), then I hedge part or all of the position locking in the possible future profit, but making it close to or fully risk free.
For a longer term play I'd go with OTM calls, but those one has to know are risky because if the stock doesn't follow the time decay will start eating your lunch
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Oh and if you want to play LEAPs to get most of the options benefits with stock stability (almost) and lower cost, then I'd recommend buying ITM LEAPs so that you're not paying too big a time premium.
I'm far from a pro, but since no one answered your previous post, I'll share with you what things I consider when buying calls.
First, I usually set a price target for what I think the stock can reach before the option expires. Option prices will generally move in the same direction as the underlying, but the second the market sees that an option will not expire in the money, the premium will drop and be worth next to nothing.
Next, when I have my price target set, I look at different strike prices below that target and settle on one rather than several strikes. I also consider the strike that has the better liquidity because that makes it easier to go in and out and the bid/ask spread is usually narrower. So for example, I bought mostly Nov. 200's during the dip for my q3 play. Rather than have a bunch of strikes all over the place, I only have to focus on those if I need to act fast. Nov. 200's also have the most volume traded compared to the strikes around that price.
Another thing to consider is the IV, when the stock was trading flat in the 160's it was a really good time to buy. But IV isn't always king because buying on dips is an excellent time to buy if you think the stock will recover, even though IV will usually be higher. I was able to buy a bunch of Nov. 200's at $5.90 and they are at $11.60 today, so you can't always wait for IV to be where you want it to be.
The more you follow prices and see how they react to different price actions of the underlying you will get a better handle of what to expect. If you don't have enough time to invest in following option prices then its better to look into leaps.
I don't trade based on a strict set of rules because there are too many scenarios and factors to consider. I think Sleepyhead stated it before, that option trading is sort of an art and it develops over time. Unlike Sleepyhead though, I keep a log of all my option trades so I can reference my previous trades and see what I did wrong or right.
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Happy to say that today I finally made my first zero cost delayed construct bull call spread!
This is a very similar strategy I deploy, but applied to LEAPS. Because of the long time frame though, I'll usually choose 2 strikes- one conservatively where I think the stock would get to in half the LEAP time and the other where it would be at expiration. This creates a natural roll up spread as the stock moves higher (roll lower side of spread to upper side) taking some profit. I've used this approach using a time spread too when available (J15 expiration lower and J16 expiration upper for example)
I've been reading up on implied volatility and multiple articles mention the best time to buy options is right after an earnings. Of course, you miss out on the earnings movement, but the gist of most of the articles is the IV kills most any chance of profit if you're buying right before earnings. However, I know kevin99 talked about buying everything he possibly could shortly before the Q2 earnings, so I'm guessing that's a case where the surprise Q2 results outweighed the IV?
I'd thought about buying some small number of options for the week after the Q3 earnings, but Tesla's IV is already crazy high at something like 72%. I think most of us here expect Tesla to beat expectations handily, but given where the stock is at already and the already high IV, maybe it's a better bet to wait until the IV drop after earnings to buy longer term options?
Any short term option is obviously a high risk gamble and I was fine with that, but I want to make a gamble where I'm looking at positive EV (expected value, a poker term, best I can come up with as an analogy).
I'd thought about buying some small number of options for the week after the Q3 earnings, but Tesla's IV is already crazy high at something like 72%. I think most of us here expect Tesla to beat expectations handily, but given where the stock is at already and the already high IV, maybe it's a better bet to wait until the IV drop after earnings to buy longer term options?
Any short term option is obviously a high risk gamble and I was fine with that, but I want to make a gamble where I'm looking at positive EV (expected value, a poker term, best I can come up with as an analogy).
I've noticed a couple ways to work with the IV crash after earnings. One way that has worked for me is to sell within the first hour of opening the morning after earnings. I also get DITM options with little premium so there isn't much to lose when the IV drops.
I'm curious, does that mean you think Q3 earnings is going to be a non-factor this time around? Q1 and Q2 were big movers on the stock, but does a Q3 that beats expectations significantly not move the stock much since it's already been driven up so high?
If you bought options prior to Q1, you could have had 100 baggers. Prior to Q2 you could have had 5 - 10 baggers.
Going into Q3 you might get a 5-10 bagger, or you might only get a double or triple even if ER is really good.
Wall St. is slowly figuring out where to get up to date info on TSLA and the shock might not be as big if they do have a blowout quarter. Also, that stock can't continue going up at the same pace.
When you look at the linear chart it looks like it is going up at a constant pace and that it might jump back into the "channel". But when you look at the log chart you can see that TSLA is slowing down and cannot return the same % gains.
The log charts are the ones that matter because that is what will determine your portfolio return and not the linear charts.
Another thing I think we can do to reduce the effect of high IV is playing with bull call spread or bull ladder spread. It could work out better than simply buying expensive calls if you have a strong opinion about the likely price range after ER.
For example I know the Q3 ER will be very good, but probably the price won’t go up exponentially like what happened after previous ERs. So I feel it’s more likely in the $200-220 range, but unlikely to be above $240 one week after ER.
Approach 1: I can buy 1 Nov16th $200 Call at ~$8. I need it to be at least $208 to break even. If it’s at $220 before expiration, it will be 150% gain. Or If it actually gets to $240, it will be 400% gain. Assume I invest $1000 in this trade, my max. loss will be $1000, and my gain will be $1500, or $4000, if the price gets to $220 or $240, respectively.
Approach 2: I can buy 1 Nov16th $205-$220 bull call spread at $3. I also need $208 to break even. If it’s at $220 before expiration, it will be 400% gain. it does not go up more if the price is higher, but 400% gain is not bad since I don’t think it can actually go higher than $240 one week after ER. So for the $1000 I invest, the max loss is still $1000, and the max. gain is now limited at $4000, but it comes at a lower price $220 compared to the previous case.
Approach 3: I still buy 1 Nov16th $205-$220 bull call spread at $3, but I also sell another Nov16th $240 Call at $1.5 because I feel so strongly that it won’t be above $240 within 1 week after ER. I only need $206.5 to break even now. If the price is at $220 before expiration, it will be 900% gain. It does not go up more either if the price goes further higher. For the $1000 I invest, my max. gain is limited at $9000 which is achieved between $220 and $240. The loss comes at $253.5 and it can be unlimited now. Another catch is that I do need large margin to be able to sell the 2[SUP]nd[/SUP] call, but it’s not something extremely large since it’s a so far out of the money call.
I suspect in approach 3 the high IV will not be an issue any more, and maybe even almost works in my favor since there I sell 2 calls but just buy 1. But it will tie up a lot of margin and has unlimited potential loss (and even with approach 1& 2 I can lose 100% of what I invest). Most of my fund are in TSLA shares in my 401K (too bad I cannot even sell covered call there) so I’m ok to take some risk with the small money I have in IB account. I’m thinking about taking approach 2 and probably also 3 to a smaller degree. It sounds a better strategy than simply buying calls, but I just thought about this and have never tried it before. I’d like to hear other people’s comments.
Due to IV crash, I like the thought of selling NTM puts before the earnings call. Since it is unclear how much of a beat is priced in, this might be the safest way of harvesting the knowledge that they certainly are not underperforming.
Thoughts on that? Vanilla November expiry best?
Thoughts on that? Vanilla November expiry best?
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I agree with you. Do you happen to know how the margin requirement is calculated for selling NTM puts? I suspect it'll be very large so much so that you cannot sell many. So compared to the fund it needs to tie up the percentage of the gain might not be very big. but it seems a very quick way to make some money
I have very good funding of my account, so margin requirements will be OK for me. But I am thinking Nov 15th may be a bit too early expiry - not sure whether the volatility will be over by then. On the other hand, wk3 and wk4 puts have minimal liquidity, so I'll be paying the market maker in both ends there. And December is a little late... Decisions, decisions...
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