Newbie Options Trading

[InTheShadows]

Quick question. I am holding Dec 200 calls that I bought a while back and am a little under water on.


Should I be rolling these to something like DEC 185s that have a higher delta and the same IV right now before we close? I intend to take the risks through this afternoon.

I had dec 175's and 180's that I took a bath on today when I sold them. I really thought about holding them but with the shorting halted I wanted to free up cash to get a better entry point. I may have made a mistake selling them but after the last few days I am content with that.

That being said I am going back to the planning board on my options strategy. Obviously my previous strategy didn't work.

 

[InTheShadows]

Still holding the December Calls which are not worth much. There are 8 weeks until they expire. Though its not likley we will see $180-$190 before then which is where i need them to go. I do think a slow recovery will take place and they will regain some value.

What are you all planning for December calls if yo have them?

I thought of this too but with them being so far out of the money their time value is going to eat into their value. That is why I sold mine and will buy something much further out.

I'm not buying anything until next week at the earliest, I am too emotionally distraught right now and need some time to review my logs and evaluate my mistakes of the past few months and create a new plan.

Through this I also learned that my leaps only lost 7-10% vs my near term stuff that all lost at least 80% of their cost basis. (Some of those options were up over 200% when we were at ath. )

I've never had an experience before when 4% of our net worth just vanished overnight. I can't even imagine what the people that were all-in are going though.

My biggest mistake that I know of right now was trying to apply my long term vision of where tsla is going to a short term options strategy. Had I not done this I think I would have been much better off.

 

[clmason]

I also wrote Puts at $110 strike when shares were at $180. I may get put on these options... personally I like TSLA at $110 so not going to buy them back now.
Anyone else riding into puts?

 

[smorgasbord]

My older $72.50 Puts that I sold have recently doubled in value - to $0.22. I've still gotten 97% of the value from them even if I had bought them back today (they were about $0.11 just before earnings), so I'm not worried. I may buy them back just to have the dollars to invest in new ones.

 

[InTheShadows]

Does volitility crush happen for in the money options after earnings release?

 

[neroden]

I also wrote Puts at $110 strike when shares were at $180. I may get put on these options... personally I like TSLA at $110 so not going to buy them back now.
Anyone else riding into puts?

I wrote $100 and $80 puts (LEAPS) when TSLA was flying high with the understanding that I might get put on them; I like the price. I have to recheck that I won't get overexposed to the stock if that happens though.

[Note that these are cash-secured puts; as conservative as selling covered calls, but bullish rather than bearish]

 

[Mario Kadastik]

Does volitility crush happen for in the money options after earnings release?

Yes, the option price is made up of three main components: closeness to money, time until expiration and volatility. If any component changes the option price changes. The percentage change is smaller for IV crunch in deep ITM far out expiration options just because the IV related component makes up a smaller value in the price. For short term far OTM calls the main price comes from IV so if that crunches, the whole options price collapses.

 

[ckessel]

FYI, I found this explanation of the wash sale rules to be one of the more digestable ones. Particularly related to selling puts and when they'd trigger the wash sale rules:
Wash Sales and Options

 

[zeed]

I bought some OTM $300 March 14s before the Q3 report which I am down 80% on. My thinking was that we'd be even or better on the price after the call, and that we'd end up ITM or close by Feb Q4 call. I certainly wasn't anticipating a severe sell off so I have zero hedge on these options. I still think the stock is going to $300 (eventually), but no longer by March. I'd like a chance to break even but prefer not to put up more capital. Since, I think we'll see little price appreciation from this level until at least the first of the year (with risk of volatility to lower levels in the meantime), do you think it's better to sell-to-close and sit out until then, or hold the March $300s until right before/after Feb Q4 report in anticipation of higher premium due to IV. I do think the major price gains potential will follow 2014 guidance at Q4 report but this eats pretty close to the March strike. At the same time, should I ditch these March options and roll them forward and/or down a little? Any advice you could give would be really helpful! Thanks!

 

[Mario Kadastik]

I think hoping for $300 by March was in itself utopic from the start. Right now doubling down on those I think would be rather foolish and I'd have eliminated them at market open the day after earnings or well I personally wouldn't have bought them at all. I had some March $180's that I eliminated because I knew that I can re-enter them at a better price point and at the same time if Tesla does trend down to $100 range it's not going to be that easy to recover to profit with those so I took the loss. I still have one contract left as a risk play, but I think getting that to profit i.e. break even was around $200 is going to be hard so getting to your $300 is nigh impossible. There aren't possible moves that could possibly propel Tesla to such prices in such short time. This isn't early 2013 where Tesla went 5-bagger because it was shipping more and more cars and first time turning a profit far before anyone had hoped. They've now shown serious battery constraints that re-modeled for many people the growth aspect of the company and as most of Tesla's price comes from future hopes, then dampening the growth even by little will have a compounding effect and hence the correction down to $140-150 range. The third fire did the extra correction and I sure hope it's the bottom now, but it may well not be. And even if it is it's going to be a consolidation and return to prior regions over time. I'd have to say getting to $180 pre-Q4 is a decent result. If that happens you are 1 month out with a strike that is $120 down, that option even with all the IV in the world will not be worth much.

 

[ckessel]

I'm margin enabled and been using it to buy calls, but paying margin interest sucks. I've since leveled my account which leaves me with my margin unused.

Is writing a deep ITM (or OTM for the buyer) put roughly equivalent to buying call? For example, if I sell a $200 TSLA put, thus pocketing a bunch of premium, I'm essentially banking on the stock going up just like if I bought a call. Selling the put would seem to have the advantage that I don't have to use margin. However, the margin comes into play because the liability of buying the put down the road counts against the margin. Without that margin, I'd be more limited in the puts I could write.

Am I understanding that right?

 

[mershaw2001]

I'm margin enabled and been using it to buy calls, but paying margin interest sucks. I've since leveled my account which leaves me with my margin unused.

Is writing a deep ITM (or OTM for the buyer) put roughly equivalent to buying call? For example, if I sell a $200 TSLA put, thus pocketing a bunch of premium, I'm essentially banking on the stock going up just like if I bought a call. Selling the put would seem to have the advantage that I don't have to use margin. However, the margin comes into play because the liability of buying the put down the road counts against the margin. Without that margin, I'd be more limited in the puts I could write.

Am I understanding that right?

You understand correctly, but I think there's a few subtle things:
1) your margin requirements for the put will be huge (like owning the stock) but the margin requirements of the call will be 0, it will just suck out the cash that it cost.
2) you will get very little time-premium for a 200 strike call unless you're going out really, really far in time.
3) Your margin balance will be reduced by the amount of the put contract (a good thing! Less margin interest to pay!)
4) Theoretically the value of the put should be slightly decreased because of the fact that selling it reduces margin balance.
5) The return profile of the stock, the put, and the call are different as the stock rises and approaches your strike.

 

[ckessel]

Ok, cool, thanks for the detail

I know with selling a put my liability is much higher since I'm on the hook for whatever the strike price is and the stock could go to zero. With a call, the losses are capped to the initial outlay.

 

[mershaw2001]

Oh one last thing: with regard to selling the put, remember that someone can exercise at their whim, whereas with the call and the stock you are in control.

 

[ckessel]

Does anyone know why TDAmeritrade's implied volatility on their website doesn't match that in the thinkorswim tool? For example, looking at thinkorswim for JASO Dec 21 it has 75.55, while the website shows 65.92.

 

[ckessel]

Damn, lesson learned this morning. I had some weekly options in CSIQ I'd waited to sell today. I had a price target in mind and CSIQ opened well above it. Hurrah! Except I was commuting and by the time I got to work the price had dropped dramatically. Missed my window. Instead of doubling my money, it's now sitting at 50% loss.

Lesson learned, set an order to sell at the price point I want. If I'm in a position to watch the stock, I can always adjust it, but I missed out huge this morning. If I'd had the standing order on the books to sell at the price I'd wanted, it would have triggered on my drive in.

 

[GravityPull]

What are the most likely scenarios that would occur to my 2015 LEAPS if Tesla was bought out by another company?

 

[mershaw2001]

Time value goes to a miniscule amount (depending on the amount that the market is unsure of whether the buyout would be complete). The option value goes to
Buyout price per share-strike value.
Buy out for 200 dollars. Strike price of 140, option would be valued at just under 60 dollars. (under because there's uncertainty in the buy out until the day it's complete).

 

[smorgasbord]

Oh one last thing: with regard to selling the put, remember that someone can exercise at their whim, whereas with the call and the stock you are in control.

Yes, but early exercise is not something to be feared. It typically only happens when the Time Value of the Put becomes very small. Assuming you went into the trade thinking that you'd be content buying the stock at the strike price minus the option price, it shouldn't be a worry. If you do become worried, remember you can simply buy the Put back. Yes, it'll be at a loss.

With TSLA, I think that as long as there's some TV left you don't have to worry about early exercise. The "other guy" probably thinks there's room for TSLA to drop even more and so he want to hang on for more profit.

 

[hoang51]

Damn, lesson learned this morning. I had some weekly options in CSIQ I'd waited to sell today. I had a price target in mind and CSIQ opened well above it. Hurrah! Except I was commuting and by the time I got to work the price had dropped dramatically. Missed my window. Instead of doubling my money, it's now sitting at 50% loss.

Lesson learned, set an order to sell at the price point I want. If I'm in a position to watch the stock, I can always adjust it, but I missed out huge this morning. If I'd had the standing order on the books to sell at the price I'd wanted, it would have triggered on my drive in.

From my experiences, if your options are in the money, it's best to set a stop instead of a limit. Many times I've been burned because I set a limit thinking the option would sell at the set limit price, but instead, it made a loss while I'm sitting there waiting for it to regain towards my selling area (moving the limit around). I've been decent to good at picking entry points, but my exiting strategy sucked compared to it. Now, I find it's better to be happy with some profit on an option when the sell is triggered by a stop than to be wishful to be earning more (greed). I know this works best now for me because it saved me with one stock (FB) while the other I was punished (TWTR). I could've profit both, but I was like, eh, my TWTR put can earn more. Turns out that wasn't the case. I also learned not to hold weekly options into the following day because the next day it can be had cheaper due to volatile market. Hope this helps you try to keep your profit.