Newbie Options Trading

[ckessel]

"Never let the tax tail wag the investment dog." Or something like that. You presumably bought the LEAPS because you believed in them. If you no longer believe, then now (as opposed to next week) is a good time to sell. But if you still believe, you'll be kicking yourself if they run up during January.

I believe in them, it's just that potential run up that's the question. Do I take a 30 day (wash sale avoidance) gap to write off against other gains? If the stock didn't move, or goes down, I'm good. If the stock goes up by more than I saved in taxes, that's bad.

I could take the loss and move it from SPWR to CSIQ I suppose, they're both ones I want to own, but I don't own CSIQ at this time.

 

[Robert.Boston]

Another strategy might be to buy slightly different SPWR LEAPS. E.g. same expiration but different strike price, or same strike but different expiration. As long as it's not identical to what you're selling, it's not a wash.

 

[ckessel]

Another strategy might be to buy slightly different SPWR LEAPS. E.g. same expiration but different strike price, or same strike but different expiration. As long as it's not identical to what you're selling, it's not a wash.

I don't think so. I researched wash sales pretty heavily a couple months ago and the guideline is if you can benefit from the upward rise of the stock, then it's considered equivalent. Any options, stock, or even selling ITM puts (e.g. sell a $200 put when TSLA is at $150) is considered equivalent and triggers the wash sale rule.

 

[ggr]

I don't think so. I researched wash sales pretty heavily a couple months ago and the guideline is if you can benefit from the upward rise of the stock, then it's considered equivalent. Any options, stock, or even selling ITM puts (e.g. sell a $200 put when TSLA is at $150) is considered equivalent and triggers the wash sale rule.

I'm afraid I agree with you. The rule has definitely been interpreted as saying that different options (dates/strikes) still trigger the wash sale rule.

 

[kenliles]

Yeah, even trading across to Roth IRA accounts doesn't prevent the wash kick in.

 

[Robert.Boston]

I stand corrected, then. Sorry to provide incorrect advice, and thanks for the quick correction.

 

[kenliles]

I stand corrected, then. Sorry to provide incorrect advice, and thanks for the quick correction.

Was a good thought though. There was a time when your suggestion and cross account and other methods were allowed, but they closed down all of these over the last few years especially.

 

[ckessel]

Under what conditions does it make sense to sell a covered call? I'm invested in stocks I hope will grow substantially (TSLA/Solar), so while I could sell a covered call I don't really want to have the stock called away when it decides to spike. I'm guessing then that covered calls don't make sense for such stocks? They'd make more sense for a value stock?

 

[sleepyhead]

Under what conditions does it make sense to sell a covered call? I'm invested in stocks I hope will grow substantially (TSLA/Solar), so while I could sell a covered call I don't really want to have the stock called away when it decides to spike. I'm guessing then that covered calls don't make sense for such stocks? They'd make more sense for a value stock?

It makes sense for TSLA and solar, but you have to time it perfectly. If you are planning on holding a full year to get LTCG then it might not make sense to sell these calls at risk of getting stock called away, but you can always buy back the call before expiration (at a loss, offset by gain in stock) to avoid getting the stock called away. Since these stocks don't pay dividends chances are that your stock will not get called away unless it is very deep ITM or expiration day (or day or two before).

If you are looking for big gains in these stocks then it doesn't make sense to sell calls, but if you are willing to give up some upside potential to limit potential losses then it does make sense to sell them. The best time to sell would be during a huge run up such as 20% - 50% in a matter of weeks; but remember that stocks can go a lot higher too even after huge runs.

 

[Mario Kadastik]

Yes basically you assume that stocks move a bit cyclically and therefore if there's been a run up relatively fast then it's likely that there might be a small term correction. So if you sell weeklies or a month out calls that are 10-15% OTM (or more, something that needs to be computed by yourself as for example in Solar moving 10% might be a daily thing), then the worst that happens is that the stock runs up relatively fast and you only gain the amount that you sold OTM + premium. You can then in theory either buy back the call at a possible loss or let it be called away, hope for a correction and buy back in again. It's a play where your main risk is losing out on some more profits in a short term spike. If you sell covered calls that are many months etc out, then that's another thing and not what I'd do. I usually sell either weeklies (if it makes sense, it doesn't for small price stocks like SOL, JASO, but does for TSLA etc) or monthlies and enough OTM that the gain is already substantial if it does get called away.

 

[InTheShadows]

What do you guys do whith deep itm options? I have some csiq jan 15 17. Would you just hold them as is, roll them up, or out and up?

Also is the best time to roll them on a day like today with huge gains or during a consolidation period? My guess if they are going to get rolled out to do it on a day like today.

Also is there a delta that most people shoot for to keep their LEAPS at? I know a lot of people recommend to buy the ones with a delta of 80.

 

[Ocelot]

well, once again i completely missed the boat. i bought end of month 145 calls just a few days ago, which i sold this AM to break even. If i sold now I would of doubled my money. one day i will post in the 'advanced options trading thread' ...one day......

oh yeah and last week i bought calls for the wrong date, expiring last week not this week. good thing i am not a money manager.

 

[Johann Koeber]

well, once again i completely missed the boat. i bought end of month 145 calls just a few days ago, which i sold this AM to break even. If i sold now I would of doubled my money. one day i will post in the 'advanced options trading thread' ...one day......

oh yeah and last week i bought calls for the wrong date, expiring last week not this week. good thing i am not a money manager.

I hope you did not invest a lot of money. Main thing, you did not loose it.

Now ... what have you learned? The important thing is to learn from every trading experience. Just get better every time.

There is no better education than investing your own money.

 

[smorgasbord]

Under what conditions does it make sense to sell a covered call? I'm invested in stocks I hope will grow substantially (TSLA/Solar), so while I could sell a covered call I don't really want to have the stock called away when it decides to spike. I'm guessing then that covered calls don't make sense for such stocks? They'd make more sense for a value stock?

Do not sell covered calls on volatile stocks like TSLA. Selling covered calls is for steady stocks where any pop is something you'd sell into anyway - but they're steady so you don't expect the pop. It's a way to generate income on steady stocks that you wouldn't otherwise make. Don't take long dates out - you want to take your short term profits from selling and then start a new batch at the appropriate price. If the stock is slowly rising you might do this 3-4 times a year.

For stocks like TSLA you do things like selling Puts or writing Bull Call Spreads. I've seen postings of those and more complex strategies here, but they really belong in the Advanced thread.

 

[Mario Kadastik]

Well you can sell covered calls after an outrageous run up (like today though this might well continue in the short term due to squeeze so I'd not sell) to take advantage of the eventual profit taking. So if the stock runs up 10-20% and you sell a covered call 10-20% more OTM that is just week or two away then it's unlikely to get called away and if it does you gained an assload in that short timeframe. And as it likely corrects soon after you get your shares back at a discount. Now you still need to know the dynamics and when the stock is running out of steam so if it starts to move sideways is the time. Right now we're in steady climb so no way hose

 

[InTheShadows]

How does everyone have their options set up for something catastrophic? What I mean is we know someone whom suddenly died of a massive heart attack this pas week and it got me thinking about our options accounts.

My wife knows nothing about options other than some times we win and sometimes we loose. Because of this weeks death I started thinking what would happen if I dropped dead today and we have options that expire this week. My wife knows login info to our accounts but she wouldn't know what to do.

Should I just give her instructions that if I would drop dead to call the account centers and tell them to close all options at current market prices?

Even worse is if her and I would both drop dead, our children, whom do not have login credentials would then have to close the contracts.

For long term options it's not that big of a deal but because of the death and me knowing that we have options that expire in less than 5 days got me to thinking about this.

 

[Mario Kadastik]

It's a valid point and I've been thinking about that too. My wife doesn't want to know anything about the stock market, she even gets pissed off that I watch it so often no matter that today meant a +20% on the whole portfolio And it's also a blessing as she still doesn't know I was -50% after the Q3 fiasco. But indeed I have friday calls, Jan 31st calls, I have also a short $145 put that of course now is not likely to expire ITM, but that was margin. So I really should create some kind of instructions that she should send to the broker an e-mail and ask them to liquidate all positions at market price. Or smth. But there is no automatic way I think...

 

[smorgasbord]

So if the stock runs up 10-20% and you sell a covered call 10-20% more OTM that is just week or two away then it's unlikely to get called away and if it does you gained an assload in that short timeframe. And as it likely corrects soon after you get your shares back at a discount.

If you had done this a year ago or so, when TSLA in the high 20's, you'd have been forced to sell before it hit $50 and thus would have missed the run up to $194 - and all for a couple bucks of income on the calls. What you're proposing here is trying to time a stock and predict peaks and valleys. In my experience, no-one does that right for long enough to matter.

Mama, don't let your children grow up to be cowboys or to sell covered calls on high fliers like TSLA.

 

[ckessel]

If you had done this a year ago or so, when TSLA in the high 20's, you'd have been forced to sell before it hit $50 and thus would have missed the run up to $194 - and all for a couple bucks of income on the calls.

TSLA's run isn't always going to be like that. It was an event of history and that mega run is over. TSLA may well grow to $1000 over time, but it won't be going 5x in 6 months ever again.

 

[c041v]

How does everyone have their options set up for something catastrophic? What I mean is we know someone whom suddenly died of a massive heart attack this pas week and it got me thinking about our options accounts.

My wife knows nothing about options other than some times we win and sometimes we loose. Because of this weeks death I started thinking what would happen if I dropped dead today and we have options that expire this week. My wife knows login info to our accounts but she wouldn't know what to do.

Should I just give her instructions that if I would drop dead to call the account centers and tell them to close all options at current market prices?

Even worse is if her and I would both drop dead, our children, whom do not have login credentials would then have to close the contracts.

For long term options it's not that big of a deal but because of the death and me knowing that we have options that expire in less than 5 days got me to thinking about this.

Very interesting question. I consulted the Google machine and could not find a satisfactory answer beyond "The clearing house steps in to fulfill any contract commitments made with another party." I.e. If you have sold calls, the clearing house would appropriate the stock to other party if they were to be called.

I'm really not sure as far as finalizing trades, or the legalities around trading on someone's behalf. Your wife may have access, but is she allowed to trade under an account registered only to you after you pass?

I'd love to hear some answers on this. I pre-emptively called my S/O and told her to table the discussion for sometime later. Ironically, she had a patient code today...