On the bolded part, which are you referring to? TSLA stock? Options on TSLA? Both? Options in general?
What people say re: making a lot or losing a lot of $ w/options is kinda true (esp. if you don't know what you're doing), but it depends on how you play it, which underlying securities/stocks, how much of risk you take and your position size.
My main options strat (w/selling OTM naked puts) bring in a little money ($900 to $1000 each month in total) and the w/stocks I use, don't seem incredibly risky. I don't lose any $ most of the time but a lot of buying power is tied up.
However, if I sold puts and then the stocks and/or market dive and are on a prolonged downtrend (or at least one that lasts until my options expire), I could be a world of hurt and rack up big losses.
That's not quite accurate. If the market goes way down, then you don't lose money; you end up with shares at a certain price. If you write puts on Tesla, and you do so at a price you'd be willing to buy the stock anyway, then you'd be no worse off than had you bought the shares outright at that price minus what you got paid for writing the puts. If you are talking about fluctuations for the entire market, you are talking short term and holding shares of a sound company that will do well in the long run puts you in a good position to write covered calls against them. It's less risky than buying long shares outright. You just need to plan on holding the shares until they are profitable, which is fine if you wrote puts because of the merits of the underlying business. Or if you set the target too low, you lose the shares at a price you would have sold at anyway, make money, but possibly not as much as the person who bought the calls. And of course writing covered calls need not be part of the strategy at all unless you see the stock as stagnating for a while. Or it may just be best to roll the written puts, get more money (hopefully) and keep things alive until the price goes up.
For example, when the stock dropped to $120, based on bad press about fires, I wrote puts at $100. I think I took in about $650 per put. The worst case would have been that I would have ended up with shares costing effectively $93.50, and even if the price had been that low or lower, I would have more than recovered my money by now. So it's inherently less risky than buying the shares outright.
At the time I also bought long shares. Technically those were two unrelated positions, but my out of pocket expense was $113.50 for both shares I bought and written puts that expired worthless. When they expired, I wrote puts at $150. It's not a strategy that will make you rich because there is no true growth potential. You get paid what you get paid. Then again, you put no money into it, get money out of it, and the worst case scenario is you end up with long positions at a price you might have paid anyway.
For those who ask why buying short term calls is gambling, it's because you can't predict where the market is going in the short term. People have all sorts of systems, but there's not a single one that has been shown to work. If there had been, we'd all be following that strategy and batting 1000. Strategies involving writing puts and/or covered calls allow you to get extra income, use the strategy as an adjunct to your investing philosophy, and the losses are merely theoretical if you do it right. For covered calls, people talk about losing upside potential, but if you would have been willing to sell shares at that price anyway, then all you lose is the use of the capital for a fixed period, which is something that was already factored in.
People who buy calls (especially short term ones) and buy puts tend to have them die worthless most of the time. They count on offsetting it with ones that pay off big. With your strategy, you are presumably making money on almost all trades, assuming you are going with companies you'd be willing to own for the long term. The bottom line is that if you buy something that expires worthless, there's no recovery. But being able to roll at a profit, end up with shares that have good potential, changing to other strategies that pay you, or whatever combination works for you could only have those theoretical "unlimited" losses if the company goes bankrupt and the shares reach zero. But you can close your position long before then.
- - - Updated - - -
Funny enough, I love craps as well.....So when there is a dip during the week, I like selling OTM puts for just there time value, and just wait a few days for a profit . Or if there is a pop and I think TSLA is over-extended, I'll sell OTM covered call.
Its not bullet proof, but good for short term investing.
It's not investing though. You aren't holding any underlying security with a reasonable expectation of growth. I'm not saying that you won't make money that way, but you have to accept that trading is sometimes investing and sometimes speculating.
