Newbie Options Trading

[chickensevil]

Well, I definately picked a great time to play around with options! A nice, cool, safe, bull environment... Of course this does nothing to really help me with figuring out the "best" option strategy since just about anything I do has a pretty solid chance of return... But, I am not going to complain about making money. I think when I double my position I am just going to back out my initial investment so I will be basically risk free at that point for when I inevitably start losing a decent amount of money.

 

[chickensevil]

This is going to be my first 100% gain on an option purchase and it is still going up from there... So, as I watch the IVs and the price action, is it better to hold out and just let it go way into the money or to roll it forward to another price point, like 290 for example? Not that I am going to make that trade since I am at a level with my 280s that I feel comfortable with for the moment, but just curious if you had a crystal ball what the hypothetical best route would be, keep chasing the price movement, or just hold it as it goes deeper into the money?

 

[InTheShadows]

This is going to be my first 100% gain on an option purchase and it is still going up from there... So, as I watch the IVs and the price action, is it better to hold out and just let it go way into the money or to roll it forward to another price point, like 290 for example? Not that I am going to make that trade since I am at a level with my 280s that I feel comfortable with for the moment, but just curious if you had a crystal ball what the hypothetical best route would be, keep chasing the price movement, or just hold it as it goes deeper into the money?

Just from personal experience I am not much if a fan of rolling up and out anymore. My new strategy, (because of getting burned with the afore mentioned) is sell and take a breather for a bit, eat some of the gains and let emotions stabilize, then after a consolidation period start to plan the next move with your head.

Days like today can leave you breathless because of the massive gains.

 

[emupilot]

I like my recent gains on call options, I want to take advantage of continued run-up, but naturally I don't want to lose it all when the correction occurs. I've been investigating buying deep OTM protective puts so there's not much to lose if TSLA goes up further but it will limit my losses if TSLA goes down. I've been using a spreadsheet to try to optimize this strategy, but I'd appreciate it if anyone has insights on this (or if a different strategy might work better).

 

[chickensevil]

Just from personal experience I am not much if a fan of rolling up and out anymore. My new strategy, (because of getting burned with the afore mentioned) is sell and take a breather for a bit, eat some of the gains and let emotions stabilize, then after a consolidation period start to plan the next move with your head.

Days like today can leave you breathless because of the massive gains.

That seems like good advice, so thank you. I have to say I was hovering over the sell button for a while today (which would have been to at least roll out some of it... into a 290$ call) and I decided I would just wait. And now after reading your comments I will likely try to plan an exit strategy that brings out of this position and start thinking about the next timeframe (since I am still trading off the Sept calls, I will likely move into Oct once I start to get a feeling for where we might be headed over the next month or so). It is easy seeing the gains to immediately think I should roll and go higher, and I got lucky doing it once going from 270 to 280, but 280~ was about where I felt there was really high confidence of hitting and anything over that was a much lower chance.

So for now I will hold and see what happens. I will likely jump out of this position sometime between now and around a week before they expire... I might even just sit on the cash at that point in order to wait out Oct/Nov... Since I still feel like we are in for another rough patch soonish. It is just so hard to read these things... gah!

 

[ggr]

That seems like good advice, so thank you. I have to say I was hovering over the sell button for a while today (which would have been to at least roll out some of it... into a 290$ call) and I decided I would just wait. And now after reading your comments I will likely try to plan an exit strategy that brings out of this position and start thinking about the next timeframe (since I am still trading off the Sept calls, I will likely move into Oct once I start to get a feeling for where we might be headed over the next month or so). It is easy seeing the gains to immediately think I should roll and go higher, and I got lucky doing it once going from 270 to 280, but 280~ was about where I felt there was really high confidence of hitting and anything over that was a much lower chance.

So for now I will hold and see what happens. I will likely jump out of this position sometime between now and around a week before they expire... I might even just sit on the cash at that point in order to wait out Oct/Nov... Since I still feel like we are in for another rough patch soonish. It is just so hard to read these things... gah!

I missed the opportunity to buy short term options this morning, which is a bummer. But if it was me, I'd hold for another day. My reasons are that (a) there are shorts out there who just believe that TSLA can't possibly perform, but who don't monitor it as closely as we do, and it will only be overnight when they realize how much they are losing and want/have to cover, and (b) this happened on a mostly down day, so there is a reasonable probability it will continue to go up with the market tomorrow or thursday.

Of course I could be wrong .

 

[gym7rjm]

That seems like good advice, so thank you. I have to say I was hovering over the sell button for a while today (which would have been to at least roll out some of it... into a 290$ call) and I decided I would just wait. And now after reading your comments I will likely try to plan an exit strategy that brings out of this position and start thinking about the next timeframe (since I am still trading off the Sept calls, I will likely move into Oct once I start to get a feeling for where we might be headed over the next month or so). It is easy seeing the gains to immediately think I should roll and go higher, and I got lucky doing it once going from 270 to 280, but 280~ was about where I felt there was really high confidence of hitting and anything over that was a much lower chance.

So for now I will hold and see what happens. I will likely jump out of this position sometime between now and around a week before they expire... I might even just sit on the cash at that point in order to wait out Oct/Nov... Since I still feel like we are in for another rough patch soonish. It is just so hard to read these things... gah!

If you play near term options with TSLA you are really at the mercy of volatility and therefore the game approaches something closer to zero-sum gambling. I've found with near term options I cannot justify putting much money into my plays; in this sense, volatility is playing against me. There is a chance of getting huge returns if you bet OTM, but 7x return on a few near term calls isn't that much compared to 3x return on a well played LEAP.

I find that the benefit to LEAPS is that you can use volatility to your advantage. Specifically I've been doing this with delayed construct bull call spreads, a topic more suitable for the advanced thread, but the underlying concept is the same. When sentiment is low, like Tesla 1.0, build your position; when sentiment is high, like Tesla 3.0, then hedge your position or bank some profit. Time is on your side and if you are correct in the direction and amplitude of your bet, then it is much easier, and less stressful, to make significant returns. The plays I've constructed with Jan 15 leaps earlier this year will net me 30% return on my portfolio if TSLA is over $225, to get that return with near term options would be much more difficult in my opinion.

It's a really good exercise to practice thinking about expected return with each play you make. This is why many people attach confidence (%) to their predicted outcomes. This also explains the math behind why LEAPS allow you to make bigger bets.

Regardless, you are doing the right thing by jumping in and trying it. It is much easier to learn options by just doing it.

 

[MikeC]

That seems like good advice, so thank you. I have to say I was hovering over the sell button for a while today (which would have been to at least roll out some of it... into a 290$ call) and I decided I would just wait. And now after reading your comments I will likely try to plan an exit strategy that brings out of this position and start thinking about the next timeframe (since I am still trading off the Sept calls, I will likely move into Oct once I start to get a feeling for where we might be headed over the next month or so). It is easy seeing the gains to immediately think I should roll and go higher, and I got lucky doing it once going from 270 to 280, but 280~ was about where I felt there was really high confidence of hitting and anything over that was a much lower chance.

So for now I will hold and see what happens. I will likely jump out of this position sometime between now and around a week before they expire... I might even just sit on the cash at that point in order to wait out Oct/Nov... Since I still feel like we are in for another rough patch soonish. It is just so hard to read these things... gah!

One thing you could consider is selling calls at a higher strike but same expiration as your calls, making a bull call spread. That way you can get back most or all of the money you spent on the initial calls, and still leave yourself another 10 or 15 dollars upside. I am doing this instead of selling my J16 LEAPs. As I understand it, I can get my initial money back and not be subject to short term gains if I keep both sides of the spread for 1+ year.

 

[InTheShadows]

I missed the opportunity to buy short term options this morning, which is a bummer. But if it was me, I'd hold for another day. My reasons are that (a) there are shorts out there who just believe that TSLA can't possibly perform, but who don't monitor it as closely as we do, and it will only be overnight when they realize how much they are losing and want/have to cover, and (b) this happened on a mostly down day, so there is a reasonable probability it will continue to go up with the market tomorrow or thursday.

Of course I could be wrong .

That is my thought as well. I sold my lower weekly strikes to get all my weekly money back and lock in a nice 2x profit. I plan on selling the rest tomorrow. I'm thinking this will be a multi day run. Just a gut feeling from seeing similar moves of tesla in the past.

This was my first weekly play since getting burned week after week in March and April. New strategies, hopefully better results.

 

[chickensevil]

One thing you could consider is selling calls at a higher strike but same expiration as your calls, making a bull call spread. That way you can get back most or all of the money you spent on the initial calls, and still leave yourself another 10 or 15 dollars upside. I am doing this instead of selling my J16 LEAPs. As I understand it, I can get my initial money back and not be subject to short term gains if I keep both sides of the spread for 1+ year.

Hmmm I unfortunately can't do these types of more advanced trades on a cash account. Unfortunately my options are limited, maybe at some point when I get waaaaaaay more comfortable with options I will consider a margin account, but for now, I am sticking to the basics in a nice safe bubble of limiting my total loss potential to just what I put into it.

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I do appreciate all the advice here given. I am trying to absorb as much as I can, there is just a LOT to learn with options.

 

[MikeC]

Hmmm I unfortunately can't do these types of more advanced trades on a cash account. Unfortunately my options are limited, maybe at some point when I get waaaaaaay more comfortable with options I will consider a margin account, but for now, I am sticking to the basics in a nice safe bubble of limiting my total loss potential to just what I put into it.

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I do appreciate all the advice here given. I am trying to absorb as much as I can, there is just a LOT to learn with options.

It has nothing to do with margin because you already have a lower strike with the same expiration - if TSLA shoots up, they will cancel each other out and you keep the difference between the two strikes. If it crashes, you won't lose your original investment because you will get back what you spent on the original call by selling the higher strike call (that is now worth what you paid for the lower strike).

In any case, it certainly makes sense to ease into options (as I have been doing over the last year). I just wanted to offer a suggestion for when you kinda want to sell your call to take profits but are also bullish and want to capture a little more upside.

 

[chickensevil]

It has nothing to do with margin because you already have a lower strike with the same expiration - if TSLA shoots up, they will cancel each other out and you keep the difference between the two strikes. If it crashes, you won't lose your original investment because you will get back what you spent on the original call by selling the higher strike call (that is now worth what you paid for the lower strike).

In any case, it certainly makes sense to ease into options (as I have been doing over the last year). I just wanted to offer a suggestion for when you kinda want to sell your call to take profits but are also bullish and want to capture a little more upside.

Must just be something with my platform then, because when I attempt to make a trade for a sell of any calls at say a 300 strike, it tells me I cannot do it, and is asking for a margin requirement. The only selling I can do is of the call I currently have at 280. It makes sense that if both calls go ITM, you would execute the options for the one and then the stock would be called away by the buyer of the higher contract. But it won't let me do it that way... I even tried making a mock trade of a two leg order where I would buy and sell at the same time and it is still requiring a margin. I think it is because I am still on a level 1 account and to do what you are talking about would require a level 2 account. I could likely apply and get one.

 

[MikeC]

Must just be something with my platform then, because when I attempt to make a trade for a sell of any calls at say a 300 strike, it tells me I cannot do it, and is asking for a margin requirement. The only selling I can do is of the call I currently have at 280. It makes sense that if both calls go ITM, you would execute the options for the one and then the stock would be called away by the buyer of the higher contract. But it won't let me do it that way... I even tried making a mock trade of a two leg order where I would buy and sell at the same time and it is still requiring a margin. I think it is because I am still on a level 1 account and to do what you are talking about would require a level 2 account. I could likely apply and get one.

I see. Possibly you might need to have 100 common shares to formally "cover" the call, even though the lower priced strike also technically covers it.

 

[InTheShadows]

Must just be something with my platform then, because when I attempt to make a trade for a sell of any calls at say a 300 strike, it tells me I cannot do it, and is asking for a margin requirement. The only selling I can do is of the call I currently have at 280. It makes sense that if both calls go ITM, you would execute the options for the one and then the stock would be called away by the buyer of the higher contract. But it won't let me do it that way... I even tried making a mock trade of a two leg order where I would buy and sell at the same time and it is still requiring a margin. I think it is because I am still on a level 1 account and to do what you are talking about would require a level 2 account. I could likely apply and get one.

First you need to have level 2 trades. Buy and sell calls and create spreads.

With my account if I have less than $2000 buying power in the account at the start if the day they will not let me create spreads. (Options house). I also have reduced day trading capabilities if I have less than $2000 trading power at the start of the day.

I do not like using margin so how I overcame this was to buy some tsla common in this account (this is my options only account.). Since the common I have can be margined it keeps my trading power above the levels I need to be able to do everything I want and be 100% invested if I want to be.

For the call spreads I have noticed they have to be the same expiration or sooner and higher strike price.

So I can not sell this weeks $300 calls against my jan 16 $320's. But my jan 15 $225's will cover them.

 

[gym7rjm]

It has nothing to do with margin because you already have a lower strike with the same expiration - if TSLA shoots up, they will cancel each other out and you keep the difference between the two strikes. If it crashes, you won't lose your original investment because you will get back what you spent on the original call by selling the higher strike call (that is now worth what you paid for the lower strike).

In any case, it certainly makes sense to ease into options (as I have been doing over the last year). I just wanted to offer a suggestion for when you kinda want to sell your call to take profits but are also bullish and want to capture a little more upside.

Most brokerages require you to have a higher level of option clearance in order to do spreads.

In my experience I would suggest getting approved to at least the level allowing spreads. You might not be comfortable doing those techniques right now, but if you wait you might find yourself in a position where you wished you had approval.

For the longest time I was learning about options and deciding if I wanted to try. This was back when TSLA was $30 right before it shot up. I decided I wanted to buy some calls but found out that Level 1 option clearance on Scottrade (ugh!) only allowed covered calls. I can't tell you how slow time seemed to pass waiting for approval for Level 2. Similar scenario happened when I eventually switched to OptionsHouse which allowed me to make spreads.

I would also apply the same logic to Margin. If you have discipline and aren't a compulsive gambler then it is worth having the tools to create certain positions if the opportunity is right. Depending on your risk tolerance, margin can come in handy.

 

[MikeC]

I was assuming that if chickensevil could buy a call then he could also sell a call. And that's all that's required to make a spread, right? I just do it one leg at a time.

I am Level 1 on Schwab, but spreads is apparently level 2: Option Approval Levels

 

[gym7rjm]

I was assuming that if chickensevil could buy a call then he could also sell a call. And that's all that's required to make a spread, right? I just do it one leg at a time.

I am Level 1 on Schwab, but spreads is apparently level 2: Option Approval Levels

Can't speak to other brokerages, but with Scottrade Level 2 + Margin enable account you cannot sell a call to cover a lower strike call. You can only sell a covered call.

The only way for me to do BCS's was to move to another brokerage. ACAT transfer was complicated and time consuming. If I could go back and do it again, I would have just started with a more comprehensive brokerage from the beginning.

 

[chickensevil]

I see. Possibly you might need to have 100 common shares to formally "cover" the call, even though the lower priced strike also technically covers it.

Yeah, I think that is it, and I have no shares through this platform... just pure options.

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Having put a lot of thought into it, based on where I feel the stock has the chances of going within my given timeframe that I will just sit on the 280s. I thought a lot about rolling into say 295s (there is healthy volume there so I am not afraid I could make the trades when needed), which would pay out even better if I hit the magical 310 share price (even if it is on the last day I would make out with about an extra 181% off my original investment when I started messing around with the Sept calls). But the risk seems a bit too steep because just falling short by 10$ and hitting 300$ instead between now and then, would actually be a worse option. So because I don't have enough confidence to see 310 (I would give it about a 60% chance), I am far more confident we will see 300$ (85%) or most certainly 290 (95%). So because I don't have enough confidence in those odds and it would take running to 310 to make the switch worthwhile, I have decided to let it sit.

The roll into 280 was definately the right call and I have no regrets with that choice since it has already put me much better off than the 270s I was sitting on before.

One final thought, is I could potentially sell just one of my 280s split the money and buy 2 295s. Just to see if my thought on hitting 310 pans out, without staking all of the money. If nothing else, the money I make off the remaining 280s will pay for any loss on the 295s. It seems like the more middle of the road option... thoughts?

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Sorry, playing catch up... my... lots of thought involved me not keeping tabs here... heh.

I actually had my stock in Scottrade and switched to Options House for just the options platform. I am glad I did because to get a level 2 scottrade account (which is basically a level 1 Options house account) you needed to sign a bunch of paperwork and it was annoying... Options House will approve you for a level 1 account without trying, and then you just have to get them to let you have a level 2. I think the reason they wouldn't give it to me off the bat was simply because I didn't fund the account high enough initially (only gave it 1k). And would likely more than meet any funding requirments for level 2. I am really afraid to touch a level 3 account because I really don't want to be tempted to do something really, really, dumb... The thought of gambling my life away on naked puts scares me just a bit, especially after all the people I have seen lose their shirts over TSLA

But yeah, I am not able to spreads yet... Perhaps soon I will go through the trouble of getting the account upgraded. For now though, I am quite happy with what I can do. Just have to limit my range of choices to uber noob status when dealing with options Heh heh.

 

[pz1975]

You are fortunate to have delved into options at a time when TSLA is at its most bullish. Be careful about holding too close to expiration - the time decay loss is exponential over the last 1-2 weeks. When I buy options, I have learned (the hard way) that a safer route is to buy at an expiration at least twice as far out as the date I am expecting a certain price on and choose a lower strike price than i am expecting as well. This way there is always some salvage value/recovery time that remains when things don't go as you expect (which unfortunately happens more than one thinks it will, especially when options are a new thing).

 

[chickensevil]

Oh no, I appreciate that. I have heard this many times and had totally took that into account in my original investment. I was expecting 290+ and actually by no later than next week and so I took out a 270 position with the expiration on the 20th. I also put a ton of effort into planning this play (which is crazy since I only staked 1,000 on this play) but I wanted to treat this as if this was 10,000. I am currently at a 200% return (counting the roll forward from 270 to 280 since this all the same play in my mind...) And I couldn't be happier with just the return I have already seen in the unexpected shorter timeframe... But I still easily see 290 and my upper bounds and more risky piece of the analysis I put into this caps at 310. So one way or another I am bailing if it goes that far and plan on strongly considering a bail at 300. But the farther ITM it goes it seems like time value has less of an affect since it sorta just gets priced out...

That pricing out of time value is why I decided to risk it and roll to 280 and that is also why I had to put a ton of thought into rolling up to 295 but that is way risky and I have decided I don't feel comfortable enough with that trade.

I don't know what else you have read and or seen that has been posted, but the Fibonacci retrace has completed and we are now into the extension which following the previous patterns should throw us up into ~317-319 for our resistance point based on the previous top. There is also that the stock has a trending to do 3-5 month rises and then 2 month drops and we are coming to the end of that trend as well... Finally with Q3 and that... On the crazy unknown side and it is going to be a rough Oct and Nov I think... So we should easily hit 290... Might have trouble getting to 300 and really going to ha e trouble getting to 310 and beyond without the influence of some crazy good news from the company.

A healthy correction will be due soon... Anyway, I took all that and made the choice to do the trades I did. I still see upside... But happy with what I got already. Sorry for the long response to your recommendation just wanted to explain my original state of mind back two weeks ago when I started all of this.