chickensevil
Active Member
Without getting a margin account or staking a considerable amount of cash as collateral I don't think my broker will let me sell calls/buy puts which has limited some of my options when choosing strategies.
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Newbie Options Trading
- Thread starter Jonathan Hewitt
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- investing options TSLA tsla stock
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Active Member
Selling calls I agree, buying puts is not a problem as long as you have the cash to buy the shares at that price. However, with TSLA's current price, you are almost at minimum margin amount (25k) required by most brokers. Don't quote me on that, I've been trading a lot less the past 2-3 months and going more with shares or synthetic long positions as I mentioned in my last post. Don't need margin for spreads either but I'm guessing most are aware of that.
mejojo
Active Member
So, to make sure I understand...I have some March 220 and the price is around 14 now. Next Thursday I should expect that price to automatically be well under 10 regardless of the ER content?
No, nothing is certain. If the street loves the ER, the stock price could pop to $235 and your 220s will be worth more than $15. But if the stock price stays flat during the ER, then those call option prices will drop dramatically. There's no news expected to between the ER and March 20, so the odds of a big price increase in that month are low.
Gerasimental
Member
Would an unexpected event with potential to move the SP significantly between ER and expiration significantly then cause a sort of reverse volatility crunch?
Say the options have lost a lot of their value due to lower IV post-ER (assuming non-blowout ER). Then, sometime fairly close to expiration, say mid-march, model X release in announced. Suddenly, you have very high IV since then there's a lot of uncertainty in how good the Model X will be (we all know it will be incredible, but let's go with this for the sake of argument)- driving up call option prices?
Related question: I'm guessing options with expiration date closest to the ER are most extremely affected by a volatility crunch?
Things that are unexpected, and not expected to recur, shouldn't change an option's IV. In practice, it would increase it some, as sudden, major news about a company makes it more likely that some other big news will follow. A big piece of news will change the stock price, though, and that will translate directly into a bigger (%) change in the option.
It's important to decompose these effects. The release of 2014 financials will reduce IV. An announcement of an announcement date for the Model X may increase IV, or not -- everyone's expecting that announcement, but the timing is uncertain. Releasing the timing of the announcement would have a different effect on different expiration options.
Yes. An option expiring on Friday after the ER has very little time left for some news to move the stock price, so its intrinsic value will be very low after 10am on Thursday. My 20Mar calls will take a big hit, but not as bad because there's still 5 weeks for the stock price to move.
chickensevil
Active Member
And carrying that forward, June might see some movement, but by that point they are likely to be unaffected since there is *another* ER between Feb 11 and the June expiration. And certainly any leaps won't see any movement at all from the IV crush.
That said, the underlying price movement *will* have an affect on all options.
pz1975
Active Member
Nothing moves IV up and then down like an ER.
Remember that the IV change for the March calls (up and down) will be much smaller than that for the Feb. weeklies. I have been watching this the last few ERs, and the IV swing up pre-ER and down post-ER is really only significant for options out 1 month (with less up and down the further away you go out to 1 month), and then only small changes for the 6-week out options.
Remember that the IV change for the March calls (up and down) will be much smaller than that for the Feb. weeklies. I have been watching this the last few ERs, and the IV swing up pre-ER and down post-ER is really only significant for options out 1 month (with less up and down the further away you go out to 1 month), and then only small changes for the 6-week out options.
Curt's post about buying a put resetting the long-term gains clock led me to this article: Married Put and Stock
I may have done this, but there is nothing on my trading platform to indicate that my holding period was reset. Is this something my CPA will figure out or am I supposed to inform him? What are the consequences of unknowingly falling into this trap?
I may have done this, but there is nothing on my trading platform to indicate that my holding period was reset. Is this something my CPA will figure out or am I supposed to inform him? What are the consequences of unknowingly falling into this trap?
Gerasimental
Member
Is this increase followed by sharp drop in IV basically inevitable for ANY ER? Irrespective of the expectations of it? I find that hard to believe since there must be a way of betting on the IV rising/falling, or isn't there?
pz1975
Active Member
Every TSLA ER I have followed has a large rise and then sudden drop in IV for short-term options the next day after ER. The magnitude may differ depending on expectations but the IV will be crazy high regardless for options expiring next week (and still very high for the week after).
doggusfluffy
Closed
If people are generally pessimistic about Tesla's production issues weighing down the ER and also knows the IV will suffer the sudden drop after, is it then reasonable to expect a run up to Tuesday followed by a sharp sell-off on Wednesday as everyone dumps their short term calls?
pz1975
Active Member
Buying and selling options has no effect on the stock price.
Except maybe for max pain issues in Fridays but that would be manipulation, not a direct effect.
Except maybe for max pain issues in Fridays but that would be manipulation, not a direct effect.
The 'general' trend in stock price (not calls) has been a run up until some time the day before followed by a drop. Maybe Tuesday will represent a local high, maybe not. Call price might follow share price, but depends on many factors. My observations are that as we approach an options expiry, small dips in share price created manifold moves in the calls on a percentage basis.
To avoid any doubt, you should close any option before expiry, unless you are really willing and able to buy/sell the underlying security.
I have experience with stocks back in the last millennium but have never played with options. However I'm interested with Tesla's puts. What do you guys think about Tesla's puts with expiration date one to two years from now? For instance Jan 15 2016 put strike 150, price 10.46?
@matias, are you thinking about writing (selling) or buying these puts? Either way, I'm not interested (though you might be):
- Writing: probably a safe bet, but it ties up a huge amount of cash or margin, $15,000 per contract. I do all my options trades in my retirement account, which prohibits use of margin, and I don't like to keep that much cash in non-interest-bearing accounts. That said, it's not a bad return on that cash: assuming you hold to expiry and the put is still OTM, you get $10.46 return on $150 of cash/margin "invested", or about 8.4% annualized rate of return, while taking on the risk of having TSLA put to you at $150.
- Buying: I think it's almost certain that TSLA will not fall below $150 in the next 10 months, so I'm unwilling to pay $10.46/share on a bet that it will. If you hold TSLA shares and yet are highly risk-averse, then perhaps buying these puts as a hedge makes sense. I don't know many risk-averse people buying TSLA shares, though.
Thank you for your answer. My original question was unclear. I was thinking about buying puts. 6 months ago TSLA was trading above 270, so big drop is possible. But of course it is just a bet.
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