I agree. I would like to get some Jan 2014 calls but even the deep ITMs have high premiums. I'm sticking to Sep for now, but I don't want to keep those too close to expiration.
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
Newbie Options Trading
- Thread starter Jonathan Hewitt
- Start date
-
- Tags
- investing options TSLA tsla stock
I agree. I would like to get some Jan 2014 calls but even the deep ITMs have high premiums. I'm sticking to Sep for now, but I don't want to keep those too close to expiration.
InTheShadows
Active Member
What would be the best way to convert from common stock to some deep in the money leaps? I'm considering selling a majority of our common stock and converting it to Jan 15 LEAPS. Is it better to try and time the market or just don't worry and execute it all within minutes of each other? I'm considering a strike around $100ish.
The point of the LEAPS is to increase leverage. Say for example you pay half as much per share for the LEAP as for the stock. The reason you do this is that you expect the stock price to go up, and therefore for the LEAP price to go up twice as much. So clearly the bet time to do such a conversion is when the stock price is as low as possible.
Unfortunately, many strategies involve timing the trade so that the stock price is as (low/high) as possible, and it's hard to optimize unless you can predict the future, in which case there are even better strategies
. I would say "pull the trigger now", since the market and TSLA are both down a bit, if you are sure you want to do this.
sub
Active Member
The point of the LEAPS is to increase leverage. Say for example you pay half as much per share for the LEAP as for the stock. The reason you do this is that you expect the stock price to go up, and therefore for the LEAP price to go up twice as much. So clearly the bet time to do such a conversion is when the stock price is as low as possible.
Unfortunately, many strategies involve timing the trade so that the stock price is as (low/high) as possible, and it's hard to optimize unless you can predict the future, in which case there are even better strategies
Im sure you saw us talking about this over in the short term thread, makes more sense here. Can you explain how the leaps will go up in value faster than the stock, if for example, the stock price is 180-200 come Jan15? I would like to get more leverage if it makes sense, maybe sell part or half my shares and convert.
InTheShadows
Active Member
The ones I am considering cost around $60. So one contract would cost $6000 to control 100 shares of stock. The delta is the percentage the option price moves compared to the stock moving $1. The delta for the option I am considering is .80 so for every $1 the $140 stock moves up, the $60 option moves up $0.80, so A $1 move up in stock is a 0.714% gain and the option gain is 1.33% gain. It cost $6000 to get that gain with the option vs $14,000 for the common stock. Also as the price moves up, the delta increases too.
My disclaimer is this will be my first in the money leap purchase. I bought some out of the money leaps before but I am going to sell the green ones, a few are in the red but they are far enough out (time wise) that I know they will turn green again and I'm selling them as soon as they turn green. (They are not Tsla though). These are examples of me jumping the gun before understanding options, they are all very small positions so I knew they were risky and an amount I am comfortable loosing.
It also works the other way too if the price goes down and you have to watch your time horizon.
Others here highly recommended a book "the options Playbook". I am reading it now and it is fantastic.
Thanks ggr, that was my thought too.
My disclaimer is this will be my first in the money leap purchase. I bought some out of the money leaps before but I am going to sell the green ones, a few are in the red but they are far enough out (time wise) that I know they will turn green again and I'm selling them as soon as they turn green. (They are not Tsla though). These are examples of me jumping the gun before understanding options, they are all very small positions so I knew they were risky and an amount I am comfortable loosing.
It also works the other way too if the price goes down and you have to watch your time horizon.
Others here highly recommended a book "the options Playbook". I am reading it now and it is fantastic.
Thanks ggr, that was my thought too.
sub
Active Member
Thanks for that explanation, not sure why I didn't see that math before. I'm reading the same book trying to learn this stuff. How does the time decay work with these jan15 leaps? Tempting to sell enough shares to buy a few contracts similar to what you mention, not sure if I want to take the risk however.
InTheShadows
Active Member
If I am understanding everything correctly I don't think there is any time decay on in the money options. They have intrinsic value when in the money and time decay when out. I think the idea behind deep in the money options is that time decay shouldn't be an issue unless the stock tanks. However since I am a noob too I may be wrong and hoping to be corrected if I am wrong.
All options have extrinsic value, which is what decays with time. The difference with in the money options is that they also have intrinsic value based on the current value of the stock.
Deeper in the money options will have less extrinsic value. This is related to theta which describes how closely the option premium should follow the stock price. Another interesting Greek to me is gamma, it is basically the derivative of theta, describing how theta will change as the stock price changes.
Last edited:
mershaw2001
I'm short the short sellers
gamma is the derivative of delta, not theta. You might be thinking of charm?
"Mathematically, gamma is the first derivative of delta "
Quote wiki: Charm[SUP][4][/SUP] or delta decay, measures the instantaneous rate of change of delta over the passage of time. It is also then the derivative of theta with respect to the underlying's price.
InTheShadows
Active Member
I sold most of our common stock this am only to find out that I didn't have permissions in our ameritrade account to buy the calls. I have level 2 cash and I thought that once I sold stock to deleverage margin and put cash back in our account I would be able to buy the calls I wanted to. Turns out I was wrong. I applied for an upgrade and repurchased a little bit of common because I didn't like having such a small position with out the options to increase exposure. So hopefully they can get me approved by tomorrow for tesla Tuesday. I'm not going to hold my breath though.
Bought a few puts today as well while the stock was at $147. Ended up getting Aug30 140 puts @ 2.88 and Aug30 125 puts @ 0.51.
Don't know what to expect from the 125s, they were more of a cheap experiment. If the stock does take the usual Tuesday drop I should be able to sell them for a quick buck.
I put a call into my broker this morning and confirmed (after some persistence) that it is indeed possible to enable at least Level II Options trading within a TFSA*. I had been told this was possible before, but there is no mention of this on my brokerage's website (TD).
Looks like I need to submit an application, get weighed and measured for suitability and then hopefully I can carry out my plan to convert a good chunk of common to J15 LEAPS within a Tax-Free account!
*For those who are not familiar, this is a Tax-free account available to Canadians. The current limit is around $25K, and contribution room increases by ~$5.5K annually. Any gains are tax-free and increase the contribution room limit proportional to the gain. Losses do not affect contribution limits unless they are from options trading, in which I am informed that they can reduce the available contribution room. Makes sense.
edit: sullitf: I was a little more conservative in terms of expiry, went with 13-Sep 145's for $8.41.
Looks like I need to submit an application, get weighed and measured for suitability and then hopefully I can carry out my plan to convert a good chunk of common to J15 LEAPS within a Tax-Free account!
*For those who are not familiar, this is a Tax-free account available to Canadians. The current limit is around $25K, and contribution room increases by ~$5.5K annually. Any gains are tax-free and increase the contribution room limit proportional to the gain. Losses do not affect contribution limits unless they are from options trading, in which I am informed that they can reduce the available contribution room. Makes sense.
edit: sullitf: I was a little more conservative in terms of expiry, went with 13-Sep 145's for $8.41.
Last edited:
So I've reached out once previously in regard to this and didn't get much feedback but I'm going to try again. This time, I've done my own reading/research and have come up with some options.
Pre Q2 I bought some Sept 175's. I'm 50% in the red on these. I am trying to determine the best course of action to take (if any) with these options. These are the scenario's I've come up with:
1. Do nothing and hope TSLA moves big prior to Sept 21
2. Sell the calls, eat the 50% and chalk it up as a learning experience to not be so aggressive with OTM calls. Wait for an opportunity to present itself for your next more conservative option call.
3. Sell the calls, use the proceeds to reinvest in something like Sept 145 or 150. (i'm leaning towards this option)
The delta is so low on these 175's that even a reasonable gain like today had very little effect on the value of my options. By holding a 145 or 150 instead I would see real appreciation on a stock move. I just don't have enough experience to know if this is really the best choice or if there are others I should consider. I'm sure this is a scenario others here must have run into. I'm mildly bullish for the short term and very bullish for the long term. Everything in my account is capital gains/losses free so that is not a consideration here.
Advice appreciated.
Pre Q2 I bought some Sept 175's. I'm 50% in the red on these. I am trying to determine the best course of action to take (if any) with these options. These are the scenario's I've come up with:
1. Do nothing and hope TSLA moves big prior to Sept 21
2. Sell the calls, eat the 50% and chalk it up as a learning experience to not be so aggressive with OTM calls. Wait for an opportunity to present itself for your next more conservative option call.
3. Sell the calls, use the proceeds to reinvest in something like Sept 145 or 150. (i'm leaning towards this option)
The delta is so low on these 175's that even a reasonable gain like today had very little effect on the value of my options. By holding a 145 or 150 instead I would see real appreciation on a stock move. I just don't have enough experience to know if this is really the best choice or if there are others I should consider. I'm sure this is a scenario others here must have run into. I'm mildly bullish for the short term and very bullish for the long term. Everything in my account is capital gains/losses free so that is not a consideration here.
Advice appreciated.
I have been doing 1. lately and it hasn't ever worked for me. It's human nature to want to do 1 because it's a great story IF things works out. Well, they usually don't. It's up to you whether you think the small chance of a huge move happening by Sep is worth all the loss you're going to incur if you don't sell now. The best way to do this is ask yourself this "would I buy these options now if I didn't already have them?" If the answer is no you should probably sell them while you still can.
As far as #2 or #3, like you I'm bullish long term but I'm not super sure short term. The only short term options I'm doing is a SEP $130/$150 bull call spread. Turning out nicely so far but after today I might've been too conservative (I'm ok with that).
I'm with Jonathan. I'm currently chewing through the 300 page document Ongba sent on the AAPL traders (Thanks again!) and I've collected a necklace's worth of wisdom pearls so far. Here's a couple for you Ryo;
1- Make a plan, and stick to it.
2- Sell losses quickly, let winners run
Granted, both of these things are easier said than done. Take my Sept 170's. My average purchase cost was around $4.35. The day after ER they were worth about $8 each, a week later I sold them for $1.46. Today they are worth $1.50. I decided to stop the bleeding when I felt there was little hope of recovery, did I make the right decision? I was also holding a reasonable sized position for me and didn't want to hang on hopes as theta did its thing. in hindsight, I should have not been so greedy and sold them them morning of Aug 8. C'est la vie.
1- Make a plan, and stick to it.
2- Sell losses quickly, let winners run
Granted, both of these things are easier said than done. Take my Sept 170's. My average purchase cost was around $4.35. The day after ER they were worth about $8 each, a week later I sold them for $1.46. Today they are worth $1.50. I decided to stop the bleeding when I felt there was little hope of recovery, did I make the right decision? I was also holding a reasonable sized position for me and didn't want to hang on hopes as theta did its thing. in hindsight, I should have not been so greedy and sold them them morning of Aug 8. C'est la vie.
Ryo,
let's see how tsla responds to the "safest car ever" news coming out this evening. Holding front month options which are out of the money and underwater is a difficult place to be. If tsla does not respond well to the news tomorrow, and with the general markets looking somewhat iffy over the last several days, I agree with the others. Sell, take the loss and redeploy to at least march 14 to give tsla plenty of time for the next leg up. I am somewhat conservative, and usually buy the strikes which are 1 or 2 strikes otm. If you do roll to march, I would look to roll again around nov/dec, either to June/July 14 or jan 15. Always try to give yourself enough time ( at least 3 months) and wiggle room to recover from any short term correction/crash.
Sometimes, when I find myself in a situation where I am not quite sure what to do with a trade (ie hold or sell a position that has gone against me), I always remember some advice which I received from a wise trader. If I didn't have the position I currently have, would I initiate it today. So in the case of sept 175 calls, would I buy them today as a de novo trade? If answer is no, then I would sell. If the answer is yes, then I would hold.
Last edited:
I'm in a similar position with Sep 185's and also about 50% in the red. I'm definitely looking to offload them as soon as possible and tomorrow might be a great opportunity (although I am tempted to hold on for a little longer
). One thing I'm actually thinking of is to sell some Sep 180's or 175's to make up for some of the loss. Worse case would be if the stock shot up to 175 and above then I'd also lose my shares but I don't think that's likely.I plan to reinvest the proceeds with something in December or Jan. But might wait a little longer to see if there are any other small dips.
InTheShadows
Active Member
Could someone explain how this works to me please? It's from Ongba's document. Can we use 100 contracts since it sounds like the poster went kinda big? How did the cash flow workout?
"As Apple was in the $55 area I felt the bottom was at hand and did oneinteresting trade that may amuse you. I bought a bunch of Jan 08 110’s at$1.85. I figured that the stock would have to rise from these levels this yearwithout further price/time erosion on these contracts. My plan was as soonas Apple rose to sell the Jan 08 120’s at $1.90 and take a ‘‘free’’ ride into2008. I sold the 120’s over the last two days at over $2.00 so I have a smallprofit no matter what happens. if AAPL goes to $120 in the next 18 months Imake $1000 per contract."
"As Apple was in the $55 area I felt the bottom was at hand and did oneinteresting trade that may amuse you. I bought a bunch of Jan 08 110’s at$1.85. I figured that the stock would have to rise from these levels this yearwithout further price/time erosion on these contracts. My plan was as soonas Apple rose to sell the Jan 08 120’s at $1.90 and take a ‘‘free’’ ride into2008. I sold the 120’s over the last two days at over $2.00 so I have a smallprofit no matter what happens. if AAPL goes to $120 in the next 18 months Imake $1000 per contract."
Similar threads
- Locked
