Today I decided to make a play on the Q3 announcement buy purchasing some November calls. Unfortunately there is no November expiration yet. The pricing between the Oct and Dec contracts are way too far apart to make me feel like the Dec is a good value. i.e. $165 strike Oct - $10.80 and Dec is $20.15. The $185 strike Oct - $4.25 but the Dec is $12.70!!!!!! Anyone have a good idea on how to play the Q3 earnings call? I assume the Nov options won't be available for quite a while.
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Newbie Options Trading
- Thread starter Jonathan Hewitt
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- investing options TSLA tsla stock
It's really too early to "play the Q3 call." A lot can/will happen between now and then. I'm not saying not to think about the Q3 call when buying medium/long term options, but if you want to play JUST the call you can't really do that yet. That's how I see it at least.
mershaw2001
I'm short the short sellers
November options aren't going to be much cheaper than december. They are essentially just pricing in the earnings, not the time into that 12.70. My guess is you'd find that same november contract for about 10.00
You have money in your account, and use it to buy stock. Now you have equity in the account, but no money. If you have a cash account, you can't buy any more. But if you have a margin account, the broker will actually lend you money (and charge you interest for doing so), so you can now buy more stock. They use the stock you already have as security on the loan, so if you stop paying interest they will just sell your stock for you and keep the money.
For example, suppose you fund your account with $10,000. You buy a nice blue-chip stock, say Dupont, with $9,000. (Many stocks have a standard "margin maintenance requirement", and Dow components all do. Tesla doesn't... it's volatile so they generally don't use the same percentage.) I think the margin maintenance for Dupont is 30% at my broker. Now your account has $1,000 cash, and $9,000 equity. Your "buying power (non margin)" is $1,000; you can spend this on stock, or withdraw it, and they won't charge you any interest. But your "buying power (margin)", if I understand correctly and haven't done the calculations wrong, is 70% of $9,000, or $6,300. You can use that to buy another blue-chip stock. (If you wanted to buy Tesla with it, you would only be able to buy somewhat less.)
Assume you do. At this point you will have used up your margin, and this is a dangerous place to be. Because if either stock reduces in value, you will fall below the margin maintenance requirement, and your broker will issue a "margin call", requiring you to top up the account, either by putting money in or selling some of your stock. Even worse, if nothing else changes, the interest on the loan will also force you into a margin call eventually. Unless your stock value is growing by more than the margin interest, this will eventually happen to you.
The worst thing about margin calls is that they usually end up making you sell something when you really didn't want to. So I personally don't ever go near the margin limit, and even when I use margin, I try to keep it short term, and eventually get back to something like 100% "equity percentage". But I don't mind buying something when an opportunity presents itself, and I can, because I have plenty of margin purchasing power.
Hope that helps.
InTheShadows
Active Member
I do have a margin account. I was also wondering if it had something to do with the fact that it showed funds bwi used from my margin account for one of the purchases even though I had enough in the money market account (which looks like a sweep account to me). Earlier in the day it showed the funds coming from cash and margin, despite having the funds they had moved into the money market account. It's still saying 1 round trip. Not sure how long that will take to change. I am not approved for day trading (or they reduce my margin amount if I do it, I don't remember exactly).
sub
Active Member
Ok thanks to those who responded to my margin question. My "margin" buying power looks to be almost exactly double my "non margin" buying power. I am aware of all the other margin issues as far as interest and getting called. Due to that I've only used about 25% and I'm very cautious with it because I don't want to be forced to sell shares or add cash right now. I plan to start building back up my cash position so I can make more short term plays and keep my current long term position as is.
mershaw2001
I'm short the short sellers
I think this is close but not exactly how it works. This is my understanding.
Your margin buying power is 200% of your cash power because reg T standards dictate that you retain 50% cash value in the account for stocks, and 100% for options. Each stock that you buy eats into that margin ability by its margin requirement. Each option that you buy eats into that non-margin buying power by at a dollar for dollar rate, but reduces your margin buying ability at a 2-1 ratio.
The subtle difference here between my explanation and the one presented before is that, because each equity has a different margin requirement, you can't take your cash and multiply by 70%. For instance, if you bought all stocks that had 100% margin requirements (as in stocks under a price of $3.00/share usually) then you would be only able to buy stocks up to double your cash value.
Let me make an example: you load 100 dollars into the account. You now have 200 dollars in margin buying ability.
You buy 10 dollars of a 1 dollar stock. Your margin buying ability is now 190 dollars.
You buy 100 dollars of Dupont, with a 30% margin requirement. This is going to eat up 30% times 100 dollars=30 dollars of your margin buying ability.
After these two purchases, you will have 200-10-30=160 dollars in margin buying ability left. However, you will actually have a margin debit of 10 dollars at the same time, because you have bought 110 dollars in stock with only 100 in cash.
Instead, if you had bought an option for 10 dollars, it immediately removes 10 dollars from the non-margin buying power. That goes down to 90. Now your margin buying power is 2x your remaining cash, so your margin buying power is 180.
Your margin buying power is 200% of your cash power because reg T standards dictate that you retain 50% cash value in the account for stocks, and 100% for options. Each stock that you buy eats into that margin ability by its margin requirement. Each option that you buy eats into that non-margin buying power by at a dollar for dollar rate, but reduces your margin buying ability at a 2-1 ratio.
The subtle difference here between my explanation and the one presented before is that, because each equity has a different margin requirement, you can't take your cash and multiply by 70%. For instance, if you bought all stocks that had 100% margin requirements (as in stocks under a price of $3.00/share usually) then you would be only able to buy stocks up to double your cash value.
Let me make an example: you load 100 dollars into the account. You now have 200 dollars in margin buying ability.
You buy 10 dollars of a 1 dollar stock. Your margin buying ability is now 190 dollars.
You buy 100 dollars of Dupont, with a 30% margin requirement. This is going to eat up 30% times 100 dollars=30 dollars of your margin buying ability.
After these two purchases, you will have 200-10-30=160 dollars in margin buying ability left. However, you will actually have a margin debit of 10 dollars at the same time, because you have bought 110 dollars in stock with only 100 in cash.
Instead, if you had bought an option for 10 dollars, it immediately removes 10 dollars from the non-margin buying power. That goes down to 90. Now your margin buying power is 2x your remaining cash, so your margin buying power is 180.
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Ok, dipping my fantasy toe in the options water...
IF
1. I believe the stock will go up and down prior to going way up prior to Q3 earnings and
2. I don't want to have exposure to limitless up and
3. I also have a bunch of shares already and
4. I have cash to cover and
5. I only want to buy calls and puts
THEN to take advantage of an earning opportunity what would I buy?
I'm guessing it would be something in the Oct19th range of expiry and between 125 and 190?
Would it prudent to buy calls @180 for $5.55 as well as buy puts at @155 for $8.15?
IF
1. I believe the stock will go up and down prior to going way up prior to Q3 earnings and
2. I don't want to have exposure to limitless up and
3. I also have a bunch of shares already and
4. I have cash to cover and
5. I only want to buy calls and puts
THEN to take advantage of an earning opportunity what would I buy?
I'm guessing it would be something in the Oct19th range of expiry and between 125 and 190?
Would it prudent to buy calls @180 for $5.55 as well as buy puts at @155 for $8.15?
InTheShadows
Active Member
You would want November options, ER will likely be around the second week of November. For strike prices I think it's still to early to tell. I bought a few dec 170 and 175 in the dip the other day. That is not my ER play though.
Just closed out my first bull call spread! It was 2 Sep 21st $130/$150 bull call spreads that I started when TSLA was at $138 on August 15th. Way too cautious of a spread as we now know. I thought about holding onto it longer as chances of TSLA going less than $150 in the next week probably aren't high but you never know. Not including commisions I realized $1988 of total profit off of $1794 at risk. Max profit would've been $2204 so 90% of total profit achievable is good enough for me. Plus, since I only have L1/L2 options trading I have freed up 2 covered calls now to create another spread, haha.
110% of initial outlay in one month isn't bad when at the time several of us were thinking that TSLA could possibly hang out in the 140s or 150s for a lot longer.
110% of initial outlay in one month isn't bad when at the time several of us were thinking that TSLA could possibly hang out in the 140s or 150s for a lot longer.
90% of max profit is very good indeed. No need to get greedy trying to squeeze another 10% out by holding for another week b/c, like you said, anything can happen. Now you can start researching your next bull call spread! BTW, do you prefer intact bull call spreads or delayed construct?
Well, considering it was my first spread every it's hard to say
This one was an intact spread. I think delayed constucts are much more awesome if you can do it. My main problem is I'm limited in the number of calls I can sell as I need an equivelant number of shares (can only sell covered calls), so that gets rid of one of the awesome things of delayed contruct, the fact that you can get your money back and do another. I get my money back, but I can't do another as I can't sell more covered calls until I close the position.
mershaw2001
I'm short the short sellers
Onga, I wonder what it would be like to open a delayed-bull spread in reverse. We assume earnings will be good, so we short the high options right now, wait for the dip, and open the long call at the bottom of the dip. Any thoughts?
mershaw,
In theory, it sounds good, but I am very hesitant about shorting naked calls under any circumstance. Plus, you would need the highest options trading level in order to short naked calls.
Mario Kadastik
Active Member
Interesting, seems that my Estonian brokerage gives me a high level of access as I can short anything as long as I remain within my maintenance margin. Most of my TSLA profit comes from selling puts. I also open call spreads using trailing orders and it can be either way that realises first (either the short call or the long one). This has sometimes worked out magnificiently if the market gets going and you cach it early, then again it can also just fluctuate up and down exactly your trail amount getting you the worst possible deal
mershaw2001
I'm short the short sellers
Hey ongba. So I am trying this reverse construct bull spread. At 166 I shorted 4x180 sept 21 calls naked (I have calls sold against all my shares, so in total I'm bullish) and it looks like I might be in luck after hours as it's down and tomorrow I can open up the long end of these delayed construct spreads. I'll prob go long with a longer time frame, maybe out to mid to late october.
We'll see how it works, I'm
If you open the lower leg with a longer dated option than the short, then technically it is a call calendar spread vs. both options with similar expiration (which would be a pure vertical spread). Good luck!
A large portion of my tsla shares are approaching the one year mark at the end of September. I'm leaning toward selling a portion of these shares to put into DITM Leaps, probably Jan 16 when they are released.
What is the optimal delta value that I should look for when using this stock replacement strategy? Are there any other factors that I should be aware of when executing this strategy?
Since there is no dividend offered it seems like a better way to leverage my money to do DITM leaps. Especially considering I see the stock going much higher as we approach gen 3.
Thanks for any feedback!
What is the optimal delta value that I should look for when using this stock replacement strategy? Are there any other factors that I should be aware of when executing this strategy?
Since there is no dividend offered it seems like a better way to leverage my money to do DITM leaps. Especially considering I see the stock going much higher as we approach gen 3.
Thanks for any feedback!
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