for the stock replacement strategy, look for a delta of 90 or above. With regards to other factors with the DITM LEAP as stock replacement, the LEAP, especially if considering jan 15 or 16, will not be sensitive to time decay because it is so far out from expiration. However, it will be sensitive to vega (ie volatility), so look to buy when volatility is low (ie when tsla is in a consolidative phase like it has been for the last week or two).
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Newbie Options Trading
- Thread starter Jonathan Hewitt
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- investing options TSLA tsla stock
for the stock replacement strategy, look for a delta of 90 or above. With regards to other factors with the DITM LEAP as stock replacement, the LEAP, especially if considering jan 15 or 16, will not be sensitive to time decay because it is so far out from expiration. However, it will be sensitive to vega (ie volatility), so look to buy when volatility is low (ie when tsla is in a consolidative phase like it has been for the last week or two).
Thanks for the info. I went through some different Jan 15 leaps and recorded their volatility values to get a sense of how it will change over time based on the stock movement. I'll look for low volatility when I make the change out.
I've been selling weekly puts and calls recently since the price movement seems to be flat for now and just having them expire worthless. And since volatility has also been coming down I've started to slowly buy some Dec/Jan OTM calls. But I've recently been thinking about also selling Oct or Dec 150/160 puts as a way to raise more capital to buy calls. I know this is kind of a double edged sword, but my thinking is if we have a run up prior to ER then they can essentially expire worthless. My biggest risk would be a significant drop to under 160 or 150. Anything I'm missing? Anyone have experience doing something similar?
Mario Kadastik
Active Member
This will either work great wonders in profit if the stock moves up or burn you alive if it moves down. It's basically doubly magnifying any move. So it's a risky trade especially as there is no safety net if something happens over the weekend or at night. A major unexpected downmove would be if something were to happen to Elon for example... So would you be safe if the stock were pre market at 80 tomorrow? One way is to buy further OTM puts as a safety net. The further out the cheaper the net, but the bigger the inherent sudden loss damage. It's all up to your risk assessment as it's about equal to buying the amount of stock right now 
Your example has significant risk of being put into shares. If you want to buy shares at $160 (- the premium you received) its a reasonable move. However, you said you are selling puts to finance calls. IMO what you describe is a very risky move, but only because of the strike price you noted.
I did a similar move to what you describe last quarter. I opted to sell Jan 15 puts at a 40-50% discount of the current share price on a down day (the day of the MS Report for example) At the time the share price dropped to $110 and I sold $65-$50 strike puts. I bought calls with the premiums at $110-$115 strike. Then sold the Calls and bought back to close the puts the day after the Q2 ER.
So my advice, and i'm just a beginner myself so take what you will, wait for a down day to make the move and sell puts at strike prices that are not so close to current share price. Otherwise a correction of just 10% and you got put.
Someone please correct me if i am wrong...
Taking the leap and have applied for options trading as I really believe Q3 is going to be a blowout.
This is called a synthetic long. Keep in mind your upside on selling the puts is capped at 100% as you won't get more than the premium you receive. And your downside is potentially more than 100% - opposite of buying the call. If you are selling the put naked you will need level 5 options approval so check with your broker. Also, you will likely have to maintain 25% margin on the short put. That being said, I did exactly this trade 1 hour before the Q2 call. I had a major smile on my face that day!!!
mershaw2001
I'm short the short sellers
actually you don't need level 5 options, unless you are going to do it using margin buying power. If you have cash, and sell the put using cash to cover it, you can get away with level 2 at fidelity.
TSLA over the last few months has been a real education in options trading. I've read quite a bit on here from all the great contributors and other sources like this:
http://www.optionseducation.org/strategies_advanced_concepts/strategies.html/
Today I sold my first TSLA Oct calls to create a delayed construct bull call (debit) spread. I had bought Oct calls last week when volatility was lower. Now I have more cash to put towards the Q3 earnings play.
BTW I did have to upgrade my options trading level with my broker to sell calls like this. It definitely gives you more flexibility in strategies than straight covered call selling.
http://www.optionseducation.org/strategies_advanced_concepts/strategies.html/
Today I sold my first TSLA Oct calls to create a delayed construct bull call (debit) spread. I had bought Oct calls last week when volatility was lower. Now I have more cash to put towards the Q3 earnings play.
BTW I did have to upgrade my options trading level with my broker to sell calls like this. It definitely gives you more flexibility in strategies than straight covered call selling.
Congrats on your first delayed construct bull call spread! Hopefully, it was a risk free or near risk free spread.
Mario Kadastik
Active Member
My recommendation for the delayed construct on a day like today is use trailing stop orders. I had bought a week back the Dec 180 call at $14.15. Today it's trading at $20.25 so a nice $600 gain. I could close it for the profit, but I've decided instead to do a delayed construct call spread and sell the $200 strike call. If I had done it when I thought I'd have gotten $12 for it. Instead I put the order out as trailing stop sell order with a trailing amount of $0.3. Right now the $200 call has a bid at $12.70 and ask at $12.9, but it traded at $13.1 at some point which means my trailing stop is now at $12.8. As the ask has not dropped below it's not sent to market yet, but even if the bid came down now I'd still get around $12.6 which is $0.6 more than I'd have gotten initially. If Tesla continues to run up the price will move along. I've used $0.3 right now to have about a $0.5 trail (trail+bracket size) so that it doesn't get sold on small movements, but I take a bit of risk that an above average temporary drop back could trigger it. If I thought Tesla moved a lot more today I'd probably use a bigger trail, but it's always a tradeoff as the option has to come down from the initial high said amount + bracket for it to trigger and then you get a lower price by the bracket. It's only really useful on days like today when the stock moves a lot
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Heh, a minute or two after I posted it filled and I got it at $12.56 so now I have a 180-200 spread that cost me $1.44 and that is after Q3 ER
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Heh, a minute or two after I posted it filled and I got it at $12.56 so now I have a 180-200 spread that cost me $1.44 and that is after Q3 ER
Since it is a sell to open order, it will be a taxable event in one of three scenarios: 1) the date you buy to close the option you sold 2) the option is exercised by the person you sold it to 3) the option expires worthless
It looks as though there are specific rules for DITM leaps when selling covered calls. If the option expires then it will be short term gains, but if it is assigned then it is taxes at the rate based on the underlying stock if it has been held for long term or not.
This is the info I'm going off of: http://www.cboe.com/Advisors/adv_corner/q_a1.aspx
Edit: not sure how it applies to naked options..
Bleah, read that probably 4 times and I still don't understand it. Best as I can tell, the premiums would be taxed as long term gain since the stock I hold is long term qualified right now.
Unless I'm reading it wrong, it is saying that even if the underlying stock has been held long term, the gains from the sale of deep in the money calls will be taxes as short term gain if the option expires worthless OR if the call is closed out. It will only be a long term gain if the option is assigned.
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