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Newbie Options Trading
- Thread starter Jonathan Hewitt
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- investing options TSLA tsla stock
Mario Kadastik
Active Member
After reading all this I'm seriously happy about the recent law changes that created an investment account for private citizens. If I declare the account as an investment account I have no obligation to pay taxes until I withdraw more money than I have put in. Buying and selling can be done as much and as often as one wants, the only thing that counts is cash flow in and out of the account. The only downside is that they require declaring commission as withdrawal which is kind of weird and causes me to have to declare hundreds of lines per month in the annual tax declaration, but at least the bank I use has an automated system that sends the data to the tax office so I don't have to enter it one by one (had to the very first year this law was created as noone had automated systems yet). So even though I might get a bit worse commission rates (the $2 now is way better now) the delayed tax and tax free reinvesting are huge boons 
What's the point in buying really deep in the money calls rather than buying stock itself? Unless the stock seriously crashes, wouldn't you want to exercise the option in the end anyway since the strike price is lower than the even the lowered current price? E.g. by a deep ITM call with a strike of $20 and an $80 premium, so the stock is near ~100. Even if the stock falls to $50, that's higher than the $20 strike price so you'd want to exercise it anyway, right?
Still trying to grasp the point of some these options. I can find technical explanations, but they often don't tell me _why/when_ I'd want to do it.
Still trying to grasp the point of some these options. I can find technical explanations, but they often don't tell me _why/when_ I'd want to do it.
pz1975
Active Member
I first want to thank everyone who posts one here - I really appreciate everyone's input in this and the "Short-term..." threads regarding options. I have gone from having zero options knowledge a couple months ago to feeling like I have a decent grasp of the basics and possible strategies, and this is almost entirely from reading on this forum.
I haven't actually done any options trading yet, however, as I wanted to feel comfortable with my knowledge before starting, but I intend to soon. I have a couple basic questions regarding the actual technical aspects of the trading:
1. When a call expires in-the-money, does it automatically convert to shares or does one have to do something to get the shares? ie. if I had bought a TSLA 160 call that expires today, do I have to do anything before/at/after the end of trading today to actually get the 100 shares or would they just automatically appear in my portfolio?
2. If I sell a put (example December 13 TSLA 175) but want to buy it back/close it before it expires, do I just buy back the same put (at a different cost)? Would the 2 puts then cancel each other out and disappear from my portfolio or would they show up as separate line items? (maybe it doesn't matter)
I haven't actually done any options trading yet, however, as I wanted to feel comfortable with my knowledge before starting, but I intend to soon. I have a couple basic questions regarding the actual technical aspects of the trading:
1. When a call expires in-the-money, does it automatically convert to shares or does one have to do something to get the shares? ie. if I had bought a TSLA 160 call that expires today, do I have to do anything before/at/after the end of trading today to actually get the 100 shares or would they just automatically appear in my portfolio?
2. If I sell a put (example December 13 TSLA 175) but want to buy it back/close it before it expires, do I just buy back the same put (at a different cost)? Would the 2 puts then cancel each other out and disappear from my portfolio or would they show up as separate line items? (maybe it doesn't matter)
Mario Kadastik
Active Member
1. Well I once had bought FB puts and they expired while I was traveling from Beijing back to home and they happened to expire in money so effectively I had sold 200 shares of FB (which I didn't have) so I was short 200 shares and the next Monday at pre-market I bought 200 shares to balance it out (lucky too as the price shot up in market hours). So I'd assume the same happens with bought calls that they convert to stock that is deposited to your account. But I do think there's the 3-day settlement time.
2. I constantly do that and the balance goes to 0. At least that's how it works on the Interactive Brokers trading tools. There is only buy and sell methods, there's no buy-to-open and sell-to-close or similar ones. Once the balance reaches 0 you're out.
mershaw2001
I'm short the short sellers
You commit less capital to the strategy with nearly the same rewards if the stock moves up and down. It increases your leverage (risk and reward) but allows you to invest in other stocks too if you have a finite amount in your bank.
If you've got 1k in your bank and want 100 shares of a 10 dollar stock, it will mean you can't invest in anything else. So you buy a deep in the money option (say, strike of six for $4.20) and it leaves you with $580 to invest elsewhere.
A lot of people like to calculate their profit as percent of the capital risked, and using ITM options does increase that percentage.
I had the same thought as I was watching the postings go by.
When buying out-of-the-money calls, you are spending everything on time value.
When buying shares, you are spending everything on stock value.
When buying in-the-money calls, you're doing something in between.
As such, I would expect out-of-the-money calls to be "more opportunity" but also more risk.
So, I've full on TSLA stock with no extra cash. I think the stock is going up. Is that the right time to sell a put? If the stock really does rise (or stay flat) I keep the premium and all is good. The risk is if the stock actually does drop that I've got to come up with cash to cover when the put is exercised?
mershaw2001
I'm short the short sellers
You want to sell a put when you believe that the stock will move up or stay flat, and most likely stay flat. I can't tell you if now's a good time to sell a put:
1) the stock moved 18 dollars up quickly. If it moves another 18 up, you should have bought stock or a call.
2) the stock moved 18 dollars up quickly. If it drops 10 dollars, you're going to be exposed to that loss from the put.
1) the stock moved 18 dollars up quickly. If it moves another 18 up, you should have bought stock or a call.
2) the stock moved 18 dollars up quickly. If it drops 10 dollars, you're going to be exposed to that loss from the put.
What I would really like to do is an option play over Q3 to pay for the car using a little retirement money I can loan myself for about 2 months but that's a small time window. I'll keep reading everything I can here (keep posting your ideas, please) to construct a good spread. I worry that the time window is too short; will the best time to exit be immediately/day after the conference call or a few weeks later? This will be my one and only non-test/teaster options trading, no options allowed once the money is back in the IRA. All for the sake of a car...
The stars will need to align for your play to come to fruition.
If there is a dip in the next ~6 weeks similar to the pre-Q2 MS report dip you may have an opportunity. If you buy 20-40 calls and write 20-40 puts, and the price appreciates $40-$50/share you might be able to pull it off. You do risk losing a lot of money though.
I'm a beginner at options and this just my opinion on how you could do it. No doubt several strategies to attempt the play. Good luck!
Causalien
Prime 8 ball Oracle
There is a trend here that I am going to comment on, which is toxic for speculators.
If you are jumping into a stock thinking that you are going to play it and use the winning money to buy "X" you are in the mindset that is easiest to lose money. There is no objective judgement involved, no strategy, no discipline but the need and want for consumption with future money that you have not earned. This is the mentality that will make you buy and sell at the wrong time. Now I usually don't put on my veterans hat and give people unwanted advice because I think that not much harm will come from this way of thinking for most people and almost everyone learns the lesson in their trading career. The survivor will be a stronger selected few.
But you guys are pairing this thinking with highly leverage options and you are doing this while following other people's plays. Options takes at least 3 years to master and by that I mean stop bleeding money. Other people's option play their option based on their on system. They have contingency plans already figured out before anything even remotely happen. If you wait for them to post what they did after a series of bad luck, you are not going to have time to maneuver with a highly leveraged play.
With that said. I wish you all good luck and make lots of money.
sub
Active Member
Good advice. I'm new to options and I've been reading everything I can and listening to everyone here on TMC. However, I haven't even considered following others here that have done well because it's clear I don't have the understanding and therefore the tolerance for the risk involved. I always try to look at a trade from the worst case scenario then go from there. A lot of trades, the worst case scenario is zero or maybe worse, you owe a bunch of money you don't have! Of course, you would have to have high level options trading for the 2nd one to happen. Nobody knows when the TSLA train is going to come to a stop, only wager what you can afford to lose. I don't really like hearing people talking about using their retirement to hit a home run, concerns me a bit for their future. I think you can not replace experience. I've just done my first options trade after months of reading and it's not going perfectly at the moment, but worse case scenario is a pretty good outcome so I can live with it and move on.
I see only two plays on Tesla:
1) Long LEAPs. The LEAPs remove most of the short-term volatility in the stock. This play is obviously betting on the long-term success of Tesla. I have been buying OOTM calls. The recent run up in the stock has made some of my contracts DITM. I have strike prices at 140, 200, and 250 expiring January 2015 in a taxable account. I am debating if I should sell the 140s at a short-term gain, take the tax hit and replace them with OOTM contracts. For those who say do not worry about the tax consequences I disagree when you are in a higher tax bracket.
2) Speculating on the Q3 earnings call. Many of us see the number of vins that have been delivered. If you believe that translates to better than expected earnings in Q3 then there is some money that can be made. I'm waiting on November contracts to be opened up. I will make a small play on the strategy.
Obviously I'm a bull. A bear would play it differently. But it's my belief that any other options transaction is merely guessing. This includes the various types of spreads.
1) Long LEAPs. The LEAPs remove most of the short-term volatility in the stock. This play is obviously betting on the long-term success of Tesla. I have been buying OOTM calls. The recent run up in the stock has made some of my contracts DITM. I have strike prices at 140, 200, and 250 expiring January 2015 in a taxable account. I am debating if I should sell the 140s at a short-term gain, take the tax hit and replace them with OOTM contracts. For those who say do not worry about the tax consequences I disagree when you are in a higher tax bracket.
2) Speculating on the Q3 earnings call. Many of us see the number of vins that have been delivered. If you believe that translates to better than expected earnings in Q3 then there is some money that can be made. I'm waiting on November contracts to be opened up. I will make a small play on the strategy.
Obviously I'm a bull. A bear would play it differently. But it's my belief that any other options transaction is merely guessing. This includes the various types of spreads.
Agree 100% with you that LEAPS offset the short term swings in a momentum stock like tsla. What strikes and expiration are you considering as a replacement for the 140s you are contemplating to sell?
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I am thinking of diversifying with some way OOTM $350's for some of it but not a lot of dough at that strike price. The $350 is obviously cheap but extremely risky. I think most of my proceeds from selling the 140's would go towards 200's with some 250's. But I'm still not sure I should incur short-term gain taxes by selling them.
borat99
Member
As sleepy and others have stated, the jan 16s will likely be avail in early nov. 350s would be less risky with another year's duration, but will not be as cheap as the jan 15s. Only problem is a run up before the 16s are released, including q3 earnings. Still, jan 16 may be worth a buy after earnings during the eventual pullback/correction.
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