Newbie Options Trading

[ggr]

The rules on wash sales and options seem a bit impenetrable to me. I've sold stock, bought LEAPS, bought puts, bought and closed various options, all in TSLA. Near as I can tell, must of that qualifies as a wash sale.

Do folks that do significant trading simply hire CPAs at tax time?

(Edit: this information is incorrect! I greyed it out so people could see what I said, but it is wrong!) First and most important thing: wash sales only affect long term capital gains. So you only have to worry about it if you are selling something you've held for more than a year. Secondly: wash sales only affect selling at a loss. If you have Tesla stock that you've held for more than a year, and want to sell it to me for a loss, I'll happily do it in return for more advice about wash sales .

But seriously, any short term trades probably don't affect your current situation with regard to Tesla. Past that, it gets complicated and you definitely need some help. I believe my broker's profit and loss calculations try to take wash sales into account, but I've never had to test their accuracy.

 

[BruceH]

I actually mentioned that I will only hedge the November ones

Hi guys, this is my first post here in TM, feeling awesome to join.
Mario, how do you hedge actually? I mean, how do you sell the short? Currently I have the Option level 3 permission which allows me to simply trade spread as a whole (and I don't quite know how to construct legs separately). So Mario, are you doing the construction in the form of a spread or are you using some level 5 (selling naked calls) to construct? Really newbie question, thank you.

Bruce

 

[Mario Kadastik]

Well as I'm from Europe and my investment bank is using Interactive Brokers in the backend then I don't exactly know what level I have. But I can sell naked short calls indeed. So the hedging happens this way:

1) On some day I buy a long call assuming the stock goes up.
2) stock actually moves up in between and possibly faster than I had planned
3) I sell a higher strike call short therefore creating a delayed construct call spread.

I have no clue what level you need to do this, but I would say the short sold call is actually covered by the lower strike call even though not all systems might recognize it as such.

 

[ckessel]

First and most important thing: wash sales only affect long term capital gains.

Ah, ok, I missed that somehow. I knew it only affected sales at a loss, which would apply to some of my options trades, but I didn't see that it was only for long term gains.

Edit: ok, after hitting various google results for "wash sale", I'm still not seeing any verbiage around long term.

 

[smorgasbord]

Hey folks - I'm looking to buy some calls on today's pullback. Any ideas for me?
Or, better yet, any Syn Long ideas?

 

[Mario Kadastik]

Hey folks - I'm looking to buy some calls on today's pullback. Any ideas for me?
Or, better yet, any Syn Long ideas?

I think you are far too vague to give any advice on this. It's like asking what to buy in the stock market overall The pullback was mostly a couple of hours ago and what to buy would depend on what you are buying for. Daytrade? Weekly gain when media picks up Munich PR? Earnings? Long term TSLA position plans? Those all have different answers...

 

[ggr]

Ah, ok, I missed that somehow. I knew it only affected sales at a loss, which would apply to some of my options trades, but I didn't see that it was only for long term gains.

Edit: ok, after hitting various google results for "wash sale", I'm still not seeing any verbiage around long term.

No, you're not confused, I am. My apologies... you're right. I don't know what I was getting mixed up with. I blame a late night and too much wine.

And now you've made me realize that I have to re-examine some of my recent trades :-(.

 

[ckessel]

No, you're not confused, I am. My apologies... you're right. I don't know what I was getting mixed up with. I blame a late night and too much wine.

And now you've made me realize that I have to re-examine some of my recent trades :-(.

Ok, good, at least I know where I stand now . I think I'll have to pay out for a good CPA. There doesn't seem to be a lot of guidance on what's an "equivalent" stock for wash sales. If I sold a weekly at a loss, the picked up an option for 3 months down the road, is that a wash? It's not entirely clear.

 

[ggr]

Ok, good, at least I know where I stand now . I think I'll have to pay out for a good CPA. There doesn't seem to be a lot of guidance on what's an "equivalent" stock for wash sales. If I sold a weekly at a loss, the picked up an option for 3 months down the road, is that a wash? It's not entirely clear.

One example that was discussed at my work goes a bit like this: Today, you sell 1000 shares of stock at a loss. If, at any time during the 30 day pre- or post- window, you buy 10 call contracts for, say, Dec 21 expiry, that will be considered a wash sale; you cannot count the loss towards your tax. Let's assume you hold the options until the end, and exercise them, even though Dec 21 is more than a month after you sold at a loss, you still add the loss to your cost basis on the new stock. The call option "carried" the wash sale loss. In fact, I believe you should also factor in the loss to the cost basis of the call options, and carry it that way. You're right, it's complicated... too complicated for me too.

 

[Mario Kadastik]

Ugh, I really love our new tax law that is in effect for ~3 years now. If you open an investment account (any number of them), then all you need to declare each year is cash input and cash withdrawals. If your withdrawals exceed cash input, then you pay income tax on the excess. If it doesn't exceed, then you don't pay anything. Simple and elegant. You can reinvest profits as long as you want and once you have enough capital can withdraw initial investment tax free and continue playing on house money with no tax consequences until you actually decide to start using the proceeds.

 

[smorgasbord]

I think you are far too vague to give any advice on this.

I'm intentionally leaving the door open to hear what people thought was the best strategy with TSLA right now. If I knew what strategy to use, I wouldn't need to post.

So, do you think there's a really good day trade? Do you think there's a play on the upcoming Munich event? Do you think there's an opportunity related to earnings?

Tell what you like best, why, and how to take advantage of. TIA.

 

[mershaw2001]

I'm selling puts out to january with strikes 10 dollars above the current price, in the money. Slightly bullish, but don't want to get burned if tesla doesn't out perform. Also, I need to reduce the amount of margin interest i'm paying and that works well as opposed to doing a buy-write.

 

[ckessel]

I'm selling puts out to january with strikes 10 dollars above the current price, in the money. Slightly bullish, but don't want to get burned if tesla doesn't out perform. Also, I need to reduce the amount of margin interest i'm paying and that works well as opposed to doing a buy-write.

Doesn't selling a put count against your margin? Not actual borrowed I guess, but margin available since you're on the hook for that put.

 

[mershaw2001]

Selling the call increases my margin call but decreases my margin debit, so I pay less interest. I have to deal with the margin call later this week anyway, so I might as well make my interest payments less.

 

[ckessel]

Ameritrade declined my request for level 3 trading privileges. Not sure why, though I've asked. Is it typically difficult to get such privileges?

 

[ZenMan]

Ameritrade declined my request for level 3 trading privileges. Not sure why, though I've asked. Is it typically difficult to get such privileges?

You must indicate SPECULATION as objective and put down many years of experience if you want higher option levels.

 

[mershaw2001]

Hi ckessel, I'm not at ameritrade, but to get a higher level of options at the brokerage I'm at, i had to increase my income and years trading. I selected "most aggressive growth" and then I made up a few numbers (4 years of options trading, and added 100,000 to my salary- which it turns out is accurate after the tesla pop this year) and since they do no verification, they were fine with it whereas they had rejected me 4 times prior.

 

[ckessel]

When buying/selling a thinly traded option, how do you determine the right bid/ask? I've got some options that haven't traded in a couple days so the last bid/ask is way off from what it's really valued. You just sort of look at the surrounding options and take a guess? Or is there a calculator that'll give a fairly accurate derivation based on time value, volatility, and stock price?

 

[Mario Kadastik]

When buying/selling a thinly traded option, how do you determine the right bid/ask? I've got some options that haven't traded in a couple days so the last bid/ask is way off from what it's really valued. You just sort of look at the surrounding options and take a guess? Or is there a calculator that'll give a fairly accurate derivation based on time value, volatility, and stock price?

You can try this: Option Price Calculator

But what options are you talking about that are so infrequently traded that even the bid+ask doesn't exist. Usually the bid+ask just slide around even with no trades this day or the day before.

 

[ckessel]

You can try this: Option Price Calculator

But what options are you talking about that are so infrequently traded that even the bid+ask doesn't exist. Usually the bid+ask just slide around even with no trades this day or the day before.

For example, JKS Dec 21 for $27 has nothing yet today (most options for Dec 21st have little activity). The Google option chain lists a price, but Ameritrade is badly out of date, so maybe Google extrapolates?