Options trading strategy/advice

[paydirt76]

Would love to hear others thoughts on how to treat ATM/ITM LEAPS for maximum performance vs. safety.

Two thoughts, depending on your goal with Tesla... (If you don't have a goal besides "make a ton of money", you need to create a goal).

1) If the stock has a blow off top, maybe it's best to either fully liquidate or neutralize. For example if Tesla qualified for inclusion in late July and then reach 1,500 by mid September. Because of supply/demand shift, maybe it would be best to fully liquidate and set a price on shares to get back into the options (perhaps 1,100 post 1,500).

2) If you want to manage position size, you can do this instead of measuring ITM vs ATM, etc...
Rolling LEAPS?

 

[UncaNed]

I sold a 17 July 2020 $250 strike put for $5.85 just as an exercise in trying to wrap my head around puts.

I planned to let it expire worthless, but wonder... under what scenario, if any, might I incur WASH rule tax issues if I was to buy it back right now to get rid of it?

Wrapping my head around puts isn't going so well for me, despite several great online tutorials...

 

[adiggs]

I sold a 17 July 2020 $250 strike put for $5.85 just as an exercise in trying to wrap my head around puts.

I planned to let it expire worthless, but wonder... under what scenario, if any, might I incur WASH rule tax issues if I was to buy it back right now to get rid of it?

Wrapping my head around puts isn't going so well for me, despite several great online tutorials...

By selling that $250 put, you became an insurer if you will - you sold a contract that says you will buy 100 shares of the stock for $250. The person buying the contract has acquired insurance - if their shares drop below $250 by expiration date, then they have the option (hence the term - option) that enables them to sell their shares to you for $250.

They paid you $5.85 to acquire that option.


If it helps, I think of put and call sales as me selling insurance to the downside and upside respectively. The people buying are acquiring insurance to the downside and upside respectively.

Or a different way to think of selling a put - if you're willing today to buy shares at the put strike, the difference between buying the shares today and selling the put at todays strike, is you're willing to be paid to buy the shares that you're willing to buy anyway.

Interesting anecdote - this is how I acquired my original TSLA position. I was willing to buy at the then price of ~29. But I sold that 29 strike for 1.70 and (thankfully) the share price was under 29 on expiration day. So I bought shares at 29 - 1.70 that I was willing to buy for 29. This also illustrates the risk - I was ready and willing to buy at 29 for long term buy and hold. If shares had ended at 30, then I wouldn't have acquired the shares. If I hadn't continued selling those puts (very possible), then 6 months later I'd have watched the start of that 30s to 180s stock move and missed out on it. It's important to understand the risk of a big move in either direction, and be ready for them.


For the WASH rule tax issues, I have no idea .

Hope this helps. If you haven't yet seen it, I strongly recommend the free option education at www.optionalpha.com. There are 3 tracks which I think of as 1) option basics, 2) getting into a trade, and 3) getting out of a trade. 3rd party reviews I've read of that education universally agree with my assessment.

They are primarily talking about a particular option trading strategy that involves a lot of selling options. I'm not personally interested in the option strategy they're selling, but the education was critical to me getting started. I consider the knowledge from all 3 tracks to be the starting point (or equivalent) for selling options. That's also the assumed level of knowledge in the Applying option strategy "the wheel" to TSLA, elsewhere in this forum.

 

[azaz]

Fred posting that Tesla May be posed for 90k deliveries.

Want to play the delivery report but premiums are so high, any advice?

 

[vikings123]

Fred posting that Tesla May be posed for 90k deliveries.

Want to play the delivery report but premiums are so high, any advice?

The way to make money is sell aggressive puts or buy calls every time there is a bear attack. The drop yesterday was a great chance.

You can hope there is another coordinated bear attack sometime tomorrow or next week. Otherwise you are right the premiums are already too high and theta will kill you.

 

[Convert7]

The weekly options expire on 2nd July. If TSLA post the deliveries after market close and the call option I bought is during market times OTM but gets through positive deliveries numbers ITM. What happens and what are my choices? I heard that the buyer has some more time after market close to choose if he wants to exercise. Or is the next weekly Option the only way to get an ITM Options because the deliveries numbers are.coming after market close and if the Option is not ITM before market close its worthless? Thanks

 

[azaz]

Looking at some moonshot 1300 for July 10

 

[pz1975]

The weekly options expire on 2nd July. If TSLA post the deliveries after market close and the call option I bought is during market times OTM but gets through positive deliveries numbers ITM. What happens and what are my choices? I heard that the buyer has some more time after market close to choose if he wants to exercise. Or is the next weekly Option the only way to get an ITM Options because the deliveries numbers are.coming after market close and if the Option is not ITM before market close its worthless? Thanks

They have 30 minutes to exercise your option after close (I learned this the hard way). I would recommend closing the position no matter how out of the money for piece of mind. Just buy them back before close for $0.01-0.05 each.

 

[Convert7]

They have 30 minutes to exercise your option after close (I learned this the hard way). I would recommend closing the position no matter how out of the money for piece of mind. Just buy them back before close for $0.01-0.05 each.

This time on the seller side. So if tesla is posting the deliveries in less than 30 mins after market close I could make money. I would have to exercise the call option and sell the stock on the next trading Day and has to hope that it is not dropping in d
The later after hours or in the pre market, right?
Look to me like 30 mins is to short and if one would want to play deliveries should look in the 10thJuly Options, right?
Thnaks

 

[pz1975]

This time on the seller side. So if tesla is posting the deliveries in less than 30 mins after market close I could make money. I would have to exercise the call option and sell the stock on the next trading Day and has to hope that it is not dropping in d
The later after hours or in the pre market, right?
Look to me like 30 mins is to short and if one would want to play deliveries should look in the 10thJuly Options, right?
Thnaks

Sorry, I misread your previous post. I thought you had sold the call but you actually have bought it. I don’t know if every brokerage allows someone to exercise options after close. If this is something you are considering as a potential strategy, I would highly recommend that you call your brokerage and find out if you can actually do it. It would be awful if you were right about the SP going up after hours but you were unable to exercise that call option.

 

[adiggs]

This time on the seller side. So if tesla is posting the deliveries in less than 30 mins after market close I could make money. I would have to exercise the call option and sell the stock on the next trading Day and has to hope that it is not dropping in d
The later after hours or in the pre market, right?
Look to me like 30 mins is to short and if one would want to play deliveries should look in the 10thJuly Options, right?
Thnaks

This kind of exercise right around the margin - I agree with @pz1975 about having a conversation with your broker. For that kind of risky trading approach (I know that I don't know the details), my suggestion is that you need to already be familiar and good at less risky exercise approaches (I'm assuming you already know the basics, greeks, etc..).


The other obvious choice you have is to simply sell the options at some peak price you like and use the cash you have on hand to just buy shares. This combination (sell options, buy shares) might get you the end result you want, with a few extra $ in your pocket (the time premium remaining on the options)

 

[azaz]

Should’ve bought those calls welp

 

[mrmage]

I noticed that TSLA OTM calls > OTM puts recently. This creates a lower risk - higher reward scenario using collars.

For example:

Buy 100 TSLA shares @ $1077 + Sell 2020Aug 1200c @ $76 + Buy 2020Aug 990p @76

If TSLA remains where it is, this breaks even.
If TSLA reaches $1200, max profit is $123 / 11.4% per share (1200-1077).
If TSLA drops below $990, max loss is $87 / -8.1% per share (990 - 1077

In 2 months, the risk-reward is:
-8.1% (worst case) to +11.4% (best case)

However, the risk side is probably lower. A drop in SP would probably happen well before expiration due to ER or P&D. The short 1200c will lose most its liability (decreased volatility + drop in SP) and the 990p will have some time value, so the likely loss should be closer to break even.

Any thoughts on this?

This is just a way to make some money on the side with my cash with minimal risk. I already have a fair amount of TSLA shares / calls.

 

[Oil4AsphaultOnly]

Seems like a good time to revive this thread.

With the recently announced stock dividend, can anyone explain how the options will get adjusted for something like: Jan '21 call options at strike price of 160? Do they become 5 NS call options at a strike price of $32? Or would they become 1 NS call option for 500 shares at $32 (like what happened with the SCTY options)?

 

[ggr]

Seems like a good time to revive this thread.

With the recently announced stock dividend, can anyone explain how the options will get adjusted for something like: Jan '21 call options at strike price of 160? Do they become 5 NS call options at a strike price of $32? Or would they become 1 NS call option for 500 shares at $32 (like what happened with the SCTY options)?

Because the arithmetic is easy in this case, it will be 5 contracts at strike of $32. They couldn't do this with the SCTY contracts because there would have been fractional shares, so they had to go with non-standard options.

 

[juanmedina]

since it seems that the stock is going to go up a lot higher from today on. How do more experienced call holders decide when to sale their options? How ITM do you let the contracts go if they still have lots of time? do you use a metric of contract to shares to decide when to sell; when the contract is worth so many shares? what about short term options?

Also, whats the plan after the split? take some profit (entry cost) and keep the rest of the options? I was wondering if is wise to change some of my options to longer term LEAPS like September 22's which now I would be able to afford?

 

[FrankSG]

since it seems that the stock is going to go up a lot higher from today on. How do more experienced call holders decide when to sale their options? How ITM do you let the contracts go if they still have lots of time? do you use a metric of contract to shares to decide when to sell; when the contract is worth so many shares? what about short term options?

Also, whats the plan after the split? take some profit (entry cost) and keep the rest of the options? I was wondering if is wise to change some of my options to longer term LEAPS like September 22's which now I would be able to afford?

I personally see too much near term upside in S&P inclusion and Q3/Q4 results to sell options at $1,550 today.

I have quite a large position in Nov'20 $1,400s, so I wouldn't mind slightly trimming this if stock goes to $2,000 by the end of this month. But for the most part my plan is to sell all my options (not just these Nov'20s, but all my options), when SP reaches ~$2,500.

I don't think the Sep'22s or even Jun'22s are great value at the moment. I'm not saying not to buy any, but when I did the math a few weeks ago, to 2x your investment on any of these compared to holding stock, the stock price would have to reach something like $5,000+. Which is possible, but I'm not sure how likely that is so soon.

 

[juanmedina]

I personally see too much near term upside in S&P inclusion and Q3/Q4 results to sell options at $1,550 today.

I have quite a large position in Nov'20 $1,400s, so I wouldn't mind slightly trimming this if stock goes to $2,000 by the end of this month. But for the most part my plan is to sell all my options (not just these Nov'20s, but all my options), when SP reaches ~$2,500.

I don't think the Sep'22s or even Jun'22s are great value at the moment. I'm not saying not to buy any, but when I did the math a few weeks ago, to 2x your investment on any of these compared to holding stock, the stock price would have to reach something like $5,000+. Which is possible, but I'm not sure how likely that is so soon.

Thanks Frank. I have a couple for Jun, January and one for October that obviously needs to go soon. When the SP was in the high 1700s the Jun ones were worth around 40 shares and I almost sold them. I am trying to plan better since like you say there is lots of near term upside.

 

[FrankSG]

Thanks Frank. I have a couple for Jun, January and one for October that obviously needs to go soon. When the SP was in the high 1700s the Jun ones were worth around 40 shares and I almost sold them. I am trying to plan better since like you say there is lots of near term upside.

Yeah, I would've likely sold some of my LEAPs already on those days, if I didn't believe there was so much near term upside.

Break-even point for some of those options was a SP of $2,200-2,400 upon expiration. And further upside somewhat limited, as they were were worth 45-60 shares per contract already.

 

[vwman111]

Yeah, I would've likely sold some of my LEAPs already on those days, if I didn't believe there was so much near term upside.

Break-even point for some of those options was a SP of $2,200-2,400 upon expiration. And further upside somewhat limited, as they were were worth 45-60 shares per contract already.

@FrankSG

For someone that has been trading and analyzing options in such great detail for so long, do you find the 60 shares per contract to be the right time to convert from options to shares? (regardless if they are ITM, LEAPs or short term?)