Options trading strategy/advice

[jeewee3000]

I know this is a very old post, but I’m enjoying reading through some of these older trading thread. So, did you roll those LEAPS forward? I’m assuming that the prices are all pre-split, so your $1000 strike is like $200 today. Selling that one and buying a bunch of JAN23 $1500 ($300 today) in your example looks like pure genius today. Did you hold or cash out?

I had to look it up because I forgot what happened exactly.

My post was June 11th 2020. SP was around $200 at the time. I held on to the JUN22 $1000 LEAPS during the summer rise in anticipation of the stock split.

The first day after the split (August 31st) I sold 80% of the LEAPS to shares at what seemed a local high (just under $500) and used 90% of the revenue to buy shares. My reasoning was: odds are we are going to drop more likely than keep running higher. I wanted to keep exposure to TSLA but derisk some. On the other hand I didn't want to be completely without LEAPS in case the stock kept going like mad.

My instinct/guesswork seems pretty accurate in hindsight, since we dropped to $330 days after (six trading days to be exact).

However, during day three of the drop (around $410) I used the 10% revenue of the sold LEAPS to buy SEP22 $1000 's.

These crashed in value, so halfway september I sold the remainder of the JUN22's and used that cash to dollar cost average SEP22 $1000's during september and october. This brought my original purchase price of the SEP22's from $107 to around $74.

So I didn't exactly roll forward, but I did do so on a dip.

Since then the SEP'22s have peaked around $188 but:
- the moment they reached $117 I sold 2/3 of those SEP22's since that covered the total cost of all the SEP22's.
- the remainder of the SEP'22s I let ride and I was planning on selling them at a SP500-inclusion squeeze. I had a sell order and everything (for $250).

That price never triggered and they dropped to $123. Therefore: I am letting them ride some more until one of following:

A) the TSLA stock price explodes due to some catalyst (Q4? Q1? FSD? second stock split?) and we reach what I feel to be a local high. In this case I would sell the SEP'22s and either stay in cash fully or convert part of the revenue to shares.
B) the stock price stagnates or declines in the coming months.
By August of 2021 I want to get rid of them either way, probably rolling forward with extra cash that I can save up by that point in time.

There, that was exactly what I did. Writing this down was a good reminder for myself of my current position and plan, as well as a proper review of my earlier decisions.

EDIT: option strike prices are presplit prices. Stock prices and option premiums are all postsplit pricing. Sorry

 

[vikings123]

Option novice here.

Anybody holding any 21jan15 700/higher calls? What are you going to do with those? Sold, rolled or bought more?

I still have a few and these have dropped 50% with the IV crush. Still bullish on SP hitting 700 due to P&D on Jan04, but getting a feeling that market has "priced that in" and not sure if the options will recover. Appreciate any opinions.

Roll them to March 2021 especially if this a tax deferred account. I don’t see us hitting 700 by Jan 4th or Jan 15th. Q4 P&D of 175K or above is fully baked in imo.

Does TSLA provide 2021 delivery guidance with the Q4 earnings report?

 

[ReddyLeaf]

I had to look it up because I forgot what happened exactly.

My post was June 11th 2020. SP was around $200 at the time. I held on to the JUN22 $1000 LEAPS during the summer rise in anticipation of the stock split.

The first day after the split (August 31st) I sold 80% of the LEAPS to shares at what seemed a local high (just under $500) and used 90% of the revenue to buy shares. My reasoning was: odds are we are going to drop more likely than keep running higher. I wanted to keep exposure to TSLA but derisk some. On the other hand I didn't want to be completely without LEAPS in case the stock kept going like mad.

My instinct/guesswork seems pretty accurate in hindsight, since we dropped to $330 days after (six trading days to be exact).

However, during day three of the drop (around $410) I used the 10% revenue of the sold LEAPS to buy SEP22 $1000 's.

These crashed in value, so halfway september I sold the remainder of the JUN22's and used that cash to dollar cost average SEP22 $1000's during september and october. This brought my original purchase price of the SEP22's from $107 to around $74.

So I didn't exactly roll forward, but I did do so on a dip.

Since then the SEP'22s have peaked around $188 but:
- the moment they reached $117 I sold 2/3 of those SEP22's since that covered the total cost of all the SEP22's.
- the remainder of the SEP'22s I let ride and I was planning on selling them at a SP500-inclusion squeeze. I had a sell order and everything (for $250).

That price never triggered and they dropped to $123. Therefore: I am letting them ride some more until one of following:

A) the TSLA stock price explodes due to some catalyst (Q4? Q1? FSD? second stock split?) and we reach what I feel to be a local high. In this case I would sell the SEP'22s and either stay in cash fully or convert part of the revenue to shares.
B) the stock price stagnates or declines in the coming months.
By August of 2021 I want to get rid of them either way, probably rolling forward with extra cash that I can save up by that point in time.

There, that was exactly what I did. Writing this down was a good reminder for myself of my current position and plan, as well as a proper review of my earlier decisions.

EDIT: option strike prices are presplit prices. Stock prices and option premiums are all postsplit pricing. Sorry

Thanks so much for checking back and explaining. I’m trying to learn from others and every little bit helps. One theme that I’m seeing is that it’s very hard to time peaks/valleys and most people sell a portion on hard run ups, just like you described. Also, most everyone misses selling at least the local peaks. In my trading, I’ve had more failures (smaller bets, very low probability) than successful trades. Fortunately, my biggest trades have been successful, for a net positive. Now, I am only holding one 1100c Jan23 LEAP and have been patient through its ups and downs. I’m starting to dabble in selling short-term, small, OTM covered calls and puts. Low profit stuff, but higher probability of success.

 

[bxr140]

One theme that I’m seeing is that it’s very hard to time peaks/valleys and most people sell a portion on hard run ups, just like you described.

FTR, its not 'hard' to time peaks and valleys it just takes a different skill set than, say, selling options: You need a little more patience and a little more diligence at identifying risk vs reward and probability, but (compared to, again, selling options) the payoff is much better and the risk is ultimately much lower.

Maybe not directly related, but to give a real world example: I'm in an short ES position right now that I entered on retracement of a pretty strong resistance/supply zone (the green horizontal lines that bracket two candles on 12/20, followed by a strong move down), which is a bearish entry signal. Breaking to the downside of an uptrend line (the yellow trend line) is also a bearish entry signal, and with those two entry points basically falling on top of each other, that's a pretty high probability trade. There's no rocket science involved, there's no mystery involved. Its simply just diligence at identifying entry signals and waiting for the right entry.

Being conservative I waited for the trend line break (instead of entering on retracement of the zone) and as I type I'm up ~$20 on the index. Considering each ES contract is 50x leverage (I'm only in one contract), that's a pretty good return ($1k) for a position that's ~2.5 hours old. My stop was initially the recent peak, so my risk on the trade was ~$250. As soon as I got a decent amount of profit I moved my stop to ~$0 so it became a no-loss trade. I'm currently bumping my stop and so am currently sitting at a minimum of $750 profit.

Seriously, that's all it is.

 

[jeewee3000]

@ReddyLeaf

FYI, I sold my SEP22 $1000 calls today @ $188,00.

I'm keeping it in cash until an opportunity arises.

 

[⚡️ELECTROMAN⚡️]

I have a call option I bought a while back. It's a 600C 01/21/2022 leap. It's up 245%. That's great, but I have no idea when I should sell it. I was just copying someone else's purchase and I still haven't figured out good options strategies. Is anyone else on here holding this call, and what is your plan?

 

[Buckminster]

I have a call option I bought a while back. It's a 600C 01/21/2022 leap. It's up 245%. That's great, but I have no idea when I should sell it. I was just copying someone else's purchase and I still haven't figured out good options strategies. Is anyone else on here holding this call, and what is your plan?

I have LEAPS that expire this year. I will sell half to exercise the other half. Exercising avoids CGT. I will also delay selling until after April to push my CGT to the next UK financial year.

 

[ReddyLeaf]

I have a call option I bought a while back. It's a 600C 01/21/2022 leap. It's up 245%. That's great, but I have no idea when I should sell it. I was just copying someone else's purchase and I still haven't figured out good options strategies. Is anyone else on here holding this call, and what is your plan?

If you won’t have enough free cash to exercise this at expiration, then I would keep holding it until until right before an earnings announcement, then sell into a peak. Usually the SP and IV peaks right before a big announcement. Unfortunately, every next earnings announcement will probably be better (higher) than the next, so selling in January may be worse than September, even with the time decay. If you don’t need the money, just let it ride until next January.

 

[ggr]

I have a call option I bought a while back. It's a 600C 01/21/2022 leap. It's up 245%. That's great, but I have no idea when I should sell it. I was just copying someone else's purchase and I still haven't figured out good options strategies. Is anyone else on here holding this call, and what is your plan?

I have a couple of $590 strikes. Bought in early October. The theta decay really sets in about 3 months before expiry, so for me, that means the options themselves will become long term gains about the same time that any time value starts to erode. Of course by then they will probably be so deep in the money that the time value will be a negligible component anyway . So (for me) my answer is hold until mid-October then re-evaluate. At that time I'll probably sell enough to cover exercising the rest.

 

[bxr140]

I have a call option I bought a while back. It's a 600C 01/21/2022 leap. It's up 245%. That's great, but I have no idea when I should sell it. I was just copying someone else's purchase and I still haven't figured out good options strategies. Is anyone else on here holding this call, and what is your plan?

IV360 is going to be much flatter then IV30, but as @ReddyLeaf notes it would still be a good idea to contemplate selling/rolling just before earnings to capitalize on IV.

You may also want to consider taking some profit on the contract while rolling. You can roll up in strike (and out in expiration, if you like) to a contract or multiple contracts. For instance, your current contract is worth $32k--just as a total example, you could roll to 2x June22 $1500 calls for ~$29k, pocket $3k, and have a slightly higher ∆ (~.84 vs your current .78) and a bullish gamma on your side.

Another random example, roll to 1x Jan 22 $1000 for $22k, pocket $10k, and you're left with a more conservative ∆ of .55 which will result in less position drawdown if TSLA drops.

Last, if you have conviction with TSLA there's nothing wrong with doing nothing.

 

[ReddyLeaf]

I have a call option I bought a while back. It's a 600C 01/21/2022 leap. It's up 245%. That's great, but I have no idea when I should sell it. I was just copying someone else's purchase and I still haven't figured out good options strategies. Is anyone else on here holding this call, and what is your plan?

I forgot to mention that I have similar gains on a Jan23 1100c, bought before Thanksgiving, also following new-found advice. I always thought it was a ludicrous strike at a crazy premium, but it was all the extra cash available. Just in case I forgot about it, I put a $400 GTC sell order. Today, when I realized that it’s $250, I bumped to $1400 GTC. I don’t expect that kind of return by 2023, but you can’t be too conservative with this stock.

 

[4chi]

I'm trying to make sure I understand how to analyze the strategy of writing covered calls and using the proceeds to buy more shares.

Can you all tell me if this analysis looks right and point out the flaws? Stock price at expiration is the variable I am adjusting to see whether this is strategy is a net winner or loser (here I'm seeing $1400 is about the break even). This would be in an IRA so no taxable events here. Thanks in advance.

 

[ammulder]

I'm trying to make sure I understand how to analyze the strategy of writing covered calls and using the proceeds to buy more shares.

Can you all tell me if this analysis looks right and point out the flaws? Stock price at expiration is the variable I am adjusting to see whether this is strategy is a net winner or loser (here I'm seeing $1400 is about the break even). This would be in an IRA so no taxable events here. Thanks in advance.

View attachment 626353

In the last 18 months Tesla has got to be up over 10x. So just as a thought exercise, why don’t you repeat your analysis for an expiration share price of $8800 and see what you think of those numbers?

 

[4chi]

Very true. I get that the tradeoff off is big limit of the upside on appreciation. I'm trying to make sure I fully understand where it turns from a win to a loss.

 

[bxr140]

I'm trying to make sure I understand how to analyze the strategy of writing covered calls and using the proceeds to buy more shares.

What do you see as the benefit to buying more shares only to let the majority of shares (or all of them) go? What is the analysis that drove you to choose 1250 as a strike? What is the ultimate goal of your strategy?

Your math looks ok, it would just be useful to have a little more insight into the logic.

If you really think the price is going to go up that high you should be looking to buy calls, potentially funded by selling calls.

 

[ReddyLeaf]

Very true. I get that the tradeoff off is big limit of the upside on appreciation. I'm trying to make sure I fully understand where it turns from a win to a loss.

I think that your analysis is correct, but you should look at your willingness to lose those shares. The options market is giving that strike/date an approx 0.4 delta, which implies a 40% chance of being ITM. Is that an acceptable risk for you? I prefer to sell CCs at closer to 0.10 delta. Since Tesla the company is growing around 30-50% per year, it is reasonable to easily expect a $2000 SP in the (near?) future, 2022, 2023? Do you need the money today? Would you like to keep those shares into 2025, 2030? These are all questions that you need to feel comfortable with.

FYI, I made a crazy timing trade last week, selling a 850c during a local SP peak. I certainly didn’t expect the run up and thought the MM would pin the SP just below 850 to keep those options from being exercised. Well, I was wrong and lost my shares because I didn’t have available cash to buy back the option at a loss. Now, I’m stuck trying to get those shares back next week, hopefully without too much loss. These were also in an IRA that I won’t be able to access until 2030+, so pretty stupid loss if the SP is 1000, 2000, 3000, or even 5000 in 2030. I only say this to help others learn, and hope that I also learn.

 

[mickle]

I'm trying to sell my first covered call on Fidelity, and can't reach them or find an answer to my question anywhere...

If my shares get called, how do I specify which shares I want sold? Do I have that choice?

 

[adiggs]

I'm trying to sell my first covered call on Fidelity, and can't reach them or find an answer to my question anywhere...

If my shares get called, how do I specify which shares I want sold? Do I have that choice?

I believe that after the sale, you can look to see which tax lot was assigned as a default for those sold shares. I also believe that you have the ability to change the tax lot that is used for the share sale.

If you can't find that in the Fidelity site, then you'll need to give them a call. I'd start with the page that has your tax lot info.

 

[EV forever]

Anyone looking to sell some puts today? I was thinking Feb 5 725p look to be nice premium around $30. Haven’t sold many puts - but want to try some. Any specifics to look at while sele ya strike price?

 

[ReddyLeaf]

Anyone looking to sell some puts today? I was thinking Feb 5 725p look to be nice premium around $30. Haven’t sold many puts - but want to try some. Any specifics to look at while sele ya strike price?

Yes, I sold a 700p and 800p. I put in limit orders and didn’t expect the SP to move so much, but it did. I didn’t get the best price because it just kept going down, but not too bad.