I thought I'd read all of your posts this thread, but where did you cover expiration choices and strike choices?
I covered maybe in the second half in a way but did not label. Thank you for the feedback. For long timers, you may gain nothing...
but maybe long timers don't yet know about the "Options Ladder" tactic... Hint: it's almost the opposite of the "options wheel."
EXPIRATION CHOICES
In investing, timing CAN be everything. Leaps, while they do have an end date, are more like stock (with the exception of strike choices)... while shorter term options are more of a gamble or raw speculation. Here's some raw speculation thoughts (be prepared to lose it all)
- The tighter (shorter term) you are with expiration choices given the catalyst you are wanting to take advantage of, the more the risk of loss. For instance, Tesla may announce +GAAP earnings for Q2 2020 and be added to the S&P 500. If you choose August 21 2020 calls, and the S&P committee happens to be slower than average, it's possible the date they announce be outside your expiration. If you choose September 18 2020, likely it lands before that for you, but it's possible (yet very unlikely) S&P could wait for a quarterly rebalancing or do a staggered addition of Tesla (per Tesla Daily's S&P 500 Inclusion Analysis Part 2 last night). So... if you think they do GAAP+ Q2 2020 and want "guaranteed" inclusion date maybe you go with October...
- But then what if Tesla announces GAAP- Q2 earnings? then you will have wished that you own December or January calls. Remember for longer term plays that earnings month regular monthlies (not weeklies) expire before the earnings announcement that month. October expires before the the Q3 earnings announcement in October.
I realized in hindsight that by "doubling down" on options in December 2019, I got VERY lucky on timing.
I did a very long postmortem to figure out some of the reasons why I did so well. I got a relatively INSTANT huge move in the underlying stock (Tesla). So how does one mitigate luck to some extent? Longer expirations and realistic strikes.
What I ended up changing my options position to on December 30 2019 was what I call an options ladder. Like a CD ladder, an options ladder has various "maturities" or expirations. I did this to "diversify" my timing risk. So I owned roughly equal parts of March 2020, June 20, Sep 20, Jan 21, Mar 21, June 21, Sep 21, and Jan 22 calls. I viewed March, June & Sept more as gamble/short-term and the other stuff as long-term. Though in the investment world, 1 year is "long-term" nowadays when degenerates are in an out of stocks in a day... This is short-term compared to longer-term owners of stock.
- In my mind, longer-term maturities are for longer term catalysts such as 1+ year analyst price targets, low growth analyst assumptions vs the high growth that Tesla is actually delivering, FSD in case it follows Elon time, eventual S&P 500 inclusion. From the beginning in June 2019, I think I originally picked January 2021 as my starter investment because I thought the latest Tesla would qualify for inclusion would be by January earnings 2021. But after October 2019, I realized that I would need March 2021 if I wanted the benefit of the Jan 21 announcement plus post earnings run up. (At the time in June, the Jan 21 was 17 months out)
- So then after stock was around $320 in October 2019, I sold the Jan 21 for a double. And bought the March 2021 420 calls with the proceeds plus some cash in the account that I didn't initially use. The rest is history.
STRIKE CHOICES
(will add after edits)
WHEN TO SELL
I realized in hindsight that by "doubling down" on options in December 2019, I got VERY lucky on timing. I did a very long postmortem to figure out some of the reasons why I did so well. I got a relatively INSTANT huge move in the underlying stock (Tesla). It continued to march upward in December, and then teleported upward in January on its way to $900 a share in early February. I was also very fortunate that I largely did not begin to sell until late January and was fairly serious about reducing risk in early Feb & late Feb 2020.
How was I able to hold on so long and not sell everything at $500 in January? Well, my original goal was for a 4x in Tesla share price ($235) in 2-3 years. At the time, I never made a commitment that I wouldn't sell or trim.
I did make a commitment that I broke to not sell any "options ladder" calls until expiration. When the stock started to run up in January, I changed my goal to own 5,000 deltas for the next 6,000 points. I want to invest alongside Elon and be "in" while Elon's options pay package is in effect. I knew that if I kept all the dollars in options that are currently in options forever that eventually Tesla would hit a two year period where I would bust out and LOSE EVERYTHING.