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Paydirt's (TSLA) Option Investing Guide

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bxr140

Active Member
Nov 18, 2014
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Was looking at some options too, but IV is skyhigh. I did pick up some Nov monthlies @540 just in case.

If you're buying TSLA calls right now, especially if they're not LEAPS, definitely look into working them into a spread of some kind to mitigate volatility. For long positions I prefer diagonals, but YMMV.
 
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bxr140

Active Member
Nov 18, 2014
2,760
3,884
Bay Area
FWIW, IV isn't that bad... current IV is only at 59-percentile.

I see IV30 at 79% TTM, but either way, that percentile also includes the very abnormal corona spike.

Here's the past 5 years of TSLA IV30. It is, by all accounts, crazy high right now. Terrible terrible time to buy contracts.
upload_2020-9-2_12-16-34.png
 

EV forever

Supporting Member
Apr 23, 2016
718
5,355
Irvine, CA
If you're buying TSLA calls right now, especially if they're not LEAPS, definitely look into working them into a spread of some kind to mitigate volatility. For long positions I prefer diagonals, but YMMV.

My strategy is different - I prefer to buy calls because there is no limit to the upside. Even if IV is high, as @paydirt76 has discussed in this forum before, if you believe in the upside potential of the stock, it is still worth is to put some of your money into calls.

Quoting my own message here - I did the same last time. Purchased a bunch of calls before ER in July when IV was sky high. It was painful to see some of these lose 90% of purchase value after ER when stock dropped and so did IV. But most of them recovered nicely, and are now very nicely positive with 70 to 300% gains.

With S&P500 announcement hopefully just around the corner, I still expect a run-up of SP. So although I wont sell any stock to buy options, I will still bet on this with options. My options cost is <5% of my portfolio - so can afford to lose all if things go south.

Investing exactly at the worst possible time - that happens to be my superpower! :oops:
Jokes aside, I actually was aware that IV was super high in mid-July right before ER, but was so confident of the ER blowing all expectations out of the water that I got greedy. In fact, the only other time worse than mid-July was probably mid-March and I bought options then too. Hard lesson learned for the future!

View attachment 578328

Anyways, although the short term weeklies expired worthless, most of my calls with longer expiration dates did recover and are nicely profitable. I just sold some with 21st Aug expiration for good profit, so have some cash to put to work with IV being so low (IV 30 is at 30th percentile as per Fidelity). So looking to see if LEAPS are a better deal or Oct/Nov monthlies for this year.
 
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bxr140

Active Member
Nov 18, 2014
2,760
3,884
Bay Area
My strategy is different - I prefer to buy calls because there is no limit to the upside. Even if IV is high, as @paydirt76 has discussed in this forum before, if you believe in the upside potential of the stock, it is still worth is to put some of your money into calls.

I'm not sure many folks would be comfortable with losing 90% of a contract's value, but if you have the conviction and its a small percentage of your account balance then its hard to find too much fault with your approach.

Still, as a retail trading hack that is in no way any kind of financial adviser, I'd recommend folks consider a spread to reduce a position's Vega when buying contracts at high volatility. Especially with abnormally high volatility like we have right now, a contract can lose significant value over time [as volatility drops] without any underlying price movement. As noted I usually go with diagonal spreads (and occasionally calendars, if I'm less bullish on price movement), which I manage in the same exact way that I do covered calls. Its worth a look for sure, as are other spread combinations that may suit one's preferences better than a diagonal/calendar.

Somewhat related, when contemplating a position its always good to remember that there are two axes on a chart. Especially when times are good (let alone these bananas days with TSLA), its easy to FOMO past the horizontal axis...
 

Xepa777

Member
Aug 1, 2017
188
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California
Dumb question...but if I wanted to sell my TSLA shares this month (life event coming up) shouldn't I just sell a slightly ITM short term call option to maximize my profit? Is there anything flawed with my thinking, or this the best way to go if I'm dead set on selling a certain # of shares to pay for a life event? lol.
 

Dharma

Member
Mar 11, 2020
24
70
USA
Downside is if the stock tanks your option goes out of money and won’t be exercised. You still have the premium but you lose out on selling at the current price if you had just sold directly.

Dumb question...but if I wanted to sell my TSLA shares this month (life event coming up) shouldn't I just sell a slightly ITM short term call option to maximize my profit? Is there anything flawed with my thinking, or this the best way to go if I'm dead set on selling a certain # of shares to pay for a life event? lol.
 

juanmedina

Active Member
Mar 31, 2016
1,918
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SC
Is anyone willing to step up and admit either losses or confusion regarding this thread, trying to follow it, or the OP?

no losses here I made some decent money thanks to @paydirt76 . I wish I had sold more and stay cash instead of buying puts only 10% lower of the top. I still have some calls that are still DITM that still have some time, I also wish I had unloaded but I was waiting on the S&P inclusion. I will unload those after battery day or after the P&D numbers come out.
 

saniflash

Member
Sep 5, 2017
340
3,093
Zurich, Switzerland
same here. the concept of measuring exposure/leverage via the total portfolio delta, and lever up when the price per delta is cheap (which is a proxy for a low SP and low IV), and lever down at a predetermined number of deltas to achieve a certain number of total delta, has been very powerful and for me personally helpful and quite profitable.
 

Xepa777

Member
Aug 1, 2017
188
1,047
California
Another dumb question, is there any free chart that shows how "cheap" a particular call option (or the options in general) of a stock are over time?
 

mrmage

Supporting Member
Jan 10, 2019
475
2,734
The Peninsula, CA
I'm not sure many folks would be comfortable with losing 90% of a contract's value, but if you have the conviction and its a small percentage of your account balance then its hard to find too much fault with your approach.

Still, as a retail trading hack that is in no way any kind of financial adviser, I'd recommend folks consider a spread to reduce a position's Vega when buying contracts at high volatility. Especially with abnormally high volatility like we have right now, a contract can lose significant value over time [as volatility drops] without any underlying price movement. As noted I usually go with diagonal spreads (and occasionally calendars, if I'm less bullish on price movement), which I manage in the same exact way that I do covered calls. Its worth a look for sure, as are other spread combinations that may suit one's preferences better than a diagonal/calendar.

Somewhat related, when contemplating a position its always good to remember that there are two axes on a chart. Especially when times are good (let alone these bananas days with TSLA), its easy to FOMO past the horizontal axis...

I haven’t looked into diagonals yet, so I’m curious which ones you buy. Since TSLA shot up, I’ve been mostly in bull call spreads, and just started calendar spreads.

I’m also surprised there’s not more interest in spreads on the forum. At current IV, their return is hard to beat with naked options. That assumes some idea of the future SP, but I question how someone could choose strikes and premiums otherwise.
 

saniflash

Member
Sep 5, 2017
340
3,093
Zurich, Switzerland
I’m also surprised there’s not more interest in spreads on the forum. At current IV, their return is hard to beat with naked options. That assumes some idea of the future SP, but I question how someone could choose strikes and premiums otherwise.

when levering up, I'm buying the long leg first and will then leg in the short leg after the stock price has appreciated on a smaller part of my long legs.

are you buying spreads outright? It's emotionally hard for me to give up the unlimited upside on the entire position I must admit (however irrational that is)
 

mrmage

Supporting Member
Jan 10, 2019
475
2,734
The Peninsula, CA
when levering up, I'm buying the long leg first and will then leg in the short leg after the stock price has appreciated on a smaller part of my long legs.

are you buying spreads outright? It's emotionally hard for me to give up the unlimited upside on the entire position I must admit (however irrational that is)

You're maximizing gains whenever SP rebounds, which worked great this year.

The portfolio I'm working on uses spreads either ITM or DITM to generate (hopefully) 1x to 2x profit every few months. Essentially, using spreads as leveraged covered calls. Not very risky or exciting, but more tolerant to time and SP, in case macros take a dive.
 

saniflash

Member
Sep 5, 2017
340
3,093
Zurich, Switzerland
The portfolio I'm working on uses spreads either ITM or DITM to generate (hopefully) 1x to 2x profit every few months. Essentially, using spreads as leveraged covered calls. Not very risky or exciting, but more tolerant to time and SP, in case macros take a dive.

This sounds interesting, thanks for sharing :)

Can you give me an example of some of the transactions you made so I can learn and explore if this is potentially a superior strategy for me?

Thanks in advance
 
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