Paydirt's (TSLA) Option Investing Guide

[hershey101]

Glad to hear of your surrender. DO NOT TAKE QUICK PROFITS!

If you still have wiggle room, Dec might work in case inclusion is delayed by 3 months (if GAAP negative Q2)

@paydirt76
Interesting you say that.... I'm quite certain that the recent $1k-$1500 runup (most likely $1650 come Monday) is fueled by speculators and front-runners to S&P inclusion.

Do you believe there is a ~75% chance of that happening in Q2? If so, how do you recommend positioning yourself to best take advantage of the other side? If the 25% chance it doesn't happen (eg no GAAP profit), what type of trade would you suggest that has positive EV? I doubt that the speculators and front-runners will hold for 3-6 months on their $TSLA position, and once the crash starts, I suspect we might quickly hit $800 or $700 as stop losses get triggered... The risk-reward may start favoring the downside in this case.

 

[paydirt76]

@paydirt76 100k with a moderate to high appetite for risk looking at 1800 calls for Sept, how does it sound?

Sounds good but be prepared to lose it all. Also, the tactic should be to hold thru earnings and if earnings are positive then hold until the day before inclusion date. The forced buying of $24+ billion in 5 trading days will be stunning.

 

[paydirt76]

If so, how do you recommend positioning yourself to best take advantage of the other side?

@hershey101 Please read/re-read all of @paydirt76 posts in this thread. Start at the top. Not being a jerk. Don't want you to miss anything.

So you're referring to a potential post S&P inclusion hangover... In this reply, we are talking August/September. When inclusion happens (the inclusion date), 5 days before the date the $24 billion in forced buying (and essential "retirement" of those shares as the index funds will never sell) will create a blowoff top in the stock. This will be the time to sell all long positions.

Implied Volatility in the options then may be even higher than today. Not sure if buying puts ("new puts") would be profitable as a 1-3 month play. Probably. The only struggle is it conflicts with my friend's goal of being long 5,000 deltas for 6,000 points on the stock (now 4,700). Way ahead of the goal right now (was effectively longer for the first 1300). Don't think stock goes below 1,000 as "resistance becomes the next support" allegedly. Would sell the new puts at 1,100 and go long maybe regular stock until Implied Volatilities cool down. To be fair, would sell the new puts if stock made a 30% down move.

 

[juanmedina]

Sounds good but be prepared to lose it all. Also, the tactic should be to hold thru earnings and if earnings are positive then hold until the day before inclusion date. The forced buying of $24+ billion in 5 trading days will be stunning.

I have two calls a 1250c in my after-tax account and 1300c in my IRA both Jun 21s that I got when the SP was 960ish. Do you think is worth selling them and trying to get shorter term and higher strike calls. Maybe a total of 4 or stay the course?

Also, the day before inclusion will you swap the calls with shares or hold the cash? Whenever we have another big drop in the SP I am planning to swap all my shares with deep ITM LEAPs.

Thanks for all your knowledge. I am going to re-read the thread again.

 

[hershey101]

@hershey101
So you're referring to a potential post S&P inclusion hangover... In this reply, we are talking August/September. When inclusion happens (the inclusion date), 5 days before the date the $24 billion in forced buying (and essential "retirement" of those shares as the index funds will never sell) will create a blowoff top in the stock. This will be the time to sell all long positions.

Nope. I'm not talking about this... We are in agreement here... If there are 75% chance that profit + S&P inclusion Q2, I'm referring to the game plan for the other 25%.

 

[paydirt76]

I have two calls a 1250c in my after-tax account and 1300c in my IRA both Jun 21s that I got when the SP was 960ish. Do you think is worth selling them and trying to get shorter term and higher strike calls. Maybe a total of 4 or stay the course?

@juanmedina no idea without knowing more about your goals and situation. As far as strike, In your after-tax account, you can sell June'21 1260C (this closes off your 1250 call) and then add 1900C (25% higher compared to today) to get more juice. Same in the IRA... As far as expiration, Mar'21 seems fine for a less risky, but tighter expiration. With March, you get the late Jan Q4 earns announcement within the timeframe of the option. If you want to pull a portion closer for inclusion, obviously Dec is safer in case Q2 not GAAP positive, then Sept.

My friend is in Aug calls because they made 1.8 on a Sept inclusion play, cashed that out and put 1.0 into the Aug. Sept may be better if for whatever reason S&P takes their time with it.

Also, the day before inclusion will you swap the calls with shares or hold the cash? Whenever we have another big drop in the SP I am planning to swap all my shares with deep ITM LEAPs.

At a minimum, looking to go to cash on the day before inclusion date. Might even go long some Dec'20 25% downside puts on a "hangover" speculation. Feeling pretty confident, might do 5-10% position in that provided we don't get savaged before inclusion.

If you're looking to grow shares, deep ITM leaps aren't as good as ATM leaps. Also, it may take a couple months for leaps implied vol to get crushed. But, I would want to own deltas/shares/leaps when FSD begins to roll out. Might be out of the shares until Oct P&D report or Oct earns depending on expectations. Guessing that analysts will totally dismiss Fremont Tent 2.0 and refuse to model production from it.

Those on Tesla Twitter and TMC who can see video of whether FSD is good at turning at intersections will be able to buy as soon as the roll out starts. Perhaps we would also see how the "rewrite" that uses video instead of comparing stills affects the driving before the mass media figures it out. The big move in stock on Friday 7/10 was because Reuters did a story about S&P inclusion and NYT and CNBC syndicated it. Until that point, the masses still did not know. We have a tremendous advantage, but we forget about it.

Thanks for all your knowledge. I am going to re-read the thread again.

 

[paydirt76]

Nope. I'm not talking about this... We are in agreement here... If there are 75% chance that profit + S&P inclusion Q2, I'm referring to the game plan for the other 25%.

For the chance it doesn't happen, you can instead do Dec'20 as your expiration instead of Sept or Aug. But also, this is really what position sizing is for.

If you're anxious about being wrong, either commit to saying goodbye to the money now, or reduce your position. and/or look at the probability of being right and the payout of that vs the probability of being wrong and the cost of that, and make a decision.

What are your goals with your Tesla investment? What is your lifetime gain?

 

[juanmedina]

I have two calls a 1250c in my after-tax account and 1300c in my IRA both Jun 21s that I got when the SP was 960ish. Do you think is worth selling them and trying to get shorter term and higher strike calls. Maybe a total of 4 or stay the course?

@juanmedina no idea without knowing more about your goals and situation. As far as strike, In your after-tax account, you can sell June'21 1260C (this closes off your 1250 call) and then add 1900C (25% higher compared to today) to get more juice. Same in the IRA... As far as expiration, Mar'21 seems fine for a less risky, but tighter expiration. With March, you get the late Jan Q4 earns announcement within the timeframe of the option. If you want to pull a portion closer for inclusion, obviously Dec is safer in case Q2 not GAAP positive, then Sept.

My friend is in Aug calls because they made 1.8 on a Sept inclusion play, cashed that out and put 1.0 into the Aug. Sept may be better if for whatever reason S&P takes their time with it.

Also, the day before inclusion will you swap the calls with shares or hold the cash? Whenever we have another big drop in the SP I am planning to swap all my shares with deep ITM LEAPs.

At a minimum, looking to go to cash on the day before inclusion date. Might even go long some Dec'20 25% downside puts on a "hangover" speculation. Feeling pretty confident, might do 5-10% position in that provided we don't get savaged before inclusion.

If you're looking to grow shares, deep ITM leaps aren't as good as ATM leaps. Also, it may take a couple months for leaps implied vol to get crushed. But, I would want to own deltas/shares/leaps when FSD begins to roll out. Might be out of the shares until Oct P&D report or Oct earns depending on expectations. Guessing that analysts will totally dismiss Fremont Tent 2.0 and refuse to model production from it.

Those on Tesla Twitter and TMC who can see video of whether FSD is good at turning at intersections will be able to buy as soon as the roll out starts. Perhaps we would also see how the "rewrite" that uses video instead of comparing stills affects the driving before the mass media figures it out. The big move in stock on Friday 7/10 was because Reuters did a story about S&P inclusion and NYT and CNBC syndicated it. Until that point, the masses still did not know. We have a tremendous advantage, but we forget about it.

Thanks for all your knowledge. I am going to re-read the thread again.

Thanks. Just curious what's the benefit of selling the next strike up to close my position vs closing the call outright? I am trading through Vanguard and is not the best platform, I am not sure if I will able to do that. I tried to sell a covered call against my other call and Vanguard didn't allow me because it said I had no positions.

My goal is to get to 1000 deltas, right now I have 406 deltas in which 198 are from shares. With the latest Tesla run we are essentially financially independent on paper and for now working.

 

[mongo]

Thanks. Just curious what's the benefit of selling the next strike up to close my position vs closing the call outright? I am trading through Vanguard and is not the best platform, I am not sure if I will able to do that. I tried to sell a covered call against my other call and Vanguard didn't allow me because it said I had no positions.

My goal is to get to 1000 deltas, right now I have 406 deltas in which 198 are from shares. With the latest Tesla run we are essentially financially independent on paper and for now working.

Vanguard requires a Level 3 option account to trade spreads, otherwise you need the stock to write a covered call.
Selling a call just above your bought strike lets you lock in profit without immediate tax consequences. However, you need to read up on the long vs short term implications depending on strike price and final disposition.

 

[paydirt76]

Thanks. Just curious what's the benefit of selling the next strike up to close my position vs closing the call outright? I am trading through Vanguard and is not the best platform, I am not sure if I will able to do that. I tried to sell a covered call against my other call and Vanguard didn't allow me because it said I had no positions.

@juanmedina The benefit is you get to take nearly all the cash out of that option position, you don't realize the gain in 2020, you shut off the risk, and essentially bottle up the position. Apply for the ability to trade spreads/call spreads/vertical spreads in that account immediately. The only negative is the stock could possibly (very low likelihood) pin at 1250 or 1260 near expiration in the future, but to get rid of that, you just sell the call spread in 2021.

So you sell the $10 upside call, then you are long the call spread. Then you wait until 2021 and sell the call spread (sell to close lower call, buy to close higher call). You will want to set aside the cash to pay the taxes. Maybe even move it to your bank.

My goal is to get to 1000 deltas, right now I have 406 deltas in which 198 are from shares. With the latest Tesla run we are essentially financially independent on paper and for now working.

That's definitely cool. Are the shares owned in the after tax account or retirement again? If you want to grow shares, a strategy to neutralize the stock with deep ITM short calls in after tax or sell the stock in retirement may be in order. Timing might be tricky as tomorrow (Monday 7/14) may see a temporary peak and S&P inclusion may finally be baked in (because of Reuters viral story that was syndicated by NYT & CNBC).

 

[juanmedina]

Thanks. Just curious what's the benefit of selling the next strike up to close my position vs closing the call outright? I am trading through Vanguard and is not the best platform, I am not sure if I will able to do that. I tried to sell a covered call against my other call and Vanguard didn't allow me because it said I had no positions.

@juanmedina The benefit is you get to take nearly all the cash out of that option position, you don't realize the gain in 2020, you shut off the risk, and essentially bottle up the position. Apply for the ability to trade spreads/call spreads/vertical spreads in that account immediately. The only negative is the stock could possibly (very low likelihood) pin at 1250 or 1260 near expiration in the future, but to get rid of that, you just sell the call spread in 2021.

So you sell the $10 upside call, then you are long the call spread. Then you wait until 2021 and sell the call spread (sell to close lower call, buy to close higher call). You will want to set aside the cash to pay the taxes. Maybe even move it to your bank.

My goal is to get to 1000 deltas, right now I have 406 deltas in which 198 are from shares. With the latest Tesla run we are essentially financially independent on paper and for now working.

That's definitely cool. Are the shares owned in the after tax account or retirement again? If you want to grow shares, a strategy to neutralize the stock with deep ITM short calls in after tax or sell the stock in retirement may be in order. Timing might be tricky as tomorrow (Monday 7/14) may see a temporary peak and S&P inclusion may finally be baked in (because of Reuters viral story that was syndicated by NYT & CNBC).

Thanks for all the tips. I just put in the request for a Level 3 account. We have about 150 shares in retirement accounts.

 

[mongo]

Thanks for all the tips. I just put in the request for a Level 3 account. We have about 150 shares in retirement accounts.

Vanguard doesn't allow level 3 on typical retirement accounts due to them considering it a margin account at that point (even though things can be fully covered).

 

[paydirt76]

Thanks for all the tips. I just put in the request for a Level 3 account. We have about 150 shares in retirement accounts.

yeah, don't need spreads in the retirement accounts, just may be handy in the after tax account.

 

[juanmedina]

Vanguard doesn't allow level 3 on typical retirement accounts due to them considering it a margin account at that point (even though things can be fully covered).

good point. I requested Level 3 on my brokerage account so hopefully I get approved soon.

yeah, don't need spreads in the retirement accounts, just may be handy in the after tax account.

yeah that would be great for next year because at this rate I may not be working next year lol. So to recap sell a 1260c for 75k to close out my position and than buy something like 1900c March 21 for 50k to sell next year and keep 25k. So my max risk would be 50k. Do I do this as single credit spread transaction?

 

[paydirt76]

. Do I do this as single credit spread transaction?

yes better pricing on spreads generally... but see the next post...

 

[mongo]

yeah that would be great for next year because at this rate I may not be working next year lol. So to recap sell a 1260c for 75k to close out my position and than buy something like 1900c March 21

Not sure you can do that as a credit spread since your at risk for that trade (ignoring existing holdings) is the delta between strikes ($64k).
What's needed is to link the existing bought call to make a debit spread, then buy the 1900 separately.
Depends how their interface works.
Also, I think selling a 1260 would not be a qualified trade so check the implications of that.

 

[juanmedina]

yes better pricing on spreads generally... but see the next post...

do you mean as far saving the money for the taxes? got it

Not sure you can do that as a credit spread since your at risk for that trade (ignoring existing holdings) is the delta between strikes ($64k).
What's needed is to link the existing bought call to make a debit spread, then buy the 1900 separately.
Depends how their interface works.
Also, I think selling a 1260 would not be a qualified trade so check the implications of that.

interesting. Thanks maybe I would just have to pay the taxes this year.

What do you guys think about the latest run? I am starting to feel uneasy and thinking about selling the few calls that I have or maybe hold the call that I have on the after tax account until next year.

 

[paydirt76]

My friend is a rule-breaker and a liar. Sold their inclusion play this morning. Here’s the screencap.



May look to rebuy inclusion calls after earnings but before an announcement from S&P

 

[hershey101]

@paydirt76 nicely done. I took half of my spreads to cover cost.... Ideally $TSLA pins in Sept at $2k and I'll be happy... Most likely, it'll retrace $500 from here before sept, in which case, I'll just close out the top leg.

 

[hershey101]

Is there a bottom price where you'll want to put that play back on? Or do you think that a drop in price without a corresponding drop in IV will make those options too expensive to re-enter? @paydirt76