Paydirt's (TSLA) Option Investing Guide

[euro2012]

If you had $50k to buy any call, which would you recommend at the moment, considering "time is running out". Is that in reference to S+P500 inclusion in Q2?

Assume the $50k can be lost, but putting it in play to be life changing.

 

[EV forever]

Sorry @EV forever , just took a closer look at this. This illustrates really well why the June'2022 1000C are very nice from a risk/reward perspective... And why risking March'2022 vs June'2022 doesn't seem to be worth it.

Some other things that can be helpful to look at are...
breakevens vs stock (important to calculate and not guess)
breakevens vs other options
Yes, looking at a interim snapshot date is cool but also look at taking to expiration. OK, duh, you are looking at May'2021 what if because you would probably roll them then, right?
Dollars of premium per delta. (riskier, higher strikes cost less per delta, but break easier) (included in chart, nice)
Dollars of premium per day (days to expiration).

To complicate ALL of this and possibly in some folks minds contradict earlier posts... A year from now, IVs are likely to be lower, especially if S&P inclusion has happened by then. Wouldn't be surprised if the IV curve moved down from 70 front & 60 leaps... to 60 front and 50 leaps. Some flexibility of when to sell/trim is good.

Hello @paydirt76
Wanted to stop by and thank you - sorry didn't get a chance to post before.
After our last discussion, I was convinced that the low volatility meant that buying calls made more sense than writing puts. So after closing out one sold put, I used the money to buy some calls - see below. Also bought some short term calls for July 02 - which I sold on Thursday for 5X of purchase price.
I probably would not have bought more calls without the thought provoking discussion with you here. So definitely wanted to thank you for that. Sometimes it may look like I question too much, but it is important for me to convince myself. Looking forward to lot more learning from you!

 

[EV forever]

My account has not done as brilliantly as yours @paydirt76 - but considering I had no real clue about options till just a couple of years back, I did well for myself. My TSLA holdings have increased 5-fold for long term stock, with total return of at least 10X overall. I have been following the strategy of putting most of the profits on options back into stock. Most of the time this was done by allowing a few options to reach expiration ITM so that they get assigned. I still have 6 options for July 17th expiration for 690 strike price - these were bought at $25 each, and are currently at $515. Most likely I will sell 3 and allow the last 3 to be assigned to add another 300 shares to my long term holding. Also, similar to your situation, all this is in an IRA account - so no taxes till its time to pull it out (not Roth IRA unfortunately).

This has been a fun ride and looks like it will continue for some more time!
Cheers!

That's awesome (the gains, being in an IRA, having a system). There may be more available for you if you think about your gains and goals a bit differently. That's why the options guide thread was created and why folks are being pointed back to it.

Can you explain a little more on what you mean by "There may be more available for you if you think about your gains and goals a bit differently"? I am quite open to suggestions on better ways to leverage the profits made. I am including my post in the other thread as well as your response to it - see above.

This is how these very deep ITM options are holding today - I had set a GTC sell order for 3 of the 17July690 for a price of $690, but cancelled it expecting higher prices tomorrow.

 

[hershey101]

Man I'm seriously doing something wrong... I started the year on a $70k acct, made $40k in profits in $TSLA this year, and am up $75k total YTD. Vested some company equity, and so my total portfolio is finally close to $400k... But still severly underperforming just a buy-and-hold strategy because I never expected $TSLA to run this fast and keep on running. And when the pull-back to <$400 came in march, i was way too scared to pull the trigger....

I really need to re-evaluate my trading strategy because I should be up way more for the year than I am.

 

[vwman111]

No pleasure is taken from your admiring my friends privates. LOL Take action instead!

View attachment 561300

In the pics, the plus move on a given options line is the change in that option on the day, not the gain to the holder that day.

Today is still considered a victory though they cracked and ended up taking profits while rolling up to higher strikes. What can be said? We’re all human.

They still made more than deltas dictate (indicating IVs went up again). They are at 8,800 deltas. Switching from Sept to Aug greatly increased theta (daily options decay/bleed from -$8,600 friday to -$20,100 today). (Google options theta to understand better).

Options now down to 38% dollar wise of net worth, synthetic deltas back down to 106% of net worth (synthetic deltas = deltas times share price = 106% of net worth). Both of these numbers got much higher during the day.

@paydirt76 So your friend decided to trim some delta? If i remember correctly he was at 10,000. I had assume the 10,000 would be held until S&P inclusion or batter day... did he rearrange and take some profit ended up keeping the 10,000? Or did he take some of that off the table?

 

[EV forever]

Man I'm seriously doing something wrong... I started the year on a $70k acct, made $40k in profits in $TSLA this year, and am up $75k total YTD. Vested some company equity, and so my total portfolio is finally close to $400k... But still severly underperforming just a buy-and-hold strategy because I never expected $TSLA to run this fast and keep on running. And when the pull-back to <$400 came in march, i was way too scared to pull the trigger....

I really need to re-evaluate my trading strategy because I should be up way more for the year than I am.

Don’t feel bad - I spent 7 years investing in TSLA with minimal to no returns. Rode it all the way adding more little by little. Lost some money in options on the way because I bought the $420 going private tweet ‘hook line and sinker’ in 2018. When things went really bad in 1Q2019 decided to take a break from this forum, but never sold any. I was driving a Model 3 and knew the FUD would stop one day. Then lucked out last year In October when I added about 30K worth of options. The first lot expired worthless in Dec, but everything else turned into gold. I stuck to my strategy of converting 50% of all profits to stock and buying more options with the remaining. I still lose quite often - all options I bought as short term play for 1Q20 ER expired worthless or had to be sold at a big loss- thanks to the shares are overpriced tweet.

Tesla still has a long growth trajectory to go through, staying disciplined through it will be important. hence I don’t risk my long term holding shares, only options on the side.

 

[paydirt76]

If you had $50k to buy any call, which would you recommend at the moment, considering "time is running out". Is that in reference to S+P500 inclusion in Q2?

Assume the $50k can be lost, but putting it in play to be life changing.

Yesterday, the end of day screenshot was posted. Switched the Sept'2020 1100C to the 08/21/20 1500C. While August is cutting it close, reasonable to assume the S&P committee will try to get Tesla in a week or two after the 10-Q comes out. 1500 or 1600 should be good if current levels merely serve as a launching point for further buying. Good luck.

Looking to be a seller of complete position as stock approaches $2,000 or inclusion day/week. Going to be very hard to wait to inclusion week, but that has been where the money is in the past. The stock can be a rollercoaster in between.

 

[paydirt76]

Hello @paydirt76 Wanted to stop by and thank you - sorry didn't get a chance to post before. After our last discussion, I was convinced that the low volatility meant that buying calls made more sense than writing puts. So after closing out one sold put, I used the money to buy some calls - see below. Also bought some short term calls for July 02 - which I sold on Thursday for 5X of purchase price.

This thread isn't the only one that got you bulled up, yet it really does warm the heart and moisten the eyes to see this. Not for the dollars gained, but knowing what those dollars can do for you, your family, and your community. Thanks for sharing. Don't go totally YOLO now. We know you won't.

 

[paydirt76]

Can you explain a little more on what you mean by "There may be more available for you if you think about your gains and goals a bit differently"? I am quite open to suggestions on better ways to leverage the profits made.

(oh, secretly hoping you ran over a "wheel" person's options leg, though most were smart enough not to write into the P&D report)

Cannot go back and figure out your references, time is short, sorry. If you want to get into specifics to your goals and how you might be able to think about things differently, send a DM.

(1) NEVER use GTC unless there are times you absolutely cannot get to your trading app. Or if you cannot check in on things. More than once a day. Day orders are fine. Reason is market makers will remember a resting order and are likely to "lean on it" on the open. This means they might purposefully open that option lower so they can buy it lower. Also know that usually during the day, you do not need to sell at the bid when selling. Same flipside when buying.

(2) There's an immediate opportunity for the July 17 calls. There's no more "juice" left in those calls. Perhaps sell those immediately and buy something like Aug 21 2020 upside (1500-1600) calls. Not necessarily with all the proceeds... Short-terms are more for "juice", Long-terms are for long-term position.

 

[paydirt76]

I really need to re-evaluate my trading strategy because I should be up way more for the year than I am.

Thanks for being real.

I keep a community of bulls using options (to be somewhat levered) around me. One bull (one of the outspoken bulls on Twitter) has done even better than my friend, he's 200x'd his account since October. Not only did he not buy under $400... He sold at the depths. We're all human. So are you. Perhaps we should give the rules and decision points of our trades to a robot, so it could faithfully execute them... But we still know the robot is there and our emotions will cause us to override the robot from time to time.

I used to think my skepticism kept me safe. It kept me from investing in Apple and Amazon though I used both and knew both were superior (Amazon low costs, Apple packed great value in for customers). I looked at fanbois, "perfection" needed for valuation, etc, and told myself I was being smart.

Curiosity can make one rich. Curiosity brought you to Tesla in the first place. None of us comprehend exponential growth. Our minds don't work that way. Tesla is growing exponentially. Some parts of Tesla are growing DOUBLE exponential.

Don't sit it out. Whether you use only stock or not, commit to a total dollar amount you can risk. And commit a certain amount of cash on the sidelines that if it tanks, you buy more; or if the opportunity presents itself, you can go "all in" (not all your money, but all your committed Tesla money that you're willing to lose). You can actually use options to trim when it goes up and add when it goes down.

First, is there anything you disagree with or need clarified from in the GIGAFACTORY MODEL (beyond the sassy-ness in the beginning)? Two, do you disagree with or need anything clarified from in the THREE FUNDAMENTALS?

 

[paydirt76]

@paydirt76 So your friend decided to trim some delta? If i remember correctly he was at 10,000. I had assume the 10,000 would be held until S&P inclusion or batter day... did he rearrange and take some profit ended up keeping the 10,000? Or did he take some of that off the table?

Posted an update as of yesterday's close. Might be on the previous page. Changes were made yesterday. If you look at the image, they have 67 June'2022, and 100 Aug'2020. Currently the total deltas are 8,800. As stock rises, deltas will go up. From yesterday's close, deltas will go up approximately 1,100 if stock goes up 100 points. Also switched from Sept to Aug. Inclusion day likely to be before Aug 21 expiration (but not a lock). Was doing Sept out of extra caution.

Don't think playing Battery Day is that great of a catalyst on its face. Wall Street will probably not "get it." When we hit that date, stock might also be hungover from inclusion. A party like we are having now demands a hangover... eventually.

This will be very hard to get right emotionally. Trying to be responsible and manage risk as it goes up. If the account wasn't big and was more YOLO, would still be making changes but not reducing risk. None of us can pick the S&P inclusion top. But hopefully we can ride it for outsized gains.

Just realized two things yesterday... and one just now.

1. Premarket, the Roth was estimated to open around $7,200,000... That's A HUNDRED Model Y Performance. Mind boggling.
2. Tesla has not yet 100x'd from its IPO price of $17... yet as of yesterday's close the account has 133x'd in 1 year and 2 weeks.
3. Right now, the account can afford to own the 5,000 shares of Tesla outright.

Incredible gratitude to the Tesla community, to God, and the journey.

 

[hershey101]

@paydirt76 what strategy do you generally use to enter an options position?
Say I have a fixed amount of capital I want to invest in tsla via call options.
Do you generally buy in one go? Buy over some fixed time interval (eg. 1/10th every day for the next 10 days or whatever). Or at fixed dollar values. Eg. 1/3rd of your position at current market price, 1/3rd when the price drops another x%, and 1/3rd when it drops another x% from there to dca.

This strategy can very based on whether you are investing in stock, leaps, medium term calls or monthlies/weeklies. For the more shorter term options I go for a 1/3rd at 50% drops in premium. For the longer term ones, I tend to either enter the position at a smaller discount or go closer strikes and roll down..

I'm curious what's worked for you?

 

[paydirt76]

@paydirt76 what strategy do you generally use to enter an options position?
Say I have a fixed amount of capital I want to invest in tsla via call options.
Do you generally buy in one go? Buy over some fixed time interval (eg. 1/10th every day for the next 10 days or whatever). Or at fixed dollar values. Eg. 1/3rd of your position at current market price, 1/3rd when the price drops another x%, and 1/3rd when it drops another x% from there to dca.

I'm curious what's worked for you?

What's worked is to buy immediately. Did this every time... Dec 13th, Dec 30th, June 16th. Your entry won't be perfect and it won't matter. Started out paying the offer on entries... and selling on bids. Did not matter. If it's against your nature do 2/3 now and 1/3 the day before earnings (or in a week). If you wait until after earnings, it may be very very late.

 

[graphilwar]

Just wanted to say thank you paydirt76 for opening my eyes to this. i’ve sold calls on tsla in the past and i instinctively lean towards the option-selling strategy, but this entire series of posts has opened my eyes to how dangerous call selling truly is in tesla’s case. i estimate that i’ve probably lost about 200K in simple upside lost by having to deal with blow ups from selling calls, because tesla’s monster moves and my desire to keep a minimum amount of shares in my core position always conflict with each other. the premium is nice but it’s really hard to use premium to recover from the blowups. at that point, why bother right? the interesting thing about your series is that it goes with the non-normal streaky volatility built into tesla and profits from it. so what normally is “super risky”—buying calls, is actually less risky than selling calls. thanks again for this.

 

[Convert7]

I have 600$ Strikes Jan2022. Should I Roll them and to which Strike?

When is the best time to Roll? When the Options to be rolled (600$) are ATM or deep ITM and when volatility is high or when Low?

 

[paydirt76]

this entire series of posts has opened my eyes to how dangerous call selling truly is in tesla’s case. i estimate that i’ve probably lost about 200K in simple upside lost by having to deal with blow ups from selling calls... the interesting thing about your series is that it goes with the non-normal streaky volatility built into tesla and profits from it.

Thanks for the reminder that there are lurkers getting value from this.

Suspect strategies like “the wheel” have helped its users make the least of their situation just like stop losses limit gains. Even after a week where weekly realized volatility was 300%, they croon “vol is very expensive at” 80%.

Pray tell vol sellers, how many 40% realized vol weeks do you need to pay for a 300% realized vol week to make selling a 80% vol a good sale?

There is a time to sell vol, but now is not the time. Also selling into FSD could be dangerous or most P&D or earnings reports while WS continues to underestimate Tesla.

 

[paydirt76]

I have 600$ Strikes Jan2022. Should I Roll them and to which Strike?

When is the best time to Roll? When the Options to be rolled (600$) are ATM or deep ITM and when volatility is high or when Low?

It’s already been demonstrated that IV is low. If none of the fundamentals were in place, one wouldn’t want to be long calls period.

That out of the way, there is no proof to be offered. No studies of a million tests done... but. The most “juice” comes from higher upside yet attainable strikes. This brings too much stress.

Sidenote: there’s an “intimidation” with large numbers now. TSLA stock has grown an average of over 50% per year for 10 years. With stock near $1,400, 50% higher is “only” $2,100... *mind boggle*

The safest one should go is maybe roll up to ATM strike. But rolling up to 25% OTM for a leap isn’t bad either. Like the idea of rolling up strikes after 50% moves up.

You have to decide whether you regularly take money off the table when you roll up. If you don’t, you can run into a period where you roll up at what becomes the high on a two-year look back.

Do not like “all or nothing” position management. Instead Either manage to a band of deltas (ie 1,000 - 3,000 deltas)... trim at 3,000 deltas and add at 1,000 deltas or manage to a total net worth % as discussed around Page 1.

edit: removed extra quote

 

[hershey101]

Fwiw I got burned hard on the call selling... I bought 500 shares of tsla around the 180-220 range and sold covered calls for 250-300 right before the big run-up we had in Nov time frame.

I did the same thing during the 40-120 run and didn't learn and it took me forever to build enough money to afford 500 shares again...

I feel like I should build up a higher delta position and just forget about it. But every single time I look at doing so, tesla feels super expensive. And yet here we are at $1400...

 

[euro2012]

Earnings to be reported on July 22. How does that affect your strategy?

 

[ssq]

@paydirt76: Found this thread and got enthralled reading!! Thanks a lot to you and all other sharing your experience here with the community, much appreciated!
I am not an expert by any means on Options but been trying hard to learn from the veterans here. A lot more studying to do on your theory (earmarking 4 hrs tomorrow for this).
Been thinking of capital gain taxes a lot for this year (this is post tax brokerage a/c), for the Sep 1000 Calls - thoughts on rolling these out and benefiting further from the exponential growth in TSLA?
Also wondering how to best position the DITM Jun 22 350C. Would love to have some of your thoughts on my positions. Appreciate your time/effort!