Rolling LEAPS?

[⚡️ELECTROMAN⚡️]

I have some 01.20.23 $300, and some 03.17.23 $333.33 "leaps" that are down about 84%. Is it worth trying to roll these, or should I just hold them and hope for the best? They are in my IRA. I'm curious if it's hopeless, or if it's worth trying to study and comprehend what @Papafox wrote in the previous post.

 

[saniflash]

@Papafox your post about free rolling is pure gold, thank you. Do you use any technical indicators to decide whether the stock is in a downward or upward trend that makes you more confident in executing these transactions? I've tried it in the recent downturn (but I bought the later-dated option first because I thought the share price would turn around, enable me to sell the earlier-dated option) -- but of course that didn't work out.

Another alternative is to sell a $26.67 Jan23 call and buy a Jun23 $50 leap, provided you're not paying too much for change in time value. The new leap is worth less than the old, but you generate cash in the transaction, and if the cash increase is roughly the same as the decrease in leap value because of higher strike price, you have done a neutral trade.

Just for the sake of clarity, "neutral" cash-wise but not delta-wise, correct? you'll lose some delta on the way (granted should not be much for those super DITM positions).

I have some 01.20.23 $300, and some 03.17.23 $333.33 "leaps" that are down about 84%. Is it worth trying to roll these, or should I just hold them and hope for the best? They are in my IRA. I'm curious if it's hopeless, or if it's worth trying to study and comprehend what @Papafox wrote in the previous post.

I'm in a similar position (but my calls are more ITM). I've done the following process:

1. Decide if I want to maintain the exposure via options or not, or if I want to decrease or increase my exposure via options. My answer to generally maintaining exposure was yes (because I believe the current market situation is temporary), but that I do not want to invest more money in options, i.e., I have to check what rolls I can get based on the current value of my "options portfolio".
2. I've made a spreadsheet in which I'm analyzing how many options I can buy with later expirations at different strikes based on the value of my options portfolio, and how that would change my delta exposure relatively. I.e., I'm using "portfolio delta", the delta of all the options I want to roll, as a base.
3. I've decided what the maximum portfolio delta reduction I'd be willing to accept would be, and defined that at >= -25%.
4. I've decided about the moneyness I want the new option to be, and defined that the strike should be <= $300
5. Since most of the options I've shortlisted have a lower delta than my current position (i.e., they moves slower than my current position), and because I believe we're close to a local bottom, I'm right now waiting for an up day to roll.

Here's a screenshot of my spreadsheet:

You can see, e.g., in row 17, that a roll to a $225 Sep 23 call would decrease my portfolio delta by 18%, and the gamma by 33%. So this position will move much slower -- however, I might accept this as a "haircut" for trying to time the market with options and failing at it. Given that options have generated overproportionally more gains for me in the past than it now takes rolling them, I might accept this as cost of doing business. Especially because I believe that options will continue to generate overproportionally more profit than straight stock in TSLA.

Row #19: I could also go for a $275 Sep 23 call which initially will move a little bit slower than my current position, but because gamma is higher, it will move faster once the share price appreciates significantly.

Looking forward to feedback and thoughts around this process!

 

[Papafox]

I have some 01.20.23 $300, and some 03.17.23 $333.33 "leaps" that are down about 84%. Is it worth trying to roll these, or should I just hold them and hope for the best? They are in my IRA. I'm curious if it's hopeless, or if it's worth trying to study and comprehend what @Papafox wrote in the previous post.

I just looked at Jan23 300s trading at about 4.02 and Mar23 300s trading at about 8.47. Since these are out of the money leaps, which I'm not used to rolling, I would say you first have to understand how much of a stock price change is needed to get the Jan23 300s to rise about $4 in value. It'll be quite a bit larger price change than $4 because you're now dealing solely with time value and have no intrinsic value any more. My rolls involve mostly intrinsic value and very little time value, so I just don't have any experience with rolling way out of the money options. There are tables to discover how much the stock price would have to change to the option price by $4.. The problem is that the stock price may take multiple days to rise or lower enough to swap one for the other and the trend can definitely change during that time.

One option would be to look at a 300 strike call and ask when you'd have a decent chance of making money on it. If you have enough money you could add to your IRA this year and you think March of 23 is a reasonable timeline, you could buy a Mar23 300-strike call now or when you think this dip is going to bottom out. You then wait for the stock price to rise to that $8.47, at which time you sell your Jan23 300-strike call and you've done a zero dollar roll. Is it a good idea? That would require a belief in where you think the market is going to be by Jan and Mar of 23, and I really can't answer that question for you. Rolling out of the money calls is quite a bit trickier than deep ITM calls.

What I would look to do is get a call that will expire after a big and successful Earnings Report. The problem with a call that expires on Jan 20 of 23 is that you don't have much time to see appreciation if the ER is a good one. There's also the issue of end of quarter in the U.S. with many buyers potentially holding off taking delivery because of the IRA. For this reason I want calls that would expire after the 1Q23 ER so that I could take advantage of all the potential vehicles that could roll into Q1 of 23 from Q4 production and make it an enormous quarter that would wow Wall Street. That's why I'm scrambling to move my calls asap to mar23 and then to jun23.

Let's say you move money into your IRA and buy a Jun23 300-strike call. It'd be wonderful, but not necessary for your Jan23 call to pay for it. Instead, you might consider watching the Jan23 300's value once the stock price starts going up and sell it at the best price you can, which of course is determined both by TSLA price performance and remaining days before expiration. Forget the concept of free roll and consider the Jan23 call to be a helper in paying for part of the Jun23 call (again, if you think Jun23 looks to be a good bet at that strike).

Another way of looking at things is to realize that your 300 and 333 strike Jan23s are real longshots now. Instead, you might pick a strike price that you think makes sense in Jun23, buy that call, and sell the Jan23 300 or 333 to defray the cost. The idea is to make bets that will likely succeed, rather than riding a current bet into the sunset. Forget about what you paid for the Jan23 300s and 333s. That's water under the bridge now. Just think about what kind of a bet and what kind of an expiration date is likely to succeed, then the Jan23 call simply becomes a way of cutting the cost of that new call.

 

[Papafox]

@Papafox your post about free rolling is pure gold, thank you. Do you use any technical indicators to decide whether the stock is in a downward or upward trend that makes you more confident in executing these transactions? I've tried it in the recent downturn (but I bought the later-dated option first because I thought the share price would turn around, enable me to sell the earlier-dated option) -- but of course that didn't work out.


Just for the sake of clarity, "neutral" cash-wise but not delta-wise, correct? you'll lose some delta on the way (granted should not be much for those super DITM positions).


I'm in a similar position (but my calls are more ITM). I've done the following process:

1. Decide if I want to maintain the exposure via options or not, or if I want to decrease or increase my exposure via options. My answer to generally maintaining exposure was yes (because I believe the current market situation is temporary), but that I do not want to invest more money in options, i.e., I have to check what rolls I can get based on the current value of my "options portfolio".
2. I've made a spreadsheet in which I'm analyzing how many options I can buy with later expirations at different strikes based on the value of my options portfolio, and how that would change my delta exposure relatively. I.e., I'm using "portfolio delta", the delta of all the options I want to roll, as a base.
3. I've decided what the maximum portfolio delta reduction I'd be willing to accept would be, and defined that at >= -25%.
4. I've decided about the moneyness I want the new option to be, and defined that the strike should be <= $300
5. Since most of the options I've shortlisted have a lower delta than my current position (i.e., they moves slower than my current position), and because I believe we're close to a local bottom, I'm right now waiting for an up day to roll.

Here's a screenshot of my spreadsheet:
View attachment 863633

You can see, e.g., in row 17, that a roll to a $225 Sep 23 call would decrease my portfolio delta by 18%, and the gamma by 33%. So this position will move much slower -- however, I might accept this as a "haircut" for trying to time the market with options and failing at it. Given that options have generated overproportionally more gains for me in the past than it now takes rolling them, I might accept this as cost of doing business. Especially because I believe that options will continue to generate overproportionally more profit than straight stock in TSLA.

Row #19: I could also go for a $275 Sep 23 call which initially will move a little bit slower than my current position, but because gamma is higher, it will move faster once the share price appreciates significantly.

Looking forward to feedback and thoughts around this process!

@saniflash ,
When I'm trading I generally have QQQ and TSLA charts open. When you see TSLA being capped and not following QQQ there's a good chance if QQQ continues to rise that TSLA would break free and run higher like it did on Thursday, Oct. 13. That's mainly how I do it. I'm very careful near market open because often we see reversals or mandatory morning dips. Once the trend is well established (such as morning of Oct 14) you can sell your call with the least time remaining and wait for the price of your later expiration call to become affordable.

I'm hoping to be on a jetliner with internet on a 5 hr. flight on Saturday or Sunday and hope to give your questions more time and consideration. I'm scrambling to get ready right now, so give me a day or two to come back to your questions.

 

[Papafox]

To answer some more of Saniflash's questions:

Just for the sake of clarity, "neutral" cash-wise but not delta-wise, correct? you'll lose some delta on the way (granted should not be much for those super DITM positions).

If the call is far enough out of the money, then noticing that the two expiration dates of a call are selling for about $5 different to one another gives me a rough target of the stock price needing to change something greater than $5 for the earlier expiration date call to pay for the later expiration date call entirely. Delta is of course always less than 1 but not something as low a .7. I just wing it by looking at bid and ask prices until I think I can sell or buy for the swap to take place. Since I am usually dealing with market makers buying or selling the call (there's seldom much market activity for far out of the money calls) I usually plan to offer just a little (20 cents, perhaps) on the side of the bid/ask midpoint that favors the market makers. They usually snap it up within 30 seconds. When the two trades (the buy and sell) are complete, I try to be cash neutral, but I'm willing to add cash if I believe the market is turning against me in order to close the deal. If the stock is proceeding strongly in the desired direction, I sometimes hold off on the second trade so that I can close it for a profit.

As for your overall approach, I am so tired now and must wake for market open that I need to continue tomorrow.
cheers