S&P spike - when to sell and when to re-buy?

[TheTalkingMule]

I have a pretty simple buying and selling plan. Clearly people here aren't talking too much since this could end up quite an opportunity, but I don't think it's too crazy for us ultra-bulls to share. People think we're nuts anyway.

Have sold zero shares til now and have decided I very likely won't sell a single share during inclusion unless we ratchet up to $800+. Even then it's maybe 10% with the plan to rebuy at $500-600 sometime in the next 2 years. Any squeeze higher than that and I'll consider further sales on the day of.

The wise folks here have convinced me that selling covered calls is a far far better plan than just selling shares. Premiums should be completely back to crazy land by the time actual inclusion buying happens. If we cross $600-$650, I'll sell 2022 covered calls $100/$200/$300 OTM against most of my shares and then not touch anything for at least 6 months. If they execute, so be it. I'll rebuy on the first major FSD glitch crash.

Basically, the amount of squeeze will dictate how aggressive my covered calls will be. Not afraid to sell $875's with a SP at $820 on Christmas Eve, the premium should be insane.

I have Jan/Feb calls bought before inclusion was announced and will probably buy some Jan 15 $500's Monday if they're still around $50. Gonna sell those on whatever the craziest day is before Christmas.

 

[ammulder]

I thought the theory was that a major squeeze would be short, almost instant... like it spikes up to $820 and within minutes is back down to $600 or whatever. So I assume you could set a limit order to sell covered calls, but not necessarily assume you'll be online and watching at the moment of the peak and then see how the price action is and then make a decision as to what a good sale price would be and then put in an order.

 

[juanmedina]

Index funds may wait until mid December to buy, so we can see some indifference and weakness in the interim. I think the big funds will want to break up inclusion dates to Dec 14th & Dec 21st as the S&P is offering.

I don't think it will be a continual ramp up until Dec 11th (and then Dec 18th). It may start post Thanksgiving though.

I have some room to add to my position and am not doing so today.

do you have any positions now or are you still waiting?

 

[adiggs]

I'll sell 2022 covered calls $100/$200/$300 OTM against most of my shares and then not touch anything for at least 6 months. If they execute, so be it. I'll rebuy on the first major FSD glitch crash.

I rather like this plan, and can attest from previous experience about just how big those premiums can get. I collected a ~$130 premium for selling Sept '22 840 strike options when the share price was around $500 post-split. If the shares run up far enough, I like your idea enough, I'm going to do something similar.

Actually, to be clear, I was already thinking I'd do something similar. I was just thinking in terms of a 6 month contract. But I think you're right - if this turns out to be a really huge jump up, then a 2 year sale looks to me like a great time to lock in a really large premium for 2 years. More than I can earn month to month along the way, and with a lot less energy checking in to see how it's going.

And as a bonus for me, the cash flow will be in my brokerage account. Makes for a big tax bill in '22 (or whenever I close it), and covers the living expenses (even with tax money set aside) in the meantime.


I've already purchased some options that provide exposure to that kind of upside, that will also necessitate selling, so it'll be easy to hold the long term shares through a spike as well, and not jeopardize my really long term view of things (in which even a $1000 share price in the next month is still cheap over this decade).

 

[Nocturnal]

I have a pretty simple buying and selling plan. Clearly people here aren't talking too much since this could end up quite an opportunity, but I don't think it's too crazy for us ultra-bulls to share. People think we're nuts anyway.

Have sold zero shares til now and have decided I very likely won't sell a single share during inclusion unless we ratchet up to $800+. Even then it's maybe 10% with the plan to rebuy at $500-600 sometime in the next 2 years. Any squeeze higher than that and I'll consider further sales on the day of.

The wise folks here have convinced me that selling covered calls is a far far better plan than just selling shares. Premiums should be completely back to crazy land by the time actual inclusion buying happens. If we cross $600-$650, I'll sell 2022 covered calls $100/$200/$300 OTM against most of my shares and then not touch anything for at least 6 months. If they execute, so be it. I'll rebuy on the first major FSD glitch crash.

Basically, the amount of squeeze will dictate how aggressive my covered calls will be. Not afraid to sell $875's with a SP at $820 on Christmas Eve, the premium should be insane.

I have Jan/Feb calls bought before inclusion was announced and will probably buy some Jan 15 $500's Monday if they're still around $50. Gonna sell those on whatever the craziest day is before Christmas.

I'll probably do something similar. I'm waiting to see how we start trading as we get closer to the inclusion date to decide on dates/prices. I sold covered calls right after the last big SP jump and then bought them back for cheap when we dipped. Worked out well. This time if something happens and I lose my shares at $900 or so a year out, then I can live with that. I'd just take the cash and sell cash covered puts for the rest of the year until I get called and get the shares back.

 

[Buckminster]

This question keeps coming up. So let's see if I can help to either clarify or further muddy the waters.

There are three kinds of funds in the world:
1. Index funds, which (in the context of this discussion) track the S&P 500 index as exactly as possible. These funds have no discretion about what and how many shares they buy/sell of stocks in the index, and only a very little bit of discretion about the timing; when a new stock is added, or one dropped, or at the quarterly rebalancing, the company that owns the intellectual property of the index (About Us | S&P Dow Jones Indices) tells them what they need to buy/sell, and gives them a window of 7 trading days (3 before, the day, and 3 after) around the official date to do the necessary trading. (TSLA is special; they've never before given this much notice, or even hinted at doing two phased adjustment periods. That's because TSLA is by far the biggest first-time entry.)

2. Funds which are benchmarked against the S&P 500 index. I used to be a trustee of a $2B 401K plan, and every quarter, Fidelity (who managed it for us) would come in and show us all the various funds that members could invest in, like Vanguard funds, targeted retirement age funds, etc. All of these funds' performance would be charted against some "benchmark" so that we could judge whether the fund was being managed well, was fiscally responsible, and so on. Some (but by no means all) of these funds used the performance of the S&P 500 index as their comparison. But they had flexibility about whether or how much of individual stocks they could hold. I'll give an example: ESGV is an ETF (exchange traded fund) that mirrors one that is often offered by pension/401k plans. It is basically the S&P 500 but with a focus on social and environmental responsibility, so it doesn't hold oil/gas stocks, gun stocks, and so on (and BTW slightly outperforms the S&P index). These funds obviously deviate from the exact S&P holdings, and exercise discretion about when to trade components, but they are still going to be compared to the S&P 500 when they are being judged, so they have to be somewhat conservative. They generally could maybe hold a little of a stock that wasn't in the S&P 500, but placing a big bet on such a stock would cause a big problem if it went down. Conversely, now that TSLA is being added to the index, they pretty much have to buy in, because if TSLA does well, and they aren't holding it, they will underperform the index. So they do have to buy eventually, but can choose when to do it. These are the guys running up the price now.

3. Funds that don't care about the S&P 500 index. They will generally be benchmarked against something else. This includes funds like the ARK ETFs. Some of them will want to buy TSLA just because it will be viewed as a "safer" investment now than it was two weeks ago. Some were already buying TSLA. Some still won't (like the ones that track the oil&gas industry).

So, some of the #2 funds are already buying, some will be waiting, perhaps because of internal guidelines or slow decision making processes, and even the ones buying will be trying to do it as slowly as possible so as to not run up the market. The #1 funds can't buy yet; exactly when they can start will be determined by the index when they announce when/whether the tranches are happening, but the whole purchase window will close on the 24th, three days after the 21st, official inclusion date.

 

[Buckminster]

What date will the percentage of TSLA that needs to be bought be fixed?

 

[MP3Mike]

What date will the percentage of TSLA that needs to be bought be fixed?

I believe that that would be on Friday 12/11. (Or 12/4 if they do two tranches.)

 

[Stretch2727]

Like most of you I am sitting on huge gains in TSLA after 5 years investing. Way more $$ than any reasonable goal for retirement. TSLA is mostly in a 401K so taxes are not short term consideration. If I count all my accounts including my wife's IRA's etc TSLA is about 75% of the total portfolio.

I am thinking of setting a fixed dollar amount that I will hold in TSLA. This will lower my % TSLA to about 50%. I am going to sell the "excess" over this dollar amount and continue to do so. I will be diversifying into ARKK so still some TSLA holdings in my diversification. If the TSLA dollar holding drops significantly below my $$ number I will likely buy back in. ARKK is much less volatile so I should be able to get back in and have $ in ARKK.

I still think the stock has a ways to run so eventually I will just hold fewer shares but the same dollar amount. I am a few years from retirement and trying to figure out a realistic diversification strategy. Still want to be in the stock as a heavy percentage. I may even do well if TSLA settles into a range like it was for most of 2014-2019.

Thoughts on this strategy?

 

[ggr]

Like most of you I am sitting on huge gains in TSLA after 5 years investing. Way more $$ than any reasonable goal for retirement. TSLA is mostly in a 401K so taxes are not short term consideration. If I count all my accounts including my wife's IRA's etc TSLA is about 75% of the total portfolio.

I am thinking of setting a fixed dollar amount that I will hold in TSLA. This will lower my % TSLA to about 50%. I am going to sell the "excess" over this dollar amount and continue to do so. I will be diversifying into ARKK so still some TSLA holdings in my diversification. If the TSLA dollar holding drops significantly below my $$ number I will likely buy back in. ARKK is much less volatile so I should be able to get back in and have $ in ARKK.

I still think the stock has a ways to run so eventually I will just hold fewer shares but the same dollar amount. I am a few years from retirement and trying to figure out a realistic diversification strategy. Still want to be in the stock as a heavy percentage. I may even do well if TSLA settles into a range like it was for most of 2014-2019.

Thoughts on this strategy?

I do approximately this, but in my case it's driven by the Fed requirement for margin accounts not to be dominated by one stock; if I allow TSLA to be more than 80% of the stocks I hold, the margin maintenance requirement increases. So I limit it to about 70% of the stocks. Options don't count in the calculation so I hold a lot more in the form of ITM calls. When I have to, I do what you do, which is put the excess into a "safe" fund like ARKK (actually pretty speculative, but...), ESGV or BPTRX.

 

[paydirt76]

do you have any positions now or are you still waiting?

I’m at 25 total now... Have 10 in leaps... yesterday, just bought 1,500 Dec 18th 690c @ $13.69. Total gamble. 8% of my total. I will not sell them early...

Depending on where stock gets to on Dec 18th, may sell all my Tesla.

If you think stock gets too high, best move is to sell all. Be sober about the sale going in. You won’t sell at the high. If you’re sitting on a short-term gain in a taxable you can sell deep ITM leaps but don’t sell the deepest as those can get exercised early. If your gains are long-term, just sell the stock.

 

[mickificki]

I’m at 25 total now... Have 10 in leaps... yesterday, just bought 1,500 Dec 18th 690c @ $13.69. Total gamble. 8% of my total. I will not sell them early...

Depending on where stock gets to on Dec 18th, may sell all my Tesla.

If you think stock gets too high, best move is to sell all. Be sober about the sale going in. You won’t sell at the high. If you’re sitting on a short-term gain in a taxable you can sell deep ITM leaps but don’t sell the deepest as those can get exercised early. If your gains are long-term, just sell the stock.

what are you looking for in signs for selling? Sudden IV and volume drop along with price?

 

[Tes La Ferrari]

Very interesting too hear the various strategies on this thread.

I have some Jan15 2021 700 & 800 Calls, and may add more if we get a nice Friday dip tomorrow.

Looking forward to a hopefully strong run up. Wishing us all much success.

 

[adiggs]

Very interesting too hear the various strategies on this thread.

I have some Jan15 2021 700 & 800 Calls, and may add more if we get a nice Friday dip tomorrow.

Looking forward to a hopefully strong run up. Wishing us all much success.

I went with adding more of the Jan '21 700 calls on the rise

I would have rather added more on a dip, but them's the breaks. If anything, the jump this morning reinforces the strength for me, so more. I also added some Dec 24 900s for bigger leverage.

 

[Runarbt]

But I think you're right - if this turns out to be a really huge jump up, then a 2 year sale looks to me like a great time to lock in a really large premium for 2 years.

I was thinking about the same.. But maybe combine with naked puts?

How about selling CC at as high a strike as possible, and sell naked puts at same expiry, but deep ITM (50% down).

.. so this way, you play both sides and collect twice the premium.

Just make sure to stay within margin range, so that even if sp do drop +50%, there wont be a margin call on the puts.

Payment from CC and Puts should help with a nice cushion.

 

[adiggs]

I was thinking about the same.. But maybe combine with naked puts?

How about selling CC at as high a strike as possible, and sell naked puts at same expiry, but deep ITM (50% down).

.. so this way, you play both sides and collect twice the premium.

Just make sure to stay within margin range, so that even if sp do drop +50%, there wont be a margin call on the puts.

Payment from CC and Puts should help with a nice cushion.

This sounds like selling a strangle. I.e. - share price at $800, sell the $1200 call AND sell the $400 put (400 above and below). Though the put side will be deep OTM rather than ITM ($400 is OTM on a short put, when shares are at $600 / 800 / anything > $400).

The legs don't have to be equally distant - the strangle can be skewed.


Reason for yes - wherever you center the strangle, you're thinking the shares will end up somewhere between. And with IV at a relative high point, then this would be a mechanism for locking in that very high IV and be able to benefit from that IV decay for an extended period.

Reason not - the covered put leg of that trade will (my expectation anyway) likely be entered at a bad point in time. I.e. - if the shares run up to $800 from the inclusion event, I expect a pretty rapid pull back to the $600 range. The covered put will be a better entry after the pull back to $600, than the immediate entry when shares are at $800. If I'm right, then I would enter the covered call at what I think the high point is, and then enter the covered puts when we're back down near the low point.

(Those option sale timings are mostly what I've been doing, and is being discussed more broadly in "the wheel" thread; it's this call purchasing thing I'm doing in Dec/Jan that is new and different for me)


Nice thing about a strangle - whichever side is doing poorly, the other side is doing well, and will tend to offset each other. Your broker might even provide some benefit on the margin side because of this balancing dynamic. I don't use margin to back short puts (only cash secured), so I don't have experience on that front.

 

[Runarbt]

This sounds like selling a strangle. I.e. - share price at $800, sell the $1200 call AND sell the $400 put (400 above and below). Though the put side will be deep OTM rather than ITM ($400 is OTM on a short put, when shares are at $600 / 800 / anything > $400).

The legs don't have to be equally distant - the strangle can be skewed.


Reason for yes - wherever you center the strangle, you're thinking the shares will end up somewhere between. And with IV at a relative high point, then this would be a mechanism for locking in that very high IV and be able to benefit from that IV decay for an extended period.

Reason not - the covered put leg of that trade will (my expectation anyway) likely be entered at a bad point in time. I.e. - if the shares run up to $800 from the inclusion event, I expect a pretty rapid pull back to the $600 range. The covered put will be a better entry after the pull back to $600, than the immediate entry when shares are at $800. If I'm right, then I would enter the covered call at what I think the high point is, and then enter the covered puts when we're back down near the low point.

(Those option sale timings are mostly what I've been doing, and is being discussed more broadly in "the wheel" thread; it's this call purchasing thing I'm doing in Dec/Jan that is new and different for me)


Nice thing about a strangle - whichever side is doing poorly, the other side is doing well, and will tend to offset each other. Your broker might even provide some benefit on the margin side because of this balancing dynamic. I don't use margin to back short puts (only cash secured), so I don't have experience on that front.

Thanks. Yes - you are of course correct, OTM Put.

..and good point, waiting with selling to get more value for the put.

All my cash is at work in long term stock and deep ITM calls. So thought Id make them work a bit extra when I have access to some stock secured margin. ;-)

Always thought it would be fun to be "the house" for once. Finally got the approvals in place with schwab,

 

[Tes La Ferrari]

I went with adding more of the Jan '21 700 calls on the rise

I would have rather added more on a dip, but them's the breaks. If anything, the jump this morning reinforces the strength for me, so more. I also added some Dec 24 900s for bigger leverage.

Thanks @adiggs.

Onwards and upwards!

You have inspired my trade today. I picked up some more Jan 21 700's, and some Dec 24 900's.

The Dec 24 900's were the ones I had to think a but harder about; with because their proximity to the 2 currently proposed S&P tranche dates. The flip side of this is that assuming the S&P goes with either of the 2 options, this Dec 24th 900 should capture the bulk of the buying by the 24th. If it is correct that they have 7 days on either side of the tranche date to accumulate, then one would only miss 4 days of potential buying from the second tranche date of Dec 21st.

I went with the flip side.

Was this your rationale for this buy as well ?

 

[Tes La Ferrari]

Interesting inclusion date update from Gary Black that I just learned about from @Christine600 's post in the main thread.

Reposted here, because Dec option holders may find this very relevant.

https://twitter.com/garyblack00/status/1332379438059819008


"Important: Since TSLA inclusion is effective before market 12/14 and 12/21, indexers should have full positions in place by Friday 12/11 and 12/18 at end of trading."

 

[Buckminster]

Another interesting tweet from Gary Black affecting deadlines for a possible squeeze:

Important: Since TSLA inclusion is effective before market 12/14 and 12/21, indexers should have full positions in place by Friday 12/11 and 12/18 at end of trading.


https://twitter.com/garyblack00/status/1332379438059819008

Timeline assuming 100% purchasing on the 21st.

1. Throughout - speculative purchasing from active funds that benchmark against S&P500 (plus other funds etc.)
2. 30 Nov - S&P advise how inclusion will go down - 1 or 2 tranches
3. Likely mini-squeeze 1st December on news above?
4. 11th December - S&P Confirm % TSLA to be purchased
5. 16th December - Indexes can start purchasing
6. 18th December - Some indexes to have completed purchases
7. Premarket 21st December - Inclusion
8. 24th December - Some? indexes must have completed purchasing
9. 4th? Jan - P&D