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

[adiggs]

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 ?

On the 900s - it is comfortably my most leveraged position. I need the shares to run a lot and soon for these to pay off bigly.

My overall thinking is that we will most likely be seeing the price run up towards 12/21, but I expect that run up to be more aggressive early / now, and flattening out somewhat as we approach the inclusion date. Two reasons:
1) As the shares are pushed upwards, some of the large market participants that are share owners will start selling bits of their positions to lock in gains and avoid becoming overly concentrated in one single position. That will provide some shares for the buyers that will let off some of the pressure.
2) I expect the index funds to be more front weighted in their purchases than backweighted (that is to say - buy earlier in their windows than later). My thinking here is that the index fund managers are watching the market as well; seeing how aggressively buyers are showing up, and will be thinking to themselves that if they wait, they might find themselves as the target of a share squeeze that they can't duck; so mitigate the risk and buy earlier than later.

I could totally be wrong about that, and the "could be wrong" is part of why I bought the 900s. If we get a ramp that turns into a spike to $1200, then .. well .. I (probably most of us) will have really delightful first world problems. The 900s are positioned to provide my maximum exposure to this tail event.

If the spike doesn't arrive though and "only" a steadily building share price of say $800 around 12/14 (week before the inclusion date), then I probably close these at about that point. These options are purely time decay, so theta is going to start eating these aggressively that last week or two and the position is big enough for me that I won't be riding this down to the last day, just in case.

One might also consider my 12/18 and 12/24 positions as a form of enforced discipline -- I can't sit on these into and well past inclusion date trying to ride a coasting high for a last few pennies. These earlier expirations will force me to choose an expiration earlier that I know will be shy of inclusion.


Regarding the capture of the bulk or all of the inclusion date buying, that's what I'm looking for the Jan '21 positions to do. They started off (10 days ago) as my biggest positions. They've dwindled and become the middling sized positions, but are still designed to capture any and all of what happens. On the Jan '21s, my hope is to close in January (not December) so the tax event is in '21; and if I think we've got a spike that won't survive into January, then I'll pay my tax bill this year and be wince-grinning as I do it.

All of my shorter dated calls are in an IRA so there are no tax considerations.


(REALLY important: prior to this inclusion event, my experiences buying options is universally bad . Selling options - that has been good, and has provided me the education and experience that is the foundation for these call purchases. That still makes me bad at buying calls, with success. Make sure you have your own research and reasons. And good luck!)

 

[adiggs]

For the exits, one thing I've learned from the 12/4 500s I purchased the morning after the announcement -- when these options get deeply ITM, the remaining time value is so small that time decay isn't much of a consideration. In that position's instance, I have about .50 worth of time value left and have decided, as a result, that I like the upside exposure those .50/share is buying me for the rest of the week more than I want to lock in my gains. I expect these 12/4 options will stay open most of the week - and maybe even into Friday, as their delta is over .90 - it's sort of like owning the gains from the shares without needing to buy the shares to acquire the gains.

This is a new dynamic to me - not something I've ever had happen


If I didn't have such a strong upwards bias in my estimation of the share price, even at today's level, then selling for the roughly 13x gain would be a no brainer. Instead holding to see just how far the shares can run next week is an equal no-brainer. (For me, your mileage may vary; some restrictions apply; see your warranty for terms and provisions... Wait - you don't have a warranty!?!)

 

[adiggs]

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

This is still my first year selling options (since April roughly). I can attest to it being fun be "the house". Which doesn't mean that it lacks risk, or that houses can't be bankrupted.

Something to take up in "the wheel" thread sometime.

 

[Runarbt]

Just realized a pop to +$1000 may happen, and I am not set up to profit properly.

Earlier, I have done my options buying on gut feels, and had 5x $500jan/feb2021.. but yesterday I found the Option finder.

Option finder - by Options Profit Calculator

Will sell a few way otm ($350-400) jan/feb puts and buy 12/18 $950 tuesday for a "free play" to maximize payback from a spike above $1000-1300.

Two sold puts could get me 20-30x calls, and a potential if SP reach $1300, for a million $ payday.


If sp were to dip $350, Id buy more shares anyway.. so this is really a free but yet costly bet. $5k is no peanuts, really..

 

[Paracelsus]

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

Thanks for this post @Buckminster - I agree with this timeline with the exception of #9. I think there is another tremendous catalyst for the timing of the squeeze to be engineered to have been completed in its entirety prior to the end of 2020. While many folks are discussing the potential for TSLA to continue its trajectory with more support under a Biden administration, I haven't yet seen any discussions regarding the implications of the high potential for a very significant increase in Capital Gains in 2021 under a new Biden administration on TSLA trading the S&P500 inclusion transition that is now underway.

When share prices for TSLA were in the low 400's it was estimated that at least $50 Billion in TSLA would have to be purchased. That number could end up being twice as high with the share price run-up we are experiencing when compounded by Wall Street's ability to have some control on this process and with the timing of the selling of shares that some big investors have likely socked away for this inevitable event. That said, we may witness $100 Billion or more in TSLA shares that are actually trading hands in December 2020, many of which may have been originally purchased within the window of short term capital gains by influential Wall Street investors and Big Money. Biden's Capital Gains tax increase proposal increases the tax rate by as much as 20% (from 23% to 43%) on those earning more than $1M. That demographic could potentially include the holders of many of these shares.

This is not in any way meant to be a political comment, or a comment of the positives or negatives of this proposed increase beyond its potential effect on the timing and the magnitude of a TSLA price spike and subsequent retracement. Even if TSLA shares do only move $50 Billion in funds to accomplish S&P500 inclusion, and even if 2021 capital gains tax rates are only raised by 10% for top earners - roughly 1/2 the proposed amount.........there could be as much as $5 Billion in capital gains tax avoidance if the S&P inclusion plan had timed the peak of the TSLA price pump to be reached before the end of 2020 and under the current administration. This of course could further amplify the peak, and that could be further guaranteed with many of the steps that @Buckminster outlined in his post........i.e. announcing a plan for TSLA inclusion but delaying the plan on how that will be accomplished, pushing the inclusion date to the very end of the 2020 Calendar year and final days of the 2020 trading year under the Trump Administration.......and perhaps the final days under the current capital gains rate, etc.

I have posted my plan for playing this inevitable spike of unknown magnitude by selling shares in escalating GTC Limit orders that were set between the low $500's and $2,000 several weeks ago in an effort to use those proceeds to accumulate more shares following the d. I agree with a recent post by @adiggs on the main thread suggesting that we are already likely at-or-above the price range TSLA stock will pull back to when this is over.

 

[CHGolferJim]

Donated $250k of calls to my kids' school today so they can get "needle point plasma" air treatment to kill viruses and knock pollution out of recycled air. They will also use some of the funds to put in new HVAC systems since the current ones are nearly 20 years old.

Truly outstanding, congratulations, way to step up!

 

[BabyBull]

Just realized a pop to +$1000 may happen, and I am not set up to profit properly.

Earlier, I have done my options buying on gut feels, and had 5x $500jan/feb2021.. but yesterday I found the Option finder.

Option finder - by Options Profit Calculator

Will sell a few way otm ($350-400) jan/feb puts and buy 12/18 $950 tuesday for a "free play" to maximize payback from a spike above $1000-1300.

Two sold puts could get me 20-30x calls, and a potential if SP reach $1300, for a million $ payday.


If sp were to dip $350, Id buy more shares anyway.. so this is really a free but yet costly bet. $5k is no peanuts, really..

I want to copy your trades. Care for more details of how many and which ones for $5k. How do you get the million $ figure? I am getting more, but I assume you are not assuming peak prices.

The put trades will lose value if you buy them Tuesday while the sp is rising to $1300? Then, why not buy them later, say around $1000?

 

[Featsbeyond50]

So this is what it feels like to have Madonna knock on your door and tell you she loves your house and has to have it.

 

[Prunesquallor]

I have posted my plan for playing this inevitable spike of unknown magnitude by selling shares in escalating GTC Limit orders that were set between the low $500's and $2,000 several weeks ago in an effort to use those proceeds to accumulate more shares following the d. I agree with a recent post by @adiggs on the main thread suggesting that we are already likely at-or-above the price range TSLA stock will pull back to when this is over.

I'm setting up something similar right now. It's time to pay off the margin and sock some cash away for next year - either for supplemental retirement or for reinvestment if I decide not to retire. The questions are, of course: how much at what SP. To complicate things, I'll be off the grid from 5-12 Dec, when the first squeeze may be starting, so I do need to automate something.

Any additional thoughts on your strategy would be appreciated.

 

[mickificki]

I want to copy your trades. Care for more details of how many and which ones for $5k. How do you get the million $ figure? I am getting more, but I assume you are not assuming peak prices.

The put trades will lose value if you buy them Tuesday while the sp is rising to $1300? Then, why not buy them later, say around $1000?

could be because premiums will be sky high for puts if SP is > $1k?

 

[EV forever]

Thanks for this post @Buckminster

I have posted my plan for playing this inevitable spike of unknown magnitude by selling shares in escalating GTC Limit orders that were set between the low $500's and $2,000 several weeks ago in an effort to use those proceeds to accumulate more shares following the d. I agree with a recent post by @adiggs on the main thread suggesting that we are already likely at-or-above the price range TSLA stock will pull back to when this is over.

Mind posting a link to the post regarding your plan mentioned here? I tried to look up your posts, but couldn't locate it.

 

[Xepa777]

The more I read the more it sounds like the most benefit will come from either the December 18 or conservatively the 24th. I don’t think great delivery numbers and earnings and guidance can offset the sell off risk that will come from the inclusion event. 80% of my calls are in those two December dates, targeting 600 and 700 strike prices.

 

[Runarbt]

I want to copy your trades. Care for more details of how many and which ones for $5k. How do you get the million $ figure? I am getting more, but I assume you are not assuming peak prices.

The put trades will lose value if you buy them Tuesday while the sp is rising to $1300? Then, why not buy them later, say around $1000?

I will sell naked puts OTM (jan/feb $4-500) with security in my stock, so these bring more money now than later on. ($40-60 friday)

This since I dont have cash at hand I want to spend on a gamble.

The calls will be 12/18, $950 - these were $2.75 friday(20-30×)- and SP has to be +$1300 for this to pay about 1 million bucks.


Expect a climb until 12/24, and puts can be closed for cheap then.

 

[Runarbt]

Follow up on post above:

So - I don't buy puts as insurance, but sell them to finance the short term calls.

Might buy some puts later on as you suggest, when/if SP go past $1000-1200.
Or - most likely, I will rather sell CC on my shares to take advantage of a potential sky-high IV.

Maybe sell CC on all my shares jan22/23 at $2400, when these options strikes become available during a pop. $2400 is a price I am ok selling at, as this is my retirement minimum (at age 44). But when IV go back down - I hope to be able to close these CC with a healthy profit and stay long.

I do see $TSLA way past $2400, more like +$10.000 by 2030. However - 2030 as a bit long to wait if I am to retire early - as the kids will have grown up by then. Early retirement will be so that I be a stay at home dad and make life easier for all of us while the kids still live at home.

 

[Prunesquallor]

Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable

From the main thread. Looks like there is some interest in delaying second tranche until Q12021.

 

[ggr]

Tesla, TSLA & the Investment World: the 2019-2020 Investors' Roundtable

From the main thread. Looks like there is some interest in delaying second tranche until Q12021.

Great! A short squeeze to push the stock to $1000 in December, Elon tweets "Stock price seems too high" in January, 5:1 split in February (brings stock price back down to $500 at end of Feb), then a short squeeze to add TSLA tranche 2 to the S&P in March!

 

[Prunesquallor]

Great! A short squeeze to push the stock to $1000 in December, Elon tweets "Stock price seems too high" in January, 5:1 split in February (brings stock price back down to $500 at end of Feb), then a short squeeze to add TSLA tranche 2 to the S&P in March!

April, I move to a little place in Maui I’ve had my eye on.

 

[Sanny]

Want to try to talk with my broker if it is an option to contract a professional trader to implement my sale strategy. Anyone tried that? Any suggestions? I will have to liquidate almost 1/2 of my position some time this year, and I'm a terrible trader myself, so I think probably any fee would pay itself many times over.

 

[Tes La Ferrari]

On the 900s - it is comfortably my most leveraged position. I need the shares to run a lot and soon for these to pay off bigly.

My overall thinking is that we will most likely be seeing the price run up towards 12/21, but I expect that run up to be more aggressive early / now, and flattening out somewhat as we approach the inclusion date. Two reasons:
1) As the shares are pushed upwards, some of the large market participants that are share owners will start selling bits of their positions to lock in gains and avoid becoming overly concentrated in one single position. That will provide some shares for the buyers that will let off some of the pressure.
2) I expect the index funds to be more front weighted in their purchases than backweighted (that is to say - buy earlier in their windows than later). My thinking here is that the index fund managers are watching the market as well; seeing how aggressively buyers are showing up, and will be thinking to themselves that if they wait, they might find themselves as the target of a share squeeze that they can't duck; so mitigate the risk and buy earlier than later.

I could totally be wrong about that, and the "could be wrong" is part of why I bought the 900s. If we get a ramp that turns into a spike to $1200, then .. well .. I (probably most of us) will have really delightful first world problems. The 900s are positioned to provide my maximum exposure to this tail event.

If the spike doesn't arrive though and "only" a steadily building share price of say $800 around 12/14 (week before the inclusion date), then I probably close these at about that point. These options are purely time decay, so theta is going to start eating these aggressively that last week or two and the position is big enough for me that I won't be riding this down to the last day, just in case.

One might also consider my 12/18 and 12/24 positions as a form of enforced discipline -- I can't sit on these into and well past inclusion date trying to ride a coasting high for a last few pennies. These earlier expirations will force me to choose an expiration earlier that I know will be shy of inclusion.


Regarding the capture of the bulk or all of the inclusion date buying, that's what I'm looking for the Jan '21 positions to do. They started off (10 days ago) as my biggest positions. They've dwindled and become the middling sized positions, but are still designed to capture any and all of what happens. On the Jan '21s, my hope is to close in January (not December) so the tax event is in '21; and if I think we've got a spike that won't survive into January, then I'll pay my tax bill this year and be wince-grinning as I do it.

All of my shorter dated calls are in an IRA so there are no tax considerations.


(REALLY important: prior to this inclusion event, my experiences buying options is universally bad . Selling options - that has been good, and has provided me the education and experience that is the foundation for these call purchases. That still makes me bad at buying calls, with success. Make sure you have your own research and reasons. And good luck!)

Thanks @adiggs for your though rough response.

Cool roadster in your avatar too. Here's looking forward to these trades hitting, and you will be able to have a new one beside the original!

 

[Paracelsus]

I'm setting up something similar right now. It's time to pay off the margin and sock some cash away for next year - either for supplemental retirement or for reinvestment if I decide not to retire. The questions are, of course: how much at what SP. To complicate things, I'll be off the grid from 5-12 Dec, when the first squeeze may be starting, so I do need to automate something.

Any additional thoughts on your strategy would be appreciated.

"How much and at what share price"..........those are the toughest question for most of us at the moment. And how can you stay in the game when you have to be off the grid too? Admittedly I was certain that inclusion would happen sooner than it did, and this was complicated on Nov 3 when we had to hit the road from Idaho to Minnesota to help family prior to any inclusion announcement. Not wanting to miss out on a possible squeeze while we were off the grid, and in a similar position as you describe @Prunesquallor , I simply set up GTC Limit sell orders escalating from the mid $500's to $2000 at $20 intervals set to sell the same number of shares at each interval, selling first from our taxable account, and then selling from our Roth as the prices continued to escalate. I set this up when TSLA was still around $400 around the end of October and used about 60% of shares to do so not knowing if the spike will run up to $650 or $1,650 before it pulls back. I intend to sell and then buy back at a lower price with shares in the Roth account without tax implications, and with a little luck could end up with more shares than I started with + the proceeds of the taxable share sales.

While our trip was only going to last a week or so, we decided to point the van south after Minnesota and ultimately ended up in Florida watching the ULA launch from the beach and then heading on down to Key West when the S&P500 inclusion was announced......so I had managed to put myself about as far the comfort of my home office as possible when things took off, and in a position where I was still weeks away from home. Thus I came home with more money in the bank than I left with, having sold some of our $30 shares purchased in 2013 - which have a post-split adjusted purchase price of $6 - for approximately $550, $570, and $590. Of course I would have liked to sell them for a higher price had I been at home to modify the order...............but this let us sell some shares for money we needed before the end of the year after the price ran up about 40% while we were off the grid with a strategy that would continue to do so had our trip been extended longer. I do feel we will very likely be in this price range again at some point after the first of the year (not an advice).

Now that I am back home, I can cancel any of the GTC limit sell order as the TSLA share price continues to climb towards triggering them and then simply enter a sliding stop with those same shares once the share price escalates sufficiently above the price of the cancelled GTC limit sell. This of course lets me move the target up when I am home to do so. I must give credit to @Alketi with helping me combine those concepts quite some time ago, for which I am very grateful.