Strategy for protecting downside with TSLA

[InvestWithEdge]

I am long TESLA and I need some advice on protecting the downside in tax efficient way. (28% tax bracket)

The way I do right now

• buy stocks
• buy put options for downside protection

note: I am also planning on buying 2020 calls

I have been hearing about married puts, options rollover etc.. What strategy are you following to protect your downside?

 

[kbM3]

I am long TESLA and I need some advice on protecting the downside in tax efficient way. (28% tax bracket)

The way I do right now

• buy stocks
• buy put options for downside protection

note: I am also planning on buying 2020 calls

I have been hearing about married puts, options rollover etc.. What strategy are you following to protect your downside?

I have been thinking the same. I am currently debating between puts and stop loss. As I understand it, the puts would be more expensive, but all of this is new as I’ve only previously been long with index funds.

Sure hope some experts chime in

 

[TradingInvest]

I am long TESLA and I need some advice on protecting the downside in tax efficient way. (28% tax bracket)

The way I do right now

• buy stocks
• buy put options for downside protection

note: I am also planning on buying 2020 calls

I have been hearing about married puts, options rollover etc.. What strategy are you following to protect your downside?

Do more research, have a deeper understanding of Tesla and Elon Musk. That can help a lot during tough times.

In stead of buying Puts, I keep that part of cash on the side, plan to buy more shares if there is a big drop. When/if the big drop comes, I would ask myself "If today is the lowest, which means it will go higher in the future, will I be happy about the size of my existing position?" The answer is yes. So I keep that cash and wait for even lower.

This is just for me: I think the chance for Tesla to fail is very small. In the worst case the company can be sold. With more and more great products developed, this company has a lot of value to Google, TenCent, Apple, Alibaba, etc. If it's on the market for sale, the bid will be very high. Don't be scared by the shorts. They want everyone to believe this company is on the verge of bankruptcy. They are wrong.

Tesla has a real mission. It's managed by the most capable man and addressing 15 trillion dollars potential market, they are in the lead, move faster than anyone else, and have a secret plan for long term. In my view it's one of the safest company that I know. I had this thought one year ago around $200, Today it's still true. All other companies have their own risks. If I have enough money I can think of ways to defeat any company in the world, except Tesla.

Having said that, if you are still worried, you can do three things: reduce size, set a hard stop loss, buy way out of money Puts as an insurance.

 

[neroden]

My only downside protections are
(a) limiting my position size (i.e. I have other money invested in other things)
(b) avoiding borrowing (no margin)
(c) attempting to exercise price discipline when buying (i.e. only buying below a pre-calculated purchase target price)
(d) spacing out my purchases in order to average out my purchase price

 

[GoTslaGo]

There are tax implications for buying puts for protection. Less relevant for long term holdings, but if you are buying puts I believe it is important to know:

When buying puts to protect profits

Quote:

When buying a put to protect a single equity position one must be aware of a few “hidden” traps to the hedge. If an investor owns a stock with a long-term unrealized gain, he or she can buy a put that won't affect the holding period.

If, however, one buys a put on a share with unrealized short-term gains, there is a penalty built into the tax law. The put completely destroys the holding period of the shares.

As an example, let's say an investor held a stock for 11 months and then because of a temporary concern he or she bought and held a put on the stock for a few days.

If the investor, no longer worried, sold the put, he or she would need 12 months more of holding to get to long term, not just one more month as would have been the case if the holding period was just frozen rather than destroyed.

End quote.

That being said, we have a position in a equity that has lost >50% of our original purchase value... which in retrospect I wish we did buy a put on... BUT this was a position we took as a test of Technical Analysis. Every TA was bad regarding this equity, but news and “fundamentals” were more positive (although not incredibly positive). In retrospect, even the Elliot Waves were horrible for the stock...

 

[InvestWithEdge]

@GoTslaGo thanks for the useful link about how puts affect holding period.
@neroden, I follow all those
@TradingInvest stop-loss is a good idea. I am still debating it because, I don't really wanna sell the TSLA stock on short term fluctuations so setting the stop-limit price becomes pretty hard.

any other ideas out there for downside protection

 

[elasalle]

Might sound counter-intuitive, but rather than buy PUTS, sell Calls agains your stock and Calls. (For like 15-20%)

 

[InvestWithEdge]

not quite sure how that works. wouldn't that limit the upside and barely protect downside?