haha true story! I thought about all your comments when you'd tell me to sell half. I'm only two weeks away from long term designation so I shall wait haha.
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
Technical Trading Strategies
- Thread starter Robert.Boston
- Start date
-
- Tags
- TSLA
haha true story! I thought about all your comments when you'd tell me to sell half. I'm only two weeks away from long term designation so I shall wait haha.
if you guys want to see something interesting, check out the prints in the june 25 2013 $25 strike price calls today. ticker is tsla130622c25 depending on your provider. notice there are 4 blocks of 600 that trade in pairs within seconds of each other, all on the psx exchange:
1:38:43p 12.50 600 contracts psx
1:38:41p 12.50 600 contracts psx
12:12:23p 12.40 600 contracts psx
12:12:20p 12.40 600 contracts psx
i have an interest in these contracts as i hold a position.
this exact sort of thing happened on march 19th, with 300 and 600 contract blocks trading. if these options were traded between two parties and any remained open at the end of the day, the open interest would increase.
however, if you can chart open interest you will see that the open interest was always just 543 contracts between march 19th and today. so how can thousands of options trade, but have no impact on the open interest?
there's only two possibilities. the first is that the same party traded and closed these intraday with the same counterparty. this isn't likely as the options are not very liquid with wide bid-ask spreads. that, plus the fact these contracts all traded at the bid, within pennies of their intrinsic value at the time the prints were put up. there really is no reason an institution would do this kind of trade as a daytrade, and then execute that in the deep in the money calls.
the other possibility is that someone is using the deep in the money calls as a proxy for getting short. what's happening is the guy who wants to be short sells to open deep in the money calls to a market maker. the trade is preset at a certain edge for the market maker and the market maker is allowed to hedge out the trade ahead of the print. so for example, in this case, the market maker hedges of 60,000 shares of tesla for each 600 shares, selling the shares into the open market. maybe they get an average price of say $37.50.
if the contracted edge for the market maker was 10c, the market maker puts up the print of 600 contracts traded at $12.40 and then immediately exercises the calls. the immediate exercise offsets the market maker's short position and results in an immediate profit of 10c: 60000 shares are bought at $25 and 600 calls that were bought for $12.40 get exercised, resulting in a net cost of $37.40 for 60,000 shares. since the market maker pre-sold 60,000 shares short at $37.50, the profit is 10c per share.
meanwhile on the customer side, the customer is assigned on the short calls. the assignment takes place the next day, with settlement for the shares at T+3. meaning, the customer has 3 days to locate shares to short and deliver them. this has a few advantages: first, if shares aren't immediately available to borrow the customer can get short without having shares immediately available. second, if the cost of shorting is very high, as it is right now, the customer potentially saves having to borrow shares for the 3 days (this part i am not as sure). assuming i got that right, the current cost of holding a short in tesla shares is around 0.75% per week (3% per month ...for all those getting 5% loaning your shares, you're getting screwed). so maybe this short saved a half a week of carrying charges for his short position? he pays 10c to the market maker and saves 20c on the carrying charges?
i'm not sure if all that is correct, but as far as i can tell, since the open interest doesn't increase it looks like you've got someone using the options in a pre-arranged strategy with a market maker to get short the stock. and they are shorting in big size too. 240,000 shares worth today, 240,000 shares worth on 3/19, and a few other blocks too. i guess the short really doesn't believe there's an eps, revenue, and gross margin beat just around the corner.
1:38:43p 12.50 600 contracts psx
1:38:41p 12.50 600 contracts psx
12:12:23p 12.40 600 contracts psx
12:12:20p 12.40 600 contracts psx
i have an interest in these contracts as i hold a position.
this exact sort of thing happened on march 19th, with 300 and 600 contract blocks trading. if these options were traded between two parties and any remained open at the end of the day, the open interest would increase.
however, if you can chart open interest you will see that the open interest was always just 543 contracts between march 19th and today. so how can thousands of options trade, but have no impact on the open interest?
there's only two possibilities. the first is that the same party traded and closed these intraday with the same counterparty. this isn't likely as the options are not very liquid with wide bid-ask spreads. that, plus the fact these contracts all traded at the bid, within pennies of their intrinsic value at the time the prints were put up. there really is no reason an institution would do this kind of trade as a daytrade, and then execute that in the deep in the money calls.
the other possibility is that someone is using the deep in the money calls as a proxy for getting short. what's happening is the guy who wants to be short sells to open deep in the money calls to a market maker. the trade is preset at a certain edge for the market maker and the market maker is allowed to hedge out the trade ahead of the print. so for example, in this case, the market maker hedges of 60,000 shares of tesla for each 600 shares, selling the shares into the open market. maybe they get an average price of say $37.50.
if the contracted edge for the market maker was 10c, the market maker puts up the print of 600 contracts traded at $12.40 and then immediately exercises the calls. the immediate exercise offsets the market maker's short position and results in an immediate profit of 10c: 60000 shares are bought at $25 and 600 calls that were bought for $12.40 get exercised, resulting in a net cost of $37.40 for 60,000 shares. since the market maker pre-sold 60,000 shares short at $37.50, the profit is 10c per share.
meanwhile on the customer side, the customer is assigned on the short calls. the assignment takes place the next day, with settlement for the shares at T+3. meaning, the customer has 3 days to locate shares to short and deliver them. this has a few advantages: first, if shares aren't immediately available to borrow the customer can get short without having shares immediately available. second, if the cost of shorting is very high, as it is right now, the customer potentially saves having to borrow shares for the 3 days (this part i am not as sure). assuming i got that right, the current cost of holding a short in tesla shares is around 0.75% per week (3% per month ...for all those getting 5% loaning your shares, you're getting screwed). so maybe this short saved a half a week of carrying charges for his short position? he pays 10c to the market maker and saves 20c on the carrying charges?
i'm not sure if all that is correct, but as far as i can tell, since the open interest doesn't increase it looks like you've got someone using the options in a pre-arranged strategy with a market maker to get short the stock. and they are shorting in big size too. 240,000 shares worth today, 240,000 shares worth on 3/19, and a few other blocks too. i guess the short really doesn't believe there's an eps, revenue, and gross margin beat just around the corner.
yeah- evidently; price of shorting went up over 80% someone reported; and new stats out showing shorts at another all-time high 32.3M as of 15Mar, and if you're right, even higher now;
as a long investor, you gotta love what these shorts are doing to the price action- but I'm looking to add position so waiting for a pullback that never seems to happen;
I think your second scenario is more likely, although seems like a complex way to force a short position. I wonder if it's simply a forced covering of short inside the market maker
smorgasbord
Active Member
Anyone looking at Synthetic Longs right now?
For instance, with a Jan, 2014 expiration, one could:
- Sell the $35 Put for about $5.60
- Buy the $40 Call for about $4.50
If Tesla is above $38.90 on Jan 18, 2014, you make penny for penny above $38.90.
If Tesla is below $38.90 but above $35 on Jan 18, 2014, you make $1.10.
If Tesla is below $35 but above $33.90 on Jan 18, 2014, you make penny for penny above $33.90.
If Tesla is below $33.90, you're buying TSLA at $33.90.
With Tesla over $40 now, this seems like an easy bet. Thoughts?
For instance, with a Jan, 2014 expiration, one could:
- Sell the $35 Put for about $5.60
- Buy the $40 Call for about $4.50
If Tesla is above $38.90 on Jan 18, 2014, you make penny for penny above $38.90.
If Tesla is below $38.90 but above $35 on Jan 18, 2014, you make $1.10.
If Tesla is below $35 but above $33.90 on Jan 18, 2014, you make penny for penny above $33.90.
If Tesla is below $33.90, you're buying TSLA at $33.90.
With Tesla over $40 now, this seems like an easy bet. Thoughts?
i've been doing these trades since last summer with great success. they exist because of the high cost of shorting tesla shares.
if you own common and don't mind screwy tax issues, there's a lot of money to be made converting shares to synthetic longs using options.
here's a perfect example, current quote snapshot is:
if you own 100 shares, the trade is:
sell 100 shares at 40.99
buy 1 may 45 call at 0.90
sell 1 may 45 put at 6.80
the net amount you collect for this trade today is: $40.99 + $6.80 - $0.90 = $46.99 x 100 shares = $4689
at the may expiration, manage it carefully so you exercise / get assigned on the call or the put. they you'll pay $45 to buy 100 shares of tesla at a cost of $4500.
you keep all the exposure to tesla during this time, if the price goes up/down you'll make or lose as much as you would have if you owned 100 shares the whole time.
the only difference is you'll have an extra $189 bucks in your pocket come may 17th.
if you're feeling really aggressive you can take the extra cash and buy more call options, giving you excess upside with no additional cost.
people have been doing this trade in big size lately. take a good look at the history april 45 calls and puts. you'll see the volume and open interest and trades take place in parallel. i had estimated someone did 1.5 million shares worth of these conversions (15,000+ contracts each side). even after he did them the payout stayed the same.
if you believe in the company and are sure you will hold for at least 2 more months it's a great way to pick up a couple extra bucks. the biggest risks are (1) wanting to sell early means you are at the mercy of how the synthetic trade happens to be priced at the time, (2) getting caught with the expiration right near your strike, which will mean having to get out of the trade manually vs. the convenience of having the options exercise/assign, (3) a minimal risk that a large unforeseen negative event happens on the expiration friday just after the market closes. in the last case if you miss it you will find that you may have exercised the call which appeared to be in the money at the regular market close, and then the guy who owned the put realized his put was going to suddenly be in the money based on afterhours trading and exercised his put. it's a once-in-a-blue-moon nightmare scenario where the losses can double. truly horrific in the last case, but very rare.
if you own common and don't mind screwy tax issues, there's a lot of money to be made converting shares to synthetic longs using options.
here's a perfect example, current quote snapshot is:
| TSLA | bid / ask | 40.99 | 41.05 |
| 20130517_45_C | bid / ask | 0.8 | 0.9 |
| 20130517_45_P | bid / ask | 6.8 | 7.1 |
sell 100 shares at 40.99
buy 1 may 45 call at 0.90
sell 1 may 45 put at 6.80
the net amount you collect for this trade today is: $40.99 + $6.80 - $0.90 = $46.99 x 100 shares = $4689
at the may expiration, manage it carefully so you exercise / get assigned on the call or the put. they you'll pay $45 to buy 100 shares of tesla at a cost of $4500.
you keep all the exposure to tesla during this time, if the price goes up/down you'll make or lose as much as you would have if you owned 100 shares the whole time.
the only difference is you'll have an extra $189 bucks in your pocket come may 17th.
if you're feeling really aggressive you can take the extra cash and buy more call options, giving you excess upside with no additional cost.
people have been doing this trade in big size lately. take a good look at the history april 45 calls and puts. you'll see the volume and open interest and trades take place in parallel. i had estimated someone did 1.5 million shares worth of these conversions (15,000+ contracts each side). even after he did them the payout stayed the same.
if you believe in the company and are sure you will hold for at least 2 more months it's a great way to pick up a couple extra bucks. the biggest risks are (1) wanting to sell early means you are at the mercy of how the synthetic trade happens to be priced at the time, (2) getting caught with the expiration right near your strike, which will mean having to get out of the trade manually vs. the convenience of having the options exercise/assign, (3) a minimal risk that a large unforeseen negative event happens on the expiration friday just after the market closes. in the last case if you miss it you will find that you may have exercised the call which appeared to be in the money at the regular market close, and then the guy who owned the put realized his put was going to suddenly be in the money based on afterhours trading and exercised his put. it's a once-in-a-blue-moon nightmare scenario where the losses can double. truly horrific in the last case, but very rare.
NigelM
Recovering Member
Posts on analysts reports went here: Analyst-Reports-Targets
- - - Updated - - -
This is what the last 12 months looks like:
View attachment 19500
Not sure there's such a thing as an "easy" long term bet on any stock this volatile (and that's not including the last couple of days).
- - - Updated - - -
This is what the last 12 months looks like:
View attachment 19500
Not sure there's such a thing as an "easy" long term bet on any stock this volatile (and that's not including the last couple of days).
Attachments
I'm new to options trading, and I'm a security wonk so I look for all the ways bad things can happen. (I was lucky. I activated option trading on my account last week and bought calls on Friday.) Anyway, the bad thing I can see is that you sold a $35 put, and it can be exercised at any time, like when the stock temporarily drops to $20 due to some market scare or something? So "end up buying at $33.90" doesn't sound so great, and you can't control when it might happen.
Am I missing something?
the nightmare scenario i described requires a large move in afterhours trading on the friday of expiration. we're talking like a 1-2 hour window of time where that horrible event can happen. it can happen only if the stock closes above your strike and then trades below your strike during that 1-2 hours of afterhours, and with something meaningful enough to convince the putholder that monday the stock is going to open below his strike. it's a very unique event that happens i think only once every couple years. the only reason i even know about it is i've seen it happen a couple times over many years.
last expiration we had a $1.50 or so range and little movement afterhours. so not significant.
smorgasbord
Active Member
Compared to buying the stock at $40 (which is a price you couldn't buy it at today if you tried):
1) I have an additional $1.10 upside on any price increase from here
2) I have an additional $6.60 price protection on the downside from here
3) I didn't have to put out any money now
I did end up making this trade today. I think it was better than just buying stock.
The fear of having shares put to you on price drops is usually overblown. With expiration not until Jan of next year, there's quite a bit of "Time Value" built into the price that I was paid. Someone who exercises early forfeits that money, so without a compensating dividend that person would usually do better to sell the option to someone else for a larger amount than the delta between the $20 stock and $35 exercise price. This keeps going and what usually ends up happening is that options run until close to expiration before being exercised. Unless everyone expects the stock to bounce back quickly, in which case the Time Value will be low - but then it's still better than buying the stock outright since I bought for $10 less than the price I would have bought it at today.
If you look at the two legs separately, TSLA has to drop below $29.40 before I can lose any money on the Put. For that risk, I'm being paid $5.60, which is an annual return of about 16%. I'm using that money to finance the Call, which gives me infinite upside above $40. Right now the shorts are still buying Puts since they can't get shares to short (or don't want to pay high costs for them), so I'm getting paid well for what I think is low risk.
I think the market disappointment over the financing terms is short-sighted, and am taking the opportunity given me to obtain shares at a discount to what I think is fair value. Here's a summary of my overall thinking:
1) Tesla has designed a great car
2) Tesla is building that great car in sufficient quantities
3) Tesla was profitable last quarter building that car
4) Tesla has very good demand for that car
5) Tesla's new financing will ensure that demand continues
Yes, I'm basically ONLY in synthetic longs for now. Got a pair of Junes and picked up some Jans today. Except one tweak, it's really a synthetic long where I sell the put/buy the call at the same strike. You still get a good maybe 3 bucks off of the current stock price this way. I think this has to do with put/call parity being out of whack due to high short interest right?
smorgasbord
Active Member
I completely understand keeping things simply by doing a Syn Long at a single strike. Rather than put extra dollars in my pocket today, I split them with the lower Put strike to give me some additional downside protection rather than pocket more cash now.
You can split the strikes the other way, though. For instance:
Jan $40 Put for $8.60
Jan $35 Call for $7.40
Still pays you $1.20 per, and there's an interesting confluence if the end price is between $35 and $40 where both Put and Call are active. My way is simpler, but I think there are advantages to this split method.
You can split the strikes the other way, though. For instance:
Jan $40 Put for $8.60
Jan $35 Call for $7.40
Still pays you $1.20 per, and there's an interesting confluence if the end price is between $35 and $40 where both Put and Call are active. My way is simpler, but I think there are advantages to this split method.
What I'm doing is basically in lieu of stock, and has the exact same payoff profile except cost basis is adjusted downwards a bit. I like to write as much premium as possible generally so I wait for a pullback and write puts. On the other hand, when the stock runs up, I can buy back my puts if enough premium has eroded from them (vs time to expire) taking some risk/money off the table. Then when there's another pullback I write puts again to resume my synthetic long position. Sometimes, when it seems toppy, I also write calls against my long call position in a near term month too. You can basically do the same thing with your strategy, just that the premium you're getting on the put side is less in the bullish scenario in exchange for a better entry if the stock drops significantly.
What I'm doing I guess could be translated also into some mild trading of the stock (and buying/selling based on market timing, all proven to fail in the long term, yeah yeah I know), but the premium I get to write gives me some buffer and I just hang along for the ride.
When selling an option to another party, you're always trading them flexibility for their cash. As such, in the decision-making process on your end must be some answered questions like "Am I comfortable buying the stock at $33.90 at any time prior to the expiration of this put?" If you can't answer "Yes" to that question, then step away from the proposed strategy and find another. If you can answer "Yes", then you move forward.
smorgasbord
Active Member
Here's an interesting article on an options play with TSLA: http://www.schaeffersresearch.com/commentary/content/blogs/one+way+to+trade+tesla+motors+inc+nasdaqtsla+now/trading_floor_blog.aspx?single=true&blogid=115474
I have only been using basic Calls and can not believe the massive upswing that can be realized with them. I am sure there are other huge advantages to the many other types of options and I will learn them all eventually but I am very glad I have started playing with options ... I am up about 150 percent on my initial investment (wish it was more lol). If I had just been buying and selling the stock on the dips I might be up around 40 percent at most ... that being said I would have had a little less stress over the last year!
Edit: Assuming Tesla continues to do well at some point in the future the shorts will cover.... is this when the calls and puts will be priced more evenly?
Edit: Assuming Tesla continues to do well at some point in the future the shorts will cover.... is this when the calls and puts will be priced more evenly?
smorgasbord
Active Member
TSLA closed today at $42. How would you have liked to have bought shares at $37? You could have effectively done that with TSLA options:
Instead of forking over $4200 to buy 100 shares of TSLA just before the close today, you could have sold a $40 Jan 2014 PUT for $820 and used that money to buy a $40 Jan 2014 CALL for $520. That's fully equivalent to buying TSLA at $37 when it's trading at $42!
If you're the worried type, you can split the strikes to give you some downside protection. A $32 Jan 2015 PUT with a $42 CALL would have cost you $10 for 100 shares. That's like buying the stock at $42 if it goes up, and losing only $0.10/share if it goes all the way down to $32. Way less risky than buying stock, but with the exact same upside.
Or, you can sell the $40 Jan 2015 Put and buy the $35 Jan 2015 Call. That trade is profitable dollar for dollar if Tesla is above $35 near expiration.
And, if TSLA rises from here in the coming weeks or months, the Put option you sold will drop in price, and you may then buy it back for much less than you were paid - and then you have no risk since you only own Calls.
The only real downside versus buying stock to these scenarios is that you won't be able to sell your stake for as much profit if you don't wait until close to expiration. You can sell stock at any time at its current price, but the options will retain this crazy skewing, thus reducing your profits if you decide to sell out.
Sorry to keep posting about this, but the Synthetic Longs on Tesla are just so amazing.
Instead of forking over $4200 to buy 100 shares of TSLA just before the close today, you could have sold a $40 Jan 2014 PUT for $820 and used that money to buy a $40 Jan 2014 CALL for $520. That's fully equivalent to buying TSLA at $37 when it's trading at $42!
If you're the worried type, you can split the strikes to give you some downside protection. A $32 Jan 2015 PUT with a $42 CALL would have cost you $10 for 100 shares. That's like buying the stock at $42 if it goes up, and losing only $0.10/share if it goes all the way down to $32. Way less risky than buying stock, but with the exact same upside.
Or, you can sell the $40 Jan 2015 Put and buy the $35 Jan 2015 Call. That trade is profitable dollar for dollar if Tesla is above $35 near expiration.
And, if TSLA rises from here in the coming weeks or months, the Put option you sold will drop in price, and you may then buy it back for much less than you were paid - and then you have no risk since you only own Calls.
The only real downside versus buying stock to these scenarios is that you won't be able to sell your stake for as much profit if you don't wait until close to expiration. You can sell stock at any time at its current price, but the options will retain this crazy skewing, thus reducing your profits if you decide to sell out.
Sorry to keep posting about this, but the Synthetic Longs on Tesla are just so amazing.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
I'm in Norway (Swedish citizen). I just opened an account with OptionsExpress.com, they allow accounts for foreigners. I had to fill out some forms regarding tax etc. I have not yet been approved for trading, yesterday I faxed copies of my passport and ID and I suspect I will get the approval today (I guess they need to verify that I am an actual person). I just opened a "Cash only" account, i.e. no margin which I think would be no problem. Also, from the forms I filled out, it does seem that the US and Norway (among many other countries) have some pre-defined arrangements when it comes to taxes that bascially implies that the broker reports your holdings and you pay taxes in Norway.
smorgasbord
Active Member
On Friday, I sold some Sept $38 Puts for $5.30. That's an annualized return of over 30% (14% actual). Worse comes to worse, I'm buying TSLA for $32.70/share.
Similar threads
- Locked
