Hi StealthP3D.
I hold many Jan. 2021 $690 calls. I am lost as to what to do about them because they grew to 60% of my total portfolio and I am not sure what the hell to do at this point. I don't like options that are so out of the money with 1 year expire to be 60% of my portfolio. At the same time it hurts me to even think about selling them because I am waiting on SP 500 inclusion and I think TSLA will reach 550-700 a share in 2020. Whats your philosophy regarding these particular options? I am glad to hear that someone else is in this position.
One reason why you'd want to sell the call options you hold is because after such a long runup, the multiple to the stock price is no longer the same as before. So if you still want to earn the same multiple as before, you'd need to sell and "rollup" as some would say.
And since you are selling, you'll have to put some aside for taxes and since you are thinking about taxes, you might as well think about how much of your total portfolio is in risky asset vs how much is in stable asset.
Personally, I always prefer to sell ultra risky assets for cashflow. As a business owner (and you do have a side business right? Every young upstanding person should have a side business going), I plow 50% of extra cash generated (extra cash as in all profit minus cost of operations) back into the business while the other 50% goes back into investments. This my friend, is the biggest reason to always prefer cashflow generation.
A lot of the ultra bulls are not all in with risk assets even though it might seem so from what they are saying. Even a person like TT007 is probably only 50% all in since he most likely has a house and retirement fund. There were a few who leveraged their HELOC from their house to achieve true 100% risk and you can probably really say these people are all in risk asset. Search around on this forum, but not many will openly say so.
A great rule of thumb is 90 - your age as the percentage of assets in risk assets... sometimes these risk assets can be housing. I would say, any risk asset is something that moves by 10% or more in a year that allows you to leverage up (with mortgage, a house is sometimes 20x leverage). Non risk assets are cash generating items like GIC, bonds, cash generating assets.
Within risk assets, it is up to you how much you want to allocate to super risky assets that has volatility greater than 50%. I personally divide it in half and depending on where we are in a business cycle, I increase/decrease the allocation here. Currently we are 12 years into a bullrun from 2008. Near the end of a cycle that happens to coincide with an election bull run that will get propped up by a president heading into re-election. Naturally I decrease the allocation to super risky asset as the opportunity come up. If this were 2009. Heck, I can tell you what I did in 2009. I went to the bank, and took out a HELOC. Then I bought options with them. Banks stocks, Bank options, TSLA stocks, TSLA options. 4 out of 10 bank stocks I bought went to 0, the rest survived. TSLA, well. you know what happened. I was 12 years younger, I had nothing to lose, the business cycle is at its trough. It was a no-brainer. Did I enjoy that 3 years of extreme pain? No.
Sure, you can go 200% leveraged all the time and it might work out. But your chance increases if you pay attention to business cycles as well as your own circumstances.
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