trading

[FrankSG]

@vwman111 - I posted this in another thread, but it seems it may be useful for you as well:

Basic call options courses have a 'breakeven' -- the point at which you would breakeven compared to not investing at all. But for our purposes, I'm wondering if it makes more sense to look at a 'call to stock breakeven' instead, which is the point where buying a call becomes equivalent to buying the underlying stock instead. I created a rudimentary calculator for that... it will help you to compare when (and by how much) a call becomes more worth it to purchase when compared to the stock itself. Feel free to make a copy of it and play around with the highlighted cells to get a better understanding of how much you expect a stock to go up by the call expiration date to determine if it's more worth it to buy a call, or just buy the stock:

Google Sheets - create and edit spreadsheets online, for free.

Here's an example using a TSLA January 2022 $800 call option:

View attachment 543125

So if you bought the call option, the stock would have to be at $1175.65 or above at expiration for you to make more money by buying the call option when compared to buying an equivalent amount of stock with the $25,818 initially. If the stock price is at $1500 in January 2022, you will have made twice as much money by buying the call instead of the stock ($44,182 vs $22,110.86 profit)

That's a cool calculator!

I personally am able to do it in my head very easily, knowing that an option is always worth between 0 and 100 shares.

At expiration, an option is always worth 100 shares minus the number of shares it costs to exercise:

Stock Price: $1,000

• An option with a $500 strike price will be worth 100 shares minus the $500 * 100 = $50,000 = 50 shares it costs to exercise. Therefore, this option is worth 100 - 50 = 50 shares.
• An option with a $800 strike price will be worth 100 shares minus the $800 * 100 = $80,000 = 80 shares it costs to exercise. Therefore, this option is worth 100 - 80 = 20 shares.
• An option with a $250 strike price will be worth 100 shares minus the $250 * 100 = $25,000 = 25 shares it costs to exercise. Therefore, this option is worth 100 - 25 = 75 shares.

 

[Boomer19]

@FrankSG and @JusRelax

Thank you very much for the detailed explanations and the spreadsheet. I now understand. Going back to the example from the blog, it's not that you aren't better off investing in options from a pure profit point of view. It is that the return isn't as high as one might expect given they would have approx half of the return just by investing in shares. Which then leads one to question whether it is worth the additional risk to invest in options in the first place.

I'll play around with my portfolio in your spreadsheet to review the risk/reward that i'm currently at and make any necessary decisions based on that.

Thank you once again!

whether worth it to use options depends on the timeline, price, price within the expected range, volatility, etc

if the price is 3/4 of the way up the curve and the IV is sky high, the probability of options return of 2.5x is less likely than if you’re only 1/4 way up the curve

3.5x, 5x, 10x even less

you can also use IBs probability lab
(interactive brokers trader workstation) if you are a customer... as a calculator, can plug in many scenarios to see probability % of future targets

each scenario is different. i agree with frank’s hypothesis with the target of 2k in his writeup.

but it would be a lot higher return if you bought the options when the stock was at 400 a couple months ago, or last year at 200 and buying jan21 300c at the time, for example. point is we’ve tripled. will we triple again within the farthest out leaps that are currently available? low prob


if tsla plummets in 4th qtr and leaps come out in sept, oct or nov for 2023, you could probably pick something up for 100, or 10k per contract and potentially triple or quadruple it if you get a nice run. but, like frank, i prefer not to hold, and sell way before exp when plenty of time value and IV baked in.

now, the last run this failed me. i dumped some jan21 300c and june21 280c to “take profits” and “live to fight another day”. luckily i held some. and all the other trades i did worked out, blah blah. so my return isn’t as high as it could’ve been, but you can still lock in 4-5x in the right scenario. or you can lock in 10-30x if the timing is right, you have balls of steel, and money to play with.

 

[vwman111]

whether worth it to use options depends on the timeline, price, price within the expected range, volatility, etc

if the price is 3/4 of the way up the curve and the IV is sky high, the probability of options return of 2.5x is less likely than if you’re only 1/4 way up the curve

3.5x, 5x, 10x even less

you can also use IBs probability lab as a calculator, can plug in many scenarios to see probability % of future targets

each scenario is different. i agree with frank’s hypothesis with the target of 2k in his writeup.

but it would be a lot higher return if you bought the options when the stock was at 400 a couple months ago, or last year at 200 and buying jan21 300c at the time, for example.

Thank you @Boomer19. What Is the IB probability lab?

 

[Boomer19]

Thank you @Boomer19. What Is the IB probability lab?

sorry i edited more since then

 

[Boomer19]

what are we thinking this week?

 

[jeewee3000]

Wallstreetbets sometimes gets it right : TSLA new all time high tomorrow? $30.8k YOLO : wallstreetbets

 

[paydirt76]

what are we thinking this week?

Some say Model Y production and deliveries of $60k ASP (and less than $40k per unit cost?) will likely drive Tesla to a Q2 2020 profit. Also sales of inventory vehicles that were made in Q1 2020 may have been 5k stronger than in Q1 inventory sales, increases probability that if Tesla produces 78k vehicles, they may deliver 83k.

Seen some buying of Sept 2020 1100 calls on inclusion play. Twitter spike was 6 weeks after S&P inclusion qualifying earnings were announced on 4/25/18. As a result 6 weeks are possibly needed after late July to potentially get full inclusion benefit. Index funds have to buy in great size and RH/MOMO traders may create a blow-off top around $1,500. The price that Tesla is when it is included is crucial as it will decide the dollars that index funds must put in.

 

[ggr]

Well, it's triple witching day, and I have some call options that will end in the money, and for once I don't care... let 'em exercise.

Purchased Dec 20.

 

[Boomer19]

...slow start to week
they trying to pretend that jays garage, the tour of the fremont line in sept, and cheaper yet more effective solar won’t matter in long run

 

[jeewee3000]

Looked at some options with a July 10th or 17th expiry to play a positive surprise in deliveries. TL;DR: these options are very expensive and I lost interest completely.

I will check again around July 1st/2nd for a LOTTO play or if we see a major SP dip soon, but right now the theta value is insane, as is the general option pricing.

Also the Sept 18th calls (to play Battery Day) are through the roof. Don't even get me started on Jan2021's .

Too much risk for the likes of me currently. Apologies about posting about how I'm NOT trading in the trading thread BTW.

 

[ggr]

On the basis that:
. Tesla might report P&D pre-market tomorrow
. Tesla might blow it out of the park, say, 95,000 produced, 110,000 delivered
. numbers like that would guarantee a profit, and hence S&P inclusion
I placed my bet, bought 100 July 2 '20 $1280 calls @$0.9975.
As I always do, I also put in an order to sell 50 of them @$1.99; can't rely on watching what is happening.

For these to get into-the-money would require a 13% or so jump in tomorrow's stock price, assuming TSLA remains capped around $1130 for the rest of today.

I give it a 50% probability that I lose all my money, 35% that a spike on opening tomorrow allows me to recover the investment, then lose the rest of the calls, and 15% that I win big. We'll see.

Note that this is a small inves... gamble compared to what I've already cashed in recently.

 

[vikings123]

On the basis that:
. Tesla might report P&D pre-market tomorrow
. Tesla might blow it out of the park, say, 95,000 produced, 110,000 delivered
. numbers like that would guarantee a profit, and hence S&P inclusion
I placed my bet, bought 100 June 2 '20 calls @$0.9975.
As I always do, I also put in an order to sell 50 of them @$1.99; can't rely on watching what is happening.

For these to get into-the-money would require a 13% or so jump in tomorrow's stock price, assuming TSLA remains capped around $1130 for the rest of today.

I give it a 50% probability that I lose all my money, 35% that a spike on opening tomorrow allows me to recover the investment, then lose the rest of the calls, and 15% that I win big. We'll see.

Note that this is a small inves... gamble compared to what I've already cashed in recently.

I think you meant July 2nd, is that for 1250 strike?

 

[pz1975]

On the basis that:
. Tesla might report P&D pre-market tomorrow
. Tesla might blow it out of the park, say, 95,000 produced, 110,000 delivered
. numbers like that would guarantee a profit, and hence S&P inclusion
I placed my bet, bought 100 June 2 '20 calls @$0.9975.
As I always do, I also put in an order to sell 50 of them @$1.99; can't rely on watching what is happening.

For these to get into-the-money would require a 13% or so jump in tomorrow's stock price, assuming TSLA remains capped around $1130 for the rest of today.

I give it a 50% probability that I lose all my money, 35% that a spike on opening tomorrow allows me to recover the investment, then lose the rest of the calls, and 15% that I win big. We'll see.

Note that this is a small inves... gamble compared to what I've already cashed in recently.

I am going to do a similar thing but am waiting until just before close since options will fall in price today as the time value decreases. I’m also going to do puts and calls since I want to capitalize on a big move either way. I am also not going to sell half to break even. I figure these are lottery tickets and will either be worth zero or go up big time (I put it at 25% chance or so). IV has gone up a lot for this week’s options so I will have to go farther OTM than I had wanted originally.

 

[ggr]

I think you meant July 2nd, is that for 1250 strike?

Correct, July 2, $1280 strike. Corrected above. I could'a sworn I put the strike in, but... senile.

Edit: of course I bought them at today's (so far) peak. My original plan was to do this nearer to close, abut at 10:40 EDT it looked like it was running away. Now retreating. We will see.

 

[vikings123]

Sold a Aug 21 PUT for 36$ and used those proceeds to gamble on 7 Jul 10 1300 Calls. Good luck to everyone tomorrow.

 

[juanmedina]

I don't really like gambling but I had too much FOMO. I bought a $1060 call for July 10th and from my proceeds of selling covered calls some $1280s and $1250 for tomorrow.

I am doing my trading through Vanguard which sucks. Is there away to see how much a call is worth premarket?

 

[mongo]

I don't really like gambling but I had too much FOMO. I bought a $1060 call for July 10th and from my proceeds of selling covered calls some $1280s and $1250 for tomorrow.

I am doing my trading through Vanguard which sucks. Is there away to see how much a call is worth premarket?

What I do is check out the option that is the same offset in strike from the closing price. So if SP went up 20 overnight and you have a 1200 call, look at the 1180 price. Doesn't cover Theta, but it's close(ish).
And, yeah, Vanguard is no Ameritrade.

 

[azaz]

Gonna buy 75k worth of calls if deliveries are above 90k tmrw

not sure exactly which one yet

 

[juanmedina]

Congrats everybody. I hope the SP holds at $1180 or goes hire at open.

@ggr what is your strategy on selling your July 2nd $1280 calls?

How much Ameritrade say the 1280s and 1240s are worth lol to set the sell orders?

 

[ggr]

Congrats everybody. I hope the SP holds at $1180 or goes hire at open.

@ggr what is your strategy on selling your July 2nd $1280 calls?

How much Ameritrade say the 1280s and 1240s are worth lol to set the sell orders?

A good question. It all depends on whether or not the delivery report is out, and if it is, just how good is it?

As I always do, I already put in a sell to close order for half of them at twice the price. The pre-market is nicely up, so that would almost certainly trigger at opening. But based on Elon's email, I might just cancel that, since they're likely to pop even higher. In any case I will sell half early in trading, unless it looks like they might end in the money.

I'm going to be glued to the ticker no matter what.