trading

[WattsHappening]

Something ive done in my IRA is buying deep in the money calls. This increases leverage over just shares so long as you have faith we are going up before expiry.

Thanks. I've always been a very conservative investor (too conservative to be honest). I'm more comfortable buying and holding, and not worrying about price fluctuations. A year ago, I would have said I'm not interested because that would make me pay more attention to option prices, theta, exercise dates, etc. and I didn't want to do that.

Now, I follow pretty closely on a daily basis so it's probably fine that I would have to pay more attention since I do that anyway. I'll definitely look to see what kind of leverage I can get. I am definitely bullish long term. I would be very surprised if TSLA is not a $2B company by end of 2022.

Any particular time frames and strike prices you can point me to would be greatly appreciated.

 

[Tyler34]

Thanks. I've always been a very conservative investor (too conservative to be honest). I'm more comfortable buying and holding, and not worrying about price fluctuations. A year ago, I would have said I'm not interested because that would make me pay more attention to option prices, theta, exercise dates, etc. and I didn't want to do that.

Now, I follow pretty closely on a daily basis so it's probably fine that I would have to pay more attention since I do that anyway. I'll definitely look to see what kind of leverage I can get. I am definitely bullish long term. I would be very surprised if TSLA is not a $2B company by end of 2022.

Any particular time frames and strike prices you can point me to would be greatly appreciated.

Well I only buy leaps (1+ year out options) in my IRA, and you can get a rough estimation of leverage by the delta. For example a 500 call expiring in March 2023 has a delta of .85. It costs about $500/share. So $50,000 would get you the same delta as 85 shares. With that same $50000 you could only buy about 58 shares. 85/58= 1.5x leverage

 

[WattsHappening]

Well I only buy leaps (1+ year out options) in my IRA, and you can get a rough estimation of leverage by the delta. For example a 500 call expiring in March 2023 has a delta of .85. It costs about $500/share. So $50,000 would get you the same delta as 85 shares. With that same $50000 you could only buy about 58 shares. 85/58= 1.5x leverage

Thanks; very helpful!

Edit: that sounds real good. My gut feel tells me this would be a very good trade. If stock is trading at $2,000 by then (slightly less than $2T market cap), That $50K LEAP is worth $200K, whereas the 58 shares is worth $116K. Nice!

 

[dl003]

I would've liked to know the premium on something like a 750 put. As in could i have sold 1 put that netted me 2k for like 1/8th the required capital? Quick in my head math tells me it would've required ~17k margin

That crosses my mind everyday but to me it's a 1 and 0 problem. Either the put will be ITM or it won't. So, if my margin allows it, I always go with the much more FOTM strike while increasing the count. I only use a very small portion of my margin for this (20-25%)

 

[Tyler34]

Thanks; very helpful!

Edit: that sounds real good. My gut feel tells me this would be a very good trade. If stock is trading at $2,000 by then (slightly less than $2T market cap), That $50K LEAP is worth $200K, whereas the 58 shares is worth $116K. Nice!

You can do further math to figure out at what price TSLA is at where the leap and the 58 shares are equal to figure out a break even on if you think its worth it. I also encourage you to check out other strikes in the 300-600 range, 500 was just an example.

 

[adiggs]

But just ask yourself if tying up ~125k was worth the 2k.

No assessment on whether this was a good trade or not.

But one way to look at this - that's around 1.5-2.0% gain in 1 week. If that's a scalable trade (by which I mean, it can be repeated at least 1x/month), then that's 18-24%/year. And if it can be repeated 2x/month, that's 36-48%/year.

Still no opinion on the goodness, but I would just about (but not actually) sell my soul for 18-48% / year in realized cash.

 

[Runarbt]

I would've liked to know the premium on something like a 750 put. As in could i have sold 1 put that netted me 2k for like 1/8th the required capital? Quick in my head math tells me it would've required ~17k margin

I got paid $36.25 for each of the $750 2/5 puts a sold 6 days ago (1/8).They go for $21 now, so still lots of premium left.

Sure. :-D I could have sold more of those instead. The $650 1/22 sell was on impulse during mondays dip. No planning behind. lol..


Edit: Selling 6x $750 puts netted 21,750 which i put into shares. Got..25 fresh ones @865.

 

[adiggs]

A year ago, I would have said I'm not interested because that would make me pay more attention to option prices, theta, exercise dates, etc. and I didn't want to do that.

Couple of observations - if you haven't already, I highly recommend some options education before getting into them and trying them out. My best and easy education source are the education videos from Option Alpha. Figure on 20-30 hours to go through all of them. They're arranged in 3 blocks that I think of as 1) intro, 2) getting into a trade, and 3) getting out of a trade.

That's not the end of the education, but it's a good start.


The other observation is that I do share your long term (by 2030) view of TSLA's up side. But also remember that with even deep ITM call purchases, then there are two things that become true that aren't otherwise true from owning shares:
1) leverage on the way up, is also leverage on the way down (unrealized gains and losses are accelerated over owning shares)
2) the position has time value that decays. There is always more risk simply owning options as a replacement to owning shares. Going deep ITM is a good mitigator for that. But you're still on the clock now where you're not with share ownership, and the market can be irrational far longer than you (any of us) can remain solvent. Yes - you can also mitigate that time decay by closing or moving out positions that are down to 6-12 months or so (whatever works for you).

Easy example from TSLA's recent history about sideways trading, when the expectation was strongly up; the roughly 5 years of sideways trading, where just about everybody here agreed with the observation that the spring was getting wound tighter and tighter, and the shares were underpriced. I thought a breakout after 2 or 3 years was imminently reasonable.


I'm not saying don't do options because they're dangerous - I'm doing quite a lot with options these days. But do remember that every choice has risks and rewards, costs and benefits. If you can't identify the tradeoffs in any investment decision, then that's a good hint that you shouldn't do it (learn more - ask questions!).

A good way to find those limits is to do some boundary testing - what happens if the share price goes down 50% (I consider this inevitable at least once between now and 2030) and what happens if the share price doubles (both in a short timeframe - say 1 month). Or what if it was even worse - 80% down over 3 months; 3x in 2 months (depending on the position, up 3x can be a bad outcome).


(Not saying you don't already know this - using your comment as a takeoff for a general comment and link for anybody)

 

[WattsHappening]

Couple of observations - if you haven't already, I highly recommend some options education before getting into them and trying them out. My best and easy education source are the education videos from Option Alpha. Figure on 20-30 hours to go through all of them. They're arranged in 3 blocks that I think of as 1) intro, 2) getting into a trade, and 3) getting out of a trade.

That's not the end of the education, but it's a good start.


The other observation is that I do share your long term (by 2030) view of TSLA's up side. But also remember that with even deep ITM call purchases, then there are two things that become true that aren't otherwise true from owning shares:
1) leverage on the way up, is also leverage on the way down (unrealized gains and losses are accelerated over owning shares)
2) the position has time value that decays. There is always more risk simply owning options as a replacement to owning shares. Going deep ITM is a good mitigator for that. But you're still on the clock now where you're not with share ownership, and the market can be irrational far longer than you (any of us) can remain solvent. Yes - you can also mitigate that time decay by closing or moving out positions that are down to 6-12 months or so (whatever works for you).

Easy example from TSLA's recent history about sideways trading, when the expectation was strongly up; the roughly 5 years of sideways trading, where just about everybody here agreed with the observation that the spring was getting wound tighter and tighter, and the shares were underpriced. I thought a breakout after 2 or 3 years was imminently reasonable.


I'm not saying don't do options because they're dangerous - I'm doing quite a lot with options these days. But do remember that every choice has risks and rewards, costs and benefits. If you can't identify the tradeoffs in any investment decision, then that's a good hint that you shouldn't do it (learn more - ask questions!).

A good way to find those limits is to do some boundary testing - what happens if the share price goes down 50% (I consider this inevitable at least once between now and 2030) and what happens if the share price doubles (both in a short timeframe - say 1 month). Or what if it was even worse - 80% down over 3 months; 3x in 2 months (depending on the position, up 3x can be a bad outcome).


(Not saying you don't already know this - using your comment as a takeoff for a general comment and link for anybody)

Yep, thanks. I am pretty knowledgeable about options, at least the simple stuff (long calls and puts, cash covered puts and covered calls, theta, etc.). I've dabbled (and mostly been successful) in selling cash covered puts and covered calls. The theta typically scares me from going long on options.

But thanks for your words of caution.

 

[ammulder]

ETrade doesn’t let me sell a put if I don’t have enough margin to exercise it

On further inspection, I think this is the difference between "margin" and "portfolio margin". I have regular margin and Level 2 options trading, so buying a put locks down the entire exercise price worth of margin. On the other hand, I could apply for Level 4 options trading and portfolio margin, in which case the math would change on how much margin I would need to sell a put.

I guess I should do that just to have the "option" available... while I'm not really looking for more leverage right now, if you told me I could bring in the same cash selling lower-strike/lower-risk puts (just more of them, enabled by the portfolio margin calculations), I guess I'd be stupid not to take that seriously.

 

[mongo]

On further inspection, I think this is the difference between "margin" and "portfolio margin". I have regular margin and Level 2 options trading, so buying a put locks down the entire exercise price worth of margin. On the other hand, I could apply for Level 4 options trading and portfolio margin, in which case the math would change on how much margin I would need to sell a put.

I guess I should do that just to have the "option" available... while I'm not really looking for more leverage right now, if you told me I could bring in the same cash selling lower-strike/lower-risk puts (just more of them, enabled by the portfolio margin calculations), I guess I'd be stupid not to take that seriously.

Portfolio margin looks at all your holdings to determine margin/ risk. For example: with it you can buy DOTM puts to offset the margin/ risk of a long share position.

 

[Runarbt]

I rolled my 10x $650 naked puts with todays $900 premium left from 1/22 to 10x $750 1/29 - for an extra $21k. (put into 24 more shares)

Using about 40% of my available margin, so hope I can handle an unexpected dip and be able to roll forward if needed.

Don't expect any dip though, as we go into a lull with no news running up to Q4 ER - so side ways or slightly buying pressure in anticipation of a great ER?

Anyone have any thoughts? Some risk I have missed?

 

[TheTalkingMule]

The only risk I see to a bullish leveraged options play would be if both the 4Q earnings/guidance underwhelms and the additional buying we've seen from what we assume are benchmark funds comes to a clearly illustrated end. That could trigger the dreaded post-inclusion pullback, but I highly doubt it. What are the odds that guidance won't blow everyone's hair back?

 

[Runarbt]

The only risk I see to a bullish leveraged options play would be if both the 4Q earnings/guidance underwhelms and the additional buying we've seen from what we assume are benchmark funds comes to a clearly illustrated end. That could trigger the dreaded post-inclusion pullback, but I highly doubt it. What are the odds that guidance won't blow everyone's hair back?

Nada - zero - null - 0

:-D

But we might still see a sell-the news event, at least for a couple of days. Seem like this is how $tsla rolls - after every great ER and happening.

I might close (most of) my naked puts 1/27 and re-sell next 28th and extend with a month, hopefully catch a dip and increased premiums.

 

[TheTalkingMule]

I wish we could get good visibility into the number of S&P benchmark funds that have sufficient TSLA weighting. That would tell us a lot.

 

[Runarbt]

Nada - zero - null - 0

:-D

But we might still see a sell-the news event, at least for a couple of days. Seem like this is how $tsla rolls - after every great ER and happening.

I might close (most of) my naked puts 1/27 and re-sell next 28th and extend with a month, hopefully catch a dip and increased premiums.

I am getting a tiny bit cold feet regarding my naked puts now.

Low low volume Friday, if this keeps up next week SP might go lower next week. If puts get close to being ITM, I will roll them our 2-3 months. It is just too nerve wrecking with a LOT (for me, 40% margin used) of naked puts 2-3 weeks out when sp dips.. Wouldn't want to risk getting put all the shares, as I don't have margin large enough to cover all of it.

Even though it pay higher premiums with monthly puts, I don't have the stomach for this in the long run.. Will change to selling puts 6-12 month out instead.

 

[adiggs]

Nada - zero - null - 0

:-D

But we might still see a sell-the news event, at least for a couple of days. Seem like this is how $tsla rolls - after every great ER and happening.

I might close (most of) my naked puts 1/27 and re-sell next 28th and extend with a month, hopefully catch a dip and increased premiums.

I agree with the observation that the Q4 earnings is going to be outstanding. Even likely "change investor's view of Tesla" outstanding.

But the question to ask yourself - has the market already priced in an outstanding earnings result? It's been my observation that the more one sided the view of the future here in the forum, the more likely that isn't what happens. Simplistically I think of this as an overloaded trade - too many people taking one side of the trade, and not enough people taking the other side of the trade.


I cheerfully admit that I'm clueless about what post-earnings share price might do. It sure seems like there is a 2-6 week lag between important announcements and those announcements getting priced into the shares.

I'm trading something similar to what you're doing, but I'm using very little margin for the puts. The thing about a large faction of margin in a strong downward move is that while you might be otherwise able to roll the puts ~forever if fully cash secured, the margin will amplify unrealized losses to the downside and at some point will lead to a margin call. On the plus side, the moves down will also translate into smaller and smaller amounts of margin / backing for each new position - I don't know where or if those two factors will balance out.

 

[Runarbt]

I agree with the observation that the Q4 earnings is going to be outstanding. Even likely "change investor's view of Tesla" outstanding.

But the question to ask yourself - has the market already priced in an outstanding earnings result? It's been my observation that the more one sided the view of the future here in the forum, the more likely that isn't what happens. Simplistically I think of this as an overloaded trade - too many people taking one side of the trade, and not enough people taking the other side of the trade.


I cheerfully admit that I'm clueless about what post-earnings share price might do. It sure seems like there is a 2-6 week lag between important announcements and those announcements getting priced into the shares.

I'm trading something similar to what you're doing, but I'm using very little margin for the puts. The thing about a large faction of margin in a strong downward move is that while you might be otherwise able to roll the puts ~forever if fully cash secured, the margin will amplify unrealized losses to the downside and at some point will lead to a margin call. On the plus side, the moves down will also translate into smaller and smaller amounts of margin / backing for each new position - I don't know where or if those two factors will balance out.

You are a voice of reason.

I will tune back some. I can roll the current puts out to jan22, and close most..will decrease my margin usage <10%.

Will wait to see what happens next weeks.

 

[mongo]

Note to self: I will resist temptation to move to 1/22 $1000 naked puts and maintain 40% margin used.

This would pay enough premiums to increase share positon by 50%. :-O

Bonus: More shares will decrease margin used by a lot.. but still, $1k is high. would be more comfortable if we get a 20% dip first, and enter put position at $800. ;-)

How would more shares offset margin from a sold put? They'll drop in value as the put goes against you.

 

[TheTalkingMule]

Any idea when the June 2023 options will become available?