I'm a noob investor and trying to understand your strategy. I understand the basics of put/call options. Basically buying a call option gives you the right to buy at the strike price on or before the expiration date, and buying a put options gives you the right to sell (short) the stock at the strike price on or before the expiration date (and make a profit by buying it back at a lower price) - but what do you mean by "I picked up a few more jan 14 15 strike puts cause someone was on the ask at 1.55."?? Does that mean you bought or sold the put option? Does that mean you 'bought' the put Jan `14 @ 15 strike price option, e.g. the right to sell the stock at a price of 15? At least that's the way I interpret it, but like I said I'm a bit of a noob when it comes to options and I don't really know option-speak very well. Did you mean something else or do you really think the stock is going to drop that low in the next few years to make a profit by selling the stock at a price of 15?
K so after basic puts and calls, you gotta understand spreads. bull or bear and calendar.
This has simple examples of bull and bear spreads, for both calls and puts.
Verticals - Basic Option Spread - Hedging Strategies - Options Spread Trading
This has examples of bull and bear calendar spreads (i.e. postions at different time strikes)
Time Spreads Diagonals - Diagonal Spreads - Time Spreads - Option Spread Trading
What I'm doing is a long put time spread but the shorter dated put is not at the same price as the longer dated put, i will sell as tesla pulls back to support (mid 33s). This is a diagonal which can be read about at the bottom of the time spread explanation page.
"
Using a diagonal spread, is simply another way to modify a bull vertical spread or bear vertical spread and for a trader to optimize his or her market objectives based on an analysis of implied volatility levels."
Thats essentially what I'm trying to do, because front month implied volatility for puts on tesla is dramatically lower then implied volatility for longer puts, I'm trying to capture this decay. So sell the March puts, buy them back in january/february when IV has decayed, sell august puts, buy back in march/april when they have decayed, sell july puts, buy back in june/july when they have decayed, etc. Should be able to do it able 3-4 times before Jan 14. The Jan 14 15 strike calls act as the hedge in all of these trades, reducing my margin to a much smaller amount then if I was doing naked puts.
Again, Here are the current IVs for puts of different strikes at different months.
https://dl.dropbox.com/u/27431/Screen%20Shot%202012-12-03%20at%2010.09.53%20PM.png
Whats key is difference in IVs. They are dramatic, which should not happen in a 'perfect market' because they are exploitable. This decay is also what makes Tesla incredibly expensive to short with puts.
Here are the current IVs for puts on SPY (sp500 ETF)
https://dl.dropbox.com/u/27431/Screen%20Shot%202012-12-03%20at%2010.11.39%20PM.png
Much less difference in month IV, a strategy like mine would not work here. There is no decay to capture.
Basically, this strategy will work incredibly well if Tesla trades in the 28-40 range for the year. It will work very well, but not as well, if tesla slowly declines to the mid 20s and establishes a trading range there. It will be slightly, but not significantly profitably if tesla skyrockets fast. If it tanks sub 20 within 2 months, complete loss on my set margin (Because I have to purchase tesla stock because the shorter dated puts are exercised) but the Jan 14 15 strike puts save me from loosing more $ then in my account.
Basically this postion is that Tesla's going to establish a range >40 and stick with it. If it goes <40 my naked call postion is soooo profitable. i'll be happy either way.
