TSLA Trading Strategies

[austinEV]

Keep in mind the "catch" with deep-in-the-money Leaps is they have very poor liquidity. The bid-ask spread is very high, so there is a high cost to enter and exit positions. And, it can be tricky to buy and sell them, you have to be patient. Finally, because the liquidity is low you won't see very accurate valuations in your account. The underlying stock could shoot up 3% and your DITM leaps will be stuck at the same price they were 3 days ago. The price you could actually get by selling them is in fact higher, but there may not be any action on the bids.

 

[MitchJi]

yes- and friendly advice to any trader of these- don't take bid or ask- if buying start low and move up in small increments until sold and vise-versa. The actual trade should conduct somewhere in the bid ask range

Sometimes I place a Limit order, and just leave it. Sometimes at a dollar or three below the bid price. If the market is choppy for TSLA that frequently works.

 

[kenliles]

Sometimes I place a Limit order, and just leave it. Sometimes at a dollar or three below the bid price. If the market is choppy for TSLA that frequently works.

I do that as well, especially when not in a particular strategic hurry; works well- good advise-

 

[VanE]

Someone asked how I trade options, and here it is. My technique doesn't provide huge returns, but it seldom loses money either.

I move a fair amount of my money into deep in the money calls (Jan18 100s, for example) when the stock price is fairly low and then when the price goes up and we get near a peak I sell the calls over some time and use the money to buy shares of TSLA. Sometimes when I'm pretty sure we're going to go back down a bit, I don't buy as much stock and hold some cash. I get about 2 to 1 leverage over stock by buying deep in the money calls for a future year, but by deleveraging by selling the calls and buying shares as the stock price approaches what may be a peak, I reduce my exposure to falling stock prices and in so doing I can make money on the ups and downs, even if we end up at the same point on each peak. The main advantages of such a conservative trading style is that 1) I'm usually "all in" and don't miss unexpected runs up, and 2) I'm very well positioned for rolling my leaps forward if Tesla isn't doing well. For example, if you owned Jan17 100 calls, you could sell these for about $118.50 apiece today, and the cost to buy Jan18 100 calls right now is about $121 apiece. The difference in price between Jan17s and Jan18s is only about $2.50, and so I would by now have added a little money and rolled my Jan17 100s into Jan18 100s. If we have a surprise and selling the Jan18 100s does not look good in 2016 or 2017, I can always sell them and roll them into Jan19 100s for very little money.

Actually, I seldom need to add money to roll deep ITM leaps from one year to the next because I use rising or falling share prices to do that. Often we get caught in a cycle where TSLA is heading up or heading down. When it is heading up, I will use some of my liquidity to buy 2 Jan18 leaps and then when my Jan17s reach the same value as what I bought the Jan18s for, I sell the Jan17s. It's even better when TSLA stock price is heading down, because I sell 2 of the Jan17 leaps and then wait for the price of the same Jan 18s to be reached and then buy 2 of them. If I think the stock price will continue down I sell 2 more Jan17s and hang loose until I can buy Jan18s for the same price.

Trading most options is an easy way to lose money if you are not careful, or if the stock price hands you a surprise. If you are considering options for the first time, here are a few terms you need to know.
Strike Price: The underlying value of an option. If you bought a Jan 18 100 call option ($100 is the strike price) and on the morning of the date in Jan of 2018 when the option expires the stock is trading at $250, that option has a theoretical value of $150 when it is "exercised" ($250 - $100 = $150. Note: most traders don't exercise options with a market maker. They sell the option instead at market price.
Expiration Date: Some options are good for only a week, some for over a year. The expiration date is the last date that the option can be exercised. Obviously, options with later expiration dates are going to have a higher market value. When we call an option a Jan 18, we really mean it has an expiration date in January, 2018.After the expiration date, your option becomes worthless, even if it had value the day before expiration.
Market Value: This is the price that the option is currently trading at (approx. $121 in our example)
Time Value: This is the difference between Strike Price+market value of the option and the current market value of the stock. In our example, $100 + $121 = $221. TSLA stock is trading for $218. Therefore, TIme value = $3. Another way of looking at time value is that this is the amount the stock would have to rise in price in order for you to break even exercising it on the final day of the contract. So, TSLA would have to go up $3 between now and Jan 18 for you to break even on this trade (commissions not considered).
Let's take another example. Right now TSLA Jan18s with a strike price of 200 trade at about $52. If we add strike price to market value we get $200 + $52 = $252. With the stock currently trading at $218, we would need to see TSLA rise to $200 + $52 = $252 by January of 218 for you to break even selling the stock on the final day of the contract. The time value would be the difference between the $252 and $218, so you would have a whopping time value of $34. You can see there's lots more leverage buying an option that is close to the trading price, but you need to either see it go up in value fairly quickly or you need to see lots of appreciation if you want to make money selling the option close to its expiration date. The time value of an option decreases with time and is close to $0 on the final day of trading before expiration.
A Call Option: When you buy one option, you are actually buying the right to trade the equivalent of 100 shares. Thus, a single option with a market price of $121 sells for $12,100 plus your usual brokerage commissions. If TSLA goes up $1 during the day, your Jan18s call option would increase in value close to $1 x 100 = $100. On the other hand, your 200 strike price call option would appreciate less than $100 because some of the rise has been absorbed by time value.
Personally, I suggest if you've never traded options before that you start very small and buy a conservative option such as a Jan 18 100 strike. Keep most of your money in stocks as you slowly learn about the good and bad of options. The good: you get more leverage and can make more profit from the same investment if things go well. The bad: you can lose your entire investment in the option if things go poorly. For example, if TSLA falls below $200 in value, your $200 strike price option (if you opted to buy that one) would have very little value as expiration date approached. Thus, they're less forgiving than stock, and they have a time limit, which stock does not have.
Buying or selling an option: There are far fewer options traded than shares of stock. Some days, not a single TSLA Jan18 100 trades. Take a look at the bid and ask prices of an option. You might see sellers asking $123.95 for Jan 18 100 and buyers offering $119 for those options. The price you buy at will be somewhere in between. Midway sometimes works, but you might be paying too much if there are 80 options offered at $123.95 and only 4 buyers bidding $119. In such a case, I'd try to buy at a little more than $119, but not midway between the two numbers. It's a frustrating experience at first, because if you bid $119.50 you might see some buyers upping their bids to $119.50, too. It takes practice and sometimes patience to buy an option for the right price, and sometimes you have to walk away if the sellers are not budging from asking prices that are just too high.

Anyway, for those of you asking how I trade options, that's it in a nutshell.

Wow, great post Papafox!! Very interesting strategy, especially the way you move your calls from 2017 to 2018 without an extra investment! The only problem (for me) is that you have to buy options in sets of 100, for short term options near the money this isn't a problem. But as a student I am unfortunately not able to buy a LEAP so deep in the money.

But I will keep this strategy in mind for the future! It's a great way to combine the relative safety of a stock with the leverage of LEAP's!

 

[eloder]

By chance is there a thread somewhere (either somewhere in here or elsewhere) detailing brokerage advantages/disadvantages?

There's been a lot of talk about interest gained from lending out shares for shorting for SCTY and TSLA, and I'd be very interested in taking part in that. However TD Ameritrade apparently has no program to offer that (and apparently is able to lend my shares out free of charge since I have margins enabled with them). I don't have any experience with other brokerages except for Fidelity, and only for managing an employer-fueled 401k. I really like Ameritrade's site, trading platform, costs, etc.

Also is there a minimum number of shares needed to engage in this activity? My shares of TSLA fluctuate between 60-100 usually as I buy and sell at opportune times.

 

[Wenche]

Someone asked how I trade options, and here it is. My technique doesn't provide huge returns, but it seldom loses money either.

I move a fair amount of my money into deep in the money calls (Jan18 100s, for example) when the stock price is fairly low and then when the price goes up and we get near a peak I sell the calls over some time and use the money to buy shares of TSLA. Sometimes when I'm pretty sure we're going to go back down a bit, I don't buy as much stock and hold some cash. I get about 2 to 1 leverage over stock by buying deep in the money calls for a future year, but by deleveraging by selling the calls and buying shares as the stock price approaches what may be a peak, I reduce my exposure to falling stock prices and in so doing I can make money on the ups and downs, even if we end up at the same point on each peak. The main advantages of such a conservative trading style is that 1) I'm usually "all in" and don't miss unexpected runs up, and 2) I'm very well positioned for rolling my leaps forward if Tesla isn't doing well. For example, if you owned Jan17 100 calls, you could sell these for about $118.50 apiece today, and the cost to buy Jan18 100 calls right now is about $121 apiece. The difference in price between Jan17s and Jan18s is only about $2.50, and so I would by now have added a little money and rolled my Jan17 100s into Jan18 100s. If we have a surprise and selling the Jan18 100s does not look good in 2016 or 2017, I can always sell them and roll them into Jan19 100s for very little money.

Actually, I seldom need to add money to roll deep ITM leaps from one year to the next because I use rising or falling share prices to do that. Often we get caught in a cycle where TSLA is heading up or heading down. When it is heading up, I will use some of my liquidity to buy 2 Jan18 leaps and then when my Jan17s reach the same value as what I bought the Jan18s for, I sell the Jan17s. It's even better when TSLA stock price is heading down, because I sell 2 of the Jan17 leaps and then wait for the price of the same Jan 18s to be reached and then buy 2 of them. If I think the stock price will continue down I sell 2 more Jan17s and hang loose until I can buy Jan18s for the same price.

Trading most options is an easy way to lose money if you are not careful, or if the stock price hands you a surprise. If you are considering options for the first time, here are a few terms you need to know.
Strike Price: The underlying value of an option. If you bought a Jan 18 100 call option ($100 is the strike price) and on the morning of the date in Jan of 2018 when the option expires the stock is trading at $250, that option has a theoretical value of $150 when it is "exercised" ($250 - $100 = $150. Note: most traders don't exercise options with a market maker. They sell the option instead at market price.
Expiration Date: Some options are good for only a week, some for over a year. The expiration date is the last date that the option can be exercised. Obviously, options with later expiration dates are going to have a higher market value. When we call an option a Jan 18, we really mean it has an expiration date in January, 2018.After the expiration date, your option becomes worthless, even if it had value the day before expiration.
Market Value: This is the price that the option is currently trading at (approx. $121 in our example)
Time Value: This is the difference between Strike Price+market value of the option and the current market value of the stock. In our example, $100 + $121 = $221. TSLA stock is trading for $218. Therefore, TIme value = $3. Another way of looking at time value is that this is the amount the stock would have to rise in price in order for you to break even exercising it on the final day of the contract. So, TSLA would have to go up $3 between now and Jan 18 for you to break even on this trade (commissions not considered).
Let's take another example. Right now TSLA Jan18s with a strike price of 200 trade at about $52. If we add strike price to market value we get $200 + $52 = $252. With the stock currently trading at $218, we would need to see TSLA rise to $200 + $52 = $252 by January of 218 for you to break even selling the stock on the final day of the contract. The time value would be the difference between the $252 and $218, so you would have a whopping time value of $34. You can see there's lots more leverage buying an option that is close to the trading price, but you need to either see it go up in value fairly quickly or you need to see lots of appreciation if you want to make money selling the option close to its expiration date. The time value of an option decreases with time and is close to $0 on the final day of trading before expiration.
A Call Option: When you buy one option, you are actually buying the right to trade the equivalent of 100 shares. Thus, a single option with a market price of $121 sells for $12,100 plus your usual brokerage commissions. If TSLA goes up $1 during the day, your Jan18s call option would increase in value close to $1 x 100 = $100. On the other hand, your 200 strike price call option would appreciate less than $100 because some of the rise has been absorbed by time value.
Personally, I suggest if you've never traded options before that you start very small and buy a conservative option such as a Jan 18 100 strike. Keep most of your money in stocks as you slowly learn about the good and bad of options. The good: you get more leverage and can make more profit from the same investment if things go well. The bad: you can lose your entire investment in the option if things go poorly. For example, if TSLA falls below $200 in value, your $200 strike price option (if you opted to buy that one) would have very little value as expiration date approached. Thus, they're less forgiving than stock, and they have a time limit, which stock does not have.
Buying or selling an option: There are far fewer options traded than shares of stock. Some days, not a single TSLA Jan18 100 trades. Take a look at the bid and ask prices of an option. You might see sellers asking $123.95 for Jan 18 100 and buyers offering $119 for those options. The price you buy at will be somewhere in between. Midway sometimes works, but you might be paying too much if there are 80 options offered at $123.95 and only 4 buyers bidding $119. In such a case, I'd try to buy at a little more than $119, but not midway between the two numbers. It's a frustrating experience at first, because if you bid $119.50 you might see some buyers upping their bids to $119.50, too. It takes practice and sometimes patience to buy an option for the right price, and sometimes you have to walk away if the sellers are not budging from asking prices that are just too high.

Anyway, for those of you asking how I trade options, that's it in a nutshell.

Thank you, Papafox! I looked into those J18 100 calls, and luckily for me, I waited a few days. I bougth 3 x for an average of $102

 

[neroden]

By chance is there a thread somewhere (either somewhere in here or elsewhere) detailing brokerage advantages/disadvantages?

There's been a lot of talk about interest gained from lending out shares for shorting for SCTY and TSLA, and I'd be very interested in taking part in that. However TD Ameritrade apparently has no program to offer that (and apparently is able to lend my shares out free of charge since I have margins enabled with them). I don't have any experience with other brokerages except for Fidelity, and only for managing an employer-fueled 401k. I really like Ameritrade's site, trading platform, costs, etc.

Also is there a minimum number of shares needed to engage in this activity? My shares of TSLA fluctuate between 60-100 usually as I buy and sell at opportune times.

I sometimes forget that some people are working with relatively small amounts of money. Different brokerages have different minimums to allow you to do different things. Call and ask. Someone else said Fidelity required a minimum dollar value in the account before they'd let you lend shares. I don't see any sort of minimum for Schwab, apart from the basic account balance minimum of $1000. I know nothing about Interactive Brokers's requirements. (Checks.... right, that's why I haven't been using IB. They charge you $10/month if you don't generate $10 in commissions that month -- they really want active traders, not long-termers. I'm probably generating that much *this year* but most years I don't have such profitable options trades available to me.)

I should tell you that if you are *not using margin*, even if it is enabled, I believe they cannot lend your shares out (without special permission etc.); this is apparently actually an SEC regulation.

 

[Electrifying]

I sometimes use what I call "Revenge Trading" method. I wrote computer code to scan my historical trading records and show exactly how much I lost on TSLA at each price levels. For example, since Jan 2014 I have lost $23428.6 trading TSLA calls with strike price $220 to $227.5. The exact dates and prices are listed. For example these are the program's output from my Interactive Broker trading account records in 2014:

TSLA 28MAR14 222.5 C : -13673.61 total loss
TSLA 28MAR14 222.5 C:long x 4 @ 4.2 , at 20140324: $-3564.33013333.
TSLA 28MAR14 222.5 C:long x 4 @ 4.93 , at 20140324: $-3272.34013333.
TSLA 28MAR14 222.5 C:long x 3 @ 3.25 , at 20140325: $-2959.1476.
TSLA 28MAR14 222.5 C:long x 2 @ 6.55 , at 20140325: $-1312.77506667.
TSLA 28MAR14 222.5 C:long x 1 @ 4.35 , at 20140324: $-876.682533333.
TSLA 28MAR14 222.5 C:long x 2 @ 10.0 , at 20140324: $-776.082.
TSLA 28MAR14 222.5 C:long x 1 @ 6.0 , at 20140325: $-711.682533333.
TSLA 28MAR14 222.5 C:long x 1 @ 12.25 , at 20140321: $-200.57.

TSLA 22MAR14 220.0 C : -13117.74 total loss
TSLA 22MAR14 220.0 C:long x 8 @ 14.67 , at 20140321: $-6316.12685121.
TSLA 22MAR14 220.0 C:long x 4 @ 14.5 , at 20140321: $-3226.05842561.
TSLA 22MAR14 220.0 C:long x 2 @ 14.35 , at 20140314: $-2029.72555556.
TSLA 22MAR14 220.0 C:long x 1 @ 16.48 , at 20140317: $-735.98379085.
....
​

You get the idea. So now with TSLA sitting near 225. I am going to add July 220 calls to get even on my losses back from more than two years ago. It's a dangerous strategy and sometimes I would revenge spectacularly and sometimes I ended up losing even more, but psychologically it allows me to "take revenge" and I feel eventually I will win.

 

[EinSV]

I am mostly in stock but bought some OTM J'18 calls over the past couple months that have done ok so far. I like the idea of rolling them into deep ITM calls along the lines suggested by @Papafox and others above at some point (maybe after GF party).

I am a little surprised that you can effectively buy the 2X or so leverage on these deep ITM calls for next to nothing (looks like 1 or 2 percent recently on 100s or 125s). If the stock price tanked, I'd likely just exercise and buy shares or roll it over, so the downside risk doesn't bother me too much. I saw @austinEV's caution about liquidity but am pretty patient and don't try too hard to hit the tops and bottoms anyway so am not too worried about that.

The pricing seems almost too good to be true -- what am I missing?

 

[neroden]

Looking at the Option chain, why is there such a low open interest for 8/19/16 expiration vs. 9/16/16? Is there a logical explanation or is it simply market forces? If so why would Sep have more interest than August, especially since August will have the Q2 er?

It's worth going to the CBOE webpage and looking at Tools And Resources->Trading Resources->Cycles and Month Codes to understand this.

I just looked this up. TSLA is on the Cycle 3, the March-June-September-December cycle, and SCTY is on Cycle 1, the January-April-July-October cycle. Standard options are never available more than 8 months out. After one option expires, another becomes available; it's either the next one in the cycle, or it's for month-after-next.

On top of the standard cycles, there are LEAPS (always expire in January), and Weeklys.

(Interestingly Schwab has quotes for September SCTY options but they basically don't trade... they're not a standard expiration, dunno what's going on there)

 

[surfside]

has anyone else noted how little the J18 300's have moved over the past week or so (including today) despite steady increases in the share price?

figured i would throw it out there for those looking for good relative value -- check out the chart that shows the option prices relative to historical stock prices -- these particular options appear cheap today (at least to me).

surfside

 

[Crowded Mind]

Noobish question that I think has been discussed. If SCTY is acquired by TSLA, do the options convert to TSLA? For instance, a J18 $25 strike SCTY converts to a J18 TSLA $200 strike of some sort?

 

[MikeC]

Noobish question that I think has been discussed. If SCTY is acquired by TSLA, do the options convert to TSLA? For instance, a J18 $25 strike SCTY converts to a J18 TSLA $200 strike of some sort?

I believe ~8 of those SCTY J18s 25 will turn into one TSLA J18 200. Here is the thread: What happens to SCTY options?

 

[Crowded Mind]

I believe ~8 of those SCTY J18s 25 will turn into one TSLA J18 200. Here is the thread: What happens to SCTY options?

Thanks, that was the discussion I recalled but wasn't sure where it was. From what I have read, in an acquisition, any options with a strike above the offer price are worthless, and any options with below the strike are priced on the intrinsic value. Perhaps this is different with a "for-stock" merger offer?

@neroden, you explained what MikeC is saying in the other thread, do you have any sources to validate that? If that is correct, it looks like you could effectively buy $200 J18 TSLA options for about a 30% discount. SCTY $25 J18's last traded for $4.10 ($32.8 for 8). TSLA $200 J18's last traded for $46.00. Am I missing something? The stock is only trading at a 5% discount rate.

 

[neroden]

You're not missing anything. (Well, maybe one downside: see the bottom of this comment.)

MikeC is basically right, but it's likely that the SCTY options will not actually become standard-strike TSLA options; they'll become weird "TSLA1" options (or they might even keep the SCTY symbol, but the deliverable will be Tesla stock). That's what they do with stock-for-stock mergers.

I've been trading puts rather than calls, but yes, there's been a massive premium for SCTY puts over TSLA puts at the "equivalent" stock price (based on the lower end of the range of exchange ratios in Musk's letter). I'd expect a similar situation for calls, which you seem to have found. (I should note that at the .122 exchange ratio, an SCTY $25 is really a TSLA $204.9, not a $200, so take that into account).

At the Chicago Board Options Exchange and the Options Council, they explain what happens with all-stock mergers, and I've linked some of the sources in previous comments. Since you're not paying me, I'm not going to find the links again for you; learn to find 'em yourself. The basic principle is that the options exchange attempts to maintain the same economic meaning of the option after the merger, whatever that is. If 1 share SCTY stock turns into .122 shares TSLA stock, then the deliverable for an SCTY option changes from 100 shares to 12.2 shares. (If 1 share SCTY stock turned into $20 cash, the deliverable would become $2000 cash... see how that works?)

The downside is that after the merger, the SCTY options (or the TSLA1 they turn into) will be extremely thinly traded. If you're planning to hold until expiration or exercise, this is fine. If you were planning to exit the position by buying or selling it, you may not be able to. In fact, SCTY options are *already* extremely thinly traded compared to TSLA options. When I get into SCTY options positions, I do *not* expect to be able to exit those positions by purchase or sale; it may not be possible.

This probably has something to do with the difference between SCTY and TSLA options pricing: a lot of options traders are extreme short-termers who never plan to hold options to expiration or exercise, and the extreme illiquidity of SCTY options would make them avoid those options.

 

[MitchJi]

This might be a bad idea, but I just sold one J17 $270 for $6.25 and bought fifteen J17 $400's for $0.40 each. I got one about a week ago for $0.60. Rolling these on dips makes sense because they go down more on a percentage basis than higher strike price options.

It's in an IRA so tax free, but I can't add anything to the account and I'm all in, so rolling is the only possibility.

My thinking is that I got 15 lottery tickets in case there's a merger vote squeeze, and even if that doesn't happen there might be a big enough GF/TE related pop that I won't lose much.

I might do that 3 or 4 more times. I'm feeling like getting 50-100 total. Thoughts?

 

[dakh]

@MitchJi, this pretty much is the question: other than just accumulating shares, how do you play this "it'll pop sometime but no idea when" game? Just rolling way out of the money LEAPs? One would have to do some modeling on how soon/how big a pop would have to be vs. deep in the money options or straight stock. I want to do it but it won't make it anywhere near top of my priority list for a long while :/

 

[MikeC]

This might be a bad idea, but I just sold one J17 $270 for $6.25 and bought fifteen J17 $400's for $0.40 each. I got one about a week ago for $0.60. Rolling these on dips makes sense because they go down more on a percentage basis than higher strike price options.

It's in an IRA so tax free, but I can't add anything to the account and I'm all in, so rolling is the only possibility.

My thinking is that I got 15 lottery tickets in case there's a merger vote squeeze, and even if that doesn't happen there might be a big enough GF/TE related pop that I won't lose much.

I might do that 3 or 4 more times. I'm feeling like getting 50-100 total. Thoughts?

Are these calls you're talking about? If so, if TSLA goes to 400 in the next 6 months won't you lose $13,000 on the 270 and lose everything on the 400s?

 

[AlMc]

@kenlililles does the rolling OTM Leap strategy. He rolls them up and out when he expects TSLA to go up and into stock as a defensive move IIRC.

I do something similar to @Papafox with DITM LEAPS, but also accumulate OTM LEAPS (way out.. as 'lotto tickets. I have about 50 J17 300s to try to catch 'the lotto' at this time.

 

[MitchJi]

Are these calls you're talking about? If so, if TSLA goes to 400 in the next 6 months won't you lose $13,000 on the 270 and lose everything on the 400s?

I sold the 270 calls I had previously purchased and replaced and them by buying (rolling) them to the 400's. I don't plan to keep them later than November (Q3 ER or vote squeeze). If the SP hits $300 by the end of November I'll make about $2 per contract which is okay, if it hits $300 by mid October I'll be up about $200 per contract which is over 400%, and if there's a vote squeeze that pushes the SP to $400 by mid October I'll be up over $3k per contract.

Note: This is an extremely risky strategy. Please don't use this as investment advice!

Three possible,scenarios :
1. Keep them until the vote triggers a squeeze (hopefully to at least $300-$400).

2. Sell enough of them if there's a big enough pop to keep most of them for free squeeze lottery tickets.

3. No squeeze and no pop, sell them for whatever I can. Probably close to zero.

I do something similar to @Papafox with DITM LEAPS, but also accumulate OTM LEAPS (way out.. as 'lotto tickets. I have about 50 J17 300s to try to catch 'the lotto' at this time.

Thanks @AIMc! My "DITM" LEAPS were $160's that I rolled to $280's when the accelerated M3 ramp was announced. I am very bullish on the M3 ramp, but I don't want to count on it being completely on time. I think that there are quite a few possible positive catalysts between now and March-April and I hope there's an opportunity to roll my 2018's to 2919's by then. If not I'll take a hit and roll them anyway before the time decay gets bad.

Your strategy with DITM LEAPS is much safer than mine. I hope we all make huge gains!