TSLA Trading Strategies

[MitchJi]

Do wash sale rules apply to options?
The wash sale rule can apply to trades involving stock options. Options present two different types of problems in connection with the wash sale rule. First, if you sell stock at a loss, you can turn that sale into a wash sale by trading in options. And second, losses from the options themselves can be wash sales.

 

[geneclean55]

Apparently, merrill lynch only goes to the trouble of recording wash sales on 'exactly' identical stock.
It is up to you/your tax consultant to determine if your particular stock options are 'substantially' identical and therefore subject to the same wash sale rules.

 

[brian45011]

At that kind of premium, it makes no sense at all to buy shares instead of calls

To each his own. Some prefer hard-to-borrow or covered call revenue.

 

[brian45011]

If not the SEC is really asleep at the wheel or Merril is messing up. .

It's an IRS rule/

 

[Menifeer]

To each his own. Some prefer hard-to-borrow or covered call revenue.

I'm one of those who like covered call revenue. I use the long-term purchased options to cover the sale of the shorter-term options in the same way that someone would if they bought shares. The advantage is having much less money out-of-pocket for the purchase while reaping the same benefit.

 

[Blip]

I'm one of those who like covered call revenue. I use the long-term purchased options to cover the sale of the shorter-term options in the same way that someone would if they bought shares. The advantage is having much less money out-of-pocket for the purchase while reaping the same benefit.

I'm doing the same with success. I've been selling strangle/straddle covered by leaps (uncovered short put).

 

[geneclean55]

Agreed. Today I paid $103.50 for the Jan'18 $120 when the stock was trading at $223.30. That amounts to a 20-cent time premium. At that kind of premium, it makes no sense at all to buy shares instead of calls

How sensitive are these DITM leaps to implied volatility? I would expect IV to increase from this point through October.

 

[TMSE]

I apologize if it is already mentioned before. What happens to Out-Of-The money call options of SCTY if the deal goes through? I believe someone posted a link to a detailed OIC article on it.

All cash deal is simple to understand as options with strike price above offer price become worthless. However, what we have here is an all stock deal at 0.11 convertion rate.

For example, SCTY $35 Jan'2018 call option is out of the money. So, a holder of 1 SCTY contract (100 options), should get 11 TSLA Jan'2018 call options at $318.18 strike price. Is that right?

Math:
100 * 0.11 = 11 options;
$35/0.11 = $318.18 adjusted strike price.

 

[ggr]

I apologize if it is already mentioned before. What happens to Out-Of-The money call options of SCTY if the deal goes through? I believe someone posted a link to a detailed OIC article on it.

All cash deal is simple to understand as options with strike price above offer price become worthless. However, what we have here is an all stock deal at 0.11 convertion rate.

For example, SCTY $35 Jan'2018 call option is out of the money. So, a holder of 1 SCTY contract (100 options), should get 11 TSLA Jan'2018 call options at $318.18 strike price. Is that right?

Math:
100 * 0.11 = 11 options;
$35/0.11 = $318.18 adjusted strike price.

That agrees with my understanding, yes. I had a biotech stock absorbed by a bigger one, and that's what happened to me. It can be difficult to trade the weird options subsequently, unless they come into the money.

 

[MikeC]

I apologize if it is already mentioned before. What happens to Out-Of-The money call options of SCTY if the deal goes through? I believe someone posted a link to a detailed OIC article on it.

All cash deal is simple to understand as options with strike price above offer price become worthless. However, what we have here is an all stock deal at 0.11 convertion rate.

For example, SCTY $35 Jan'2018 call option is out of the money. So, a holder of 1 SCTY contract (100 options), should get 11 TSLA Jan'2018 call options at $318.18 strike price. Is that right?

Math:
100 * 0.11 = 11 options;
$35/0.11 = $318.18 adjusted strike price.

I think it's 1 TSLA contract to 0.11 SCTY contracts - i.e., ~9 SCTY options to get 1 TSLA option.

 

[TMSE]

I think it's 1 TSLA contract to 0.11 SCTY contracts - i.e., ~9 SCTY options to get 1 TSLA option.

That is correct. In other words, 100 SCTY options to get 11 TSLA options.

 

[TMSE]

About SolarCity acquisition, we heard that a few institutional investors are in support of the deal. Is it safe to assume that deal will go through? Are there any reasons why the deal may fall off?

Given the strong reputation of the law firms Tesla and SolarCity hired for this deal, I don't foresee regulatory/ anti-competitive hurdles. Any deal failure is likely for economic reasons alone.

 

[Menifeer]

How sensitive are these DITM leaps to implied volatility? I would expect IV to increase from this point through October.

It would seem that implied volatility is a meaningless concept when the option price contains almost zero time vale. The deep-in-the-money calls I mentioned have been trading in lockstep with the shares for a good while. What surprises me is how few of them trade, considering they're a viable alternative to buying shares for the long term.

 

[neroden]

That is correct. In other words, 100 SCTY options to get 11 TSLA options.

...except that you don't get standard TSLA options. This is important to remember. 1 SCTY contract (100 shares SCTY deliverable) becomes 1 TSLA1 contract (11 shares TSLA deliverable). Basically you end up with mini-options. They can be very thinly traded, so don't expect to be able to get out of your positions before expiration without paying a lot to the market makers.

 

[neroden]

About SolarCity acquisition, we heard that a few institutional investors are in support of the deal.

Yeah, we went through them one at a time a while back in some thread. There were quite a few supporters, and some tentative "I'm not sure"s. No strong opposition from major institutional holders that I noticed, though I might have missed one.

Is it safe to assume that deal will go through?

Answering that question would constitute investment advice. Nobody here will answer it for that reason. You have to make your own assessment.

 

[TMSE]

...except that you don't get standard TSLA options. This is important to remember. 1 SCTY contract (100 shares SCTY deliverable) becomes 1 TSLA1 contract (11 shares TSLA deliverable). Basically you end up with mini-options. They can be very thinly traded, so don't expect to be able to get out of your positions before expiration without paying a lot to the market makers.

Instead of closing mini-option positions, you can offset them with equivalent/closer normal option contracts. Right?

 

[neroden]

Instead of closing mini-option positions, you can offset them with equivalent/closer normal option contracts. Right?

Welllllll, sort of. The thing is, the numbers won't come out right. If you are long 9 call contracts in TSLA1 (11 shares deliverable each, total 99 shares deliverable) at a strike of $318.1818 (converted from $35 strike price for SCTY), you can *almost* offset it by selling 1 call contract in TSLA (100 shares deliverable) at a strike of $320. But you're off by one share and $1.8181 / share on the other 99 shares. In addition, SCTY and TSLA options currently have different expiration dates available... and the commissions will be different... and so on.

 

[ev-enthusiast]

I would like to know what kind of trading strategies the more experienced folks here suggest for short (next couple of weeks) and medium term (next couple of months).

It looks like there are some catalysts short term (Q3 delivery figures, AP8.0, production ramping, continued shortage of shares to short and so on) as well as medium term (improved financials reported during Q3 and maybe Q4 ER, Model 3 on track).
On the flip side I see issues that could arise as discussed in the short term thread about the TSLA/SCTY merger.

Personally I got the best results from using long term options long straddle. I tend to buy the initial call position on positive product news and not paying enough attention on financials. Long term calls allow me to DCA in such a case of SP dips. The put position frequently turned out as good protection to short term irrational and exaggerated negative SP moves. Converting the put position during a later dip helped me to boost my earlier call position.

Thanks in advance!

 

[FluxCap]

I'm sitting here wracking my brain and wondering why I shouldn't just back up the truck to buy medium-term SCTY calls near the deal price. Is anyone doing this?

 

[Turing]

I'm sitting here wracking my brain and wondering why I shouldn't just back up the truck to buy medium-term SCTY calls near the deal price. Is anyone doing this?

Yes, but timidly. I'm a little puzzled why those on here that are pretty sure the deal is going through aren't considering picking up a modest amount of SCTY nov or dec calls?