TSLA Trading Strategies

[MitchJi]

How much time between SCTY + TSLA merger vote result being announced and the merging of the two stocks?

Will the Extrinsic Value of OTM or close-ITM options drop fast after the vote because people are scared the Extrinsic Value will evaporate due to thin trading of weird options post-merger?

That was all discussed upthread in much more detail than I can repeat.

 

[Ulmo]

That was all discussed upthread in much more detail than I can repeat.

Thank you

I'll block out some time to look for it tonight.

 

[MitchJi]

Thank you

I'll block out some time to look for it tonight.

TSLA Trading Strategies

Starting there's a good place to start.

 

[Ulmo]

TSLA Trading Strategies

Starting there's a good place to start.

Thank you. Turns out, I read that, but re-reading it helped, too. I was able to fill in the gaps of my knowledge through slower percolation into a saturated bed of knowledge already downloaded; kind of like PAR2 files filling in bitrot.

I do not see liquidity as a big problem for J18 options as you can always do offsetting transactions with regular TSLA options very near the odd strike prices of these newly minted odd TSLA1 options.

For example, [...] You hold until expiry the following two positions which almost offset each other:
Long 91 contracts of TSLA1 J18 expiry at strike price of 318.18
Short 10 standard TSLA J18 expiry at strike price of 320

I have a really basic general trading mechanics question. How do I inquire into my brokerages what I'm supposed to do at that expiry? For instance, will they just expire, and I lose my premium, because I didn't hit the "Do it!" button on the right day (exercise each of the options in turn on the last day)? Or do they automatically just "know", or might they? (For instance, one of my brokerages automatically grouped a Put option I sold with a Call option I previously bought in the same security, and I don't even know what that means to them yet, other than it's not a naked put, because they rummaged in my wardrobe to put clothes on it.) Later on, once SCTY options turn into TSLA1 options, maybe my brokerage will auto-match those then? And then what? Either way?

 

[TMSE]

Thank you. Turns out, I read that, but re-reading it helped, too. I was able to fill in the gaps of my knowledge through slower percolation into a saturated bed of knowledge already downloaded; kind of like PAR2 files filling in bitrot.
I have a really basic general trading mechanics question. How do I inquire into my brokerages what I'm supposed to do at that expiry? For instance, will they just expire, and I lose my premium, because I didn't hit the "Do it!" button on the right day (exercise each of the options in turn on the last day)? Or do they automatically just "know", or might they? (For instance, one of my brokerages automatically grouped a Put option I sold with a Call option I previously bought in the same security, and I don't even know what that means to them yet, other than it's not a naked put, because they rummaged in my wardrobe to put clothes on it.) Later on, once SCTY options turn into TSLA1 options, maybe my brokerage will auto-match those then? And then what? Either way?

Once you do offsetting transactions anytime before expiry, you are done. That's it.

You don't need to worry about time premiums or intrinsic value as they cancel out each other in the offsetting position. At expiry, let us say both set of options are in the money, the long portion gets exercised on your behalf and you get shares for a nanosecond. The offsetting short position will similarly be in the money and therefore get exercised on someone else's behalf and the shares you owned for a nanosecond get taken away.

 

[Jonathan Hewitt]

For those trying to trade the earnings release I'm really debating whether we will get a meaningful pop this time around or not. It may be just because I am a skeptical long as TrendTrader has pointed out after seeing sideways movement the last couple years. If we didn't have the SCTY merger hanging over investors' minds I would think a pop would be very likely (actually we would probably already be at a higher valuation). I am thinking to get a pop this time it will not only take great Q3 results but also Elon giving good guidance for Q4. This could be things such as meaningful TE revenue, great demand for Model S/X due to the new Autopilot hardware, and/or greater than expected margins.

Lately I've liked to just sell puts for earnings (in addition to my core LEAPs/stock position) due to the higher probability of being profitable by selling options. Because I think there is a decent chance of some positive movement this time I've also put on some 180/220 NOV and DEC credit put spreads/debit call spreads wrapped around the money. These will make money if the stock goes up, lose if it goes down, and do nothing if the stock doesn't move at all. In other words, the options market prices these spreads at a 50% chance of making money and 50% chance of losing money. I think we have enough extra information that pushes the real probability of being profitable higher but that is my speculation. I'm also considering writing some out of the money put spreads. These have a very high chance of making money but much less credit is received per dollar at risk.

I'm also debating buying some additional longer dated calls in case we get substantial movement like NFLX did but with the SCTY merger hanging over people's heads I'm really thinking this would be premature. There is a decent probability we will get a chance after earnings but before the Nov 1 financial presentation to get calls at a lower IV.

 

[austinEV]

For those trying to trade the earnings release I'm really debating whether we will get a meaningful pop this time around or not. It may be just because I am a skeptical long as TrendTrader has pointed out after seeing sideways movement the last couple years. If we didn't have the SCTY merger hanging over investors' minds I would think a pop would be very likely (actually we would probably already be at a higher valuation). I am thinking to get a pop this time it will not only take great Q3 results but also Elon giving good guidance for Q4. This could be things such as meaningful TE revenue, great demand for Model S/X due to the new Autopilot hardware, and/or greater than expected margins.

Lately I've liked to just sell puts for earnings (in addition to my core LEAPs/stock position) due to the higher probability of being profitable by selling options. Because I think there is a decent chance of some positive movement this time I've also put on some 180/220 NOV and DEC credit put spreads/debit call spreads wrapped around the money. These will make money if the stock goes up, lose if it goes down, and do nothing if the stock doesn't move at all. In other words, the options market prices these spreads at a 50% chance of making money and 50% chance of losing money. I think we have enough extra information that pushes the real probability of being profitable higher but that is my speculation. I'm also considering writing some out of the money put spreads. These have a very high chance of making money but much less credit is received per dollar at risk.

I'm also debating buying some additional longer dated calls in case we get substantial movement like NFLX did but with the SCTY merger hanging over people's heads I'm really thinking this would be premature. There is a decent probability we will get a chance after earnings but before the Nov 1 financial presentation to get calls at a lower IV.

I think you do a good job of laying out the Bear case, such as it is. But I think a meaningful pop IS in the cards simply because much of that pessimism is, as you say, priced in now. The stock has already taken a tumble based on SCTY and by just about any metric we are down in the weeds near support levels. EPS/profits, if they materialize tomorrow just has to be the primary story. The market will look for outlook it is true, and that will have to be the 1-2 punch. Good EPS for Q3, Good outlook for Q4.

The thing is, Elon knows this too. I think this is the first time since 2013 that Elon cares about how the stock is trading, and I think everything is structured around getting the stock going up. TM needs cap raises, and I think he wants the direction UP and a 220+ price level.

I expect an unusually snappy Q3 report tomorrow.

 

[Jonathan Hewitt]

I think you do a good job of laying out the Bear case, such as it is. But I think a meaningful pop IS in the cards simply because much of that pessimism is, as you say, priced in now. The stock has already taken a tumble based on SCTY and by just about any metric we are down in the weeds near support levels. EPS/profits, if they materialize tomorrow just has to be the primary story. The market will look for outlook it is true, and that will have to be the 1-2 punch. Good EPS for Q3, Good outlook for Q4.

The thing is, Elon knows this too. I think this is the first time since 2013 that Elon cares about how the stock is trading, and I think everything is structured around getting the stock going up. TM needs cap raises, and I think he wants the direction UP and a 220+ price level.

I expect an unusually snappy Q3 report tomorrow.

I really hope you are right! I am trying to temper my expectations so I don't get disappointed if things don't go well this week but there is so much negativity and misinformation the stock will have to move up at some point. Whether the big move up is after earnings, one of the several catalysts over the next month, or closer to Model III production it seems bound to happen.

 

[pz1975]

I did my first arbitrage trade for the SCTY/TSLA merger today.

I sold 9 SCTY $20 Jan2017 puts and bought 1 TSLA $180 Jan2017 put.

Total credit to me was just under $2,000. If the merger goes through all of these puts will cancel out (9 SCTY $20 puts will convert to equivalent of 1 TSLA $181 put). Risk, of course, is if merger doesn't go through and SCTY plummets. Max potential loss is $16,000 (SCTY goes to 0 and TSLA stays above 180), max gain is $2,000 (if merger goes through). Very, very unlikely scenario is no merger, SCTY >$20 and TSLA <$180 - then my profit is higher.

I am happy with those odds considering that I see the odds of the merger going through at 95%+.

 

[Blip]

Now that the Q3 has passed, what about the presidential ? I've never traded options through an election before, so what should we expect? Does it increase IV? Is the stock market influenced by the result?

 

[uselesslogin]

I must say now that the 2019 LEAPS are out they look cheaper than I expected. I've loaded up on those. I'm very happy because if somehow TE and Model 3 are not producing good cash flows by then I may not want to be invested anyway.

 

[MitchJi]

Just called the OIC.

They said that if you exercise your SCTY options today [Monday the 21st] you will receive shares of TSLA.

Tomorrow the symbol name will change to TSLA1 options which could be [he said that "something to keep an eye on] more difficult to sell to close.

Which is the reason that I decided not to buy SCTY LEAPS.

 

[neroden]

Which is the reason that I decided not to buy SCTY LEAPS.

I actually bought some calls. I'm planning to hold them until expiration (hopefully exercise them, let them expire if TSLA did poorly) so the non-liquidity is irrelevant to me. I already know I'll have enough cash to exercise them in Jan 2019.

I did *not* buy them in my IRA for the same reason you didn't; that account might not have the cash to exercise them.

 

[MitchJi]

INO it's also better to roll LEAPS about 8-12 months prior to expiration because the time decay accelerates.

Why wait for the bid/ask spread to narrow before buying LEAPS?

I bought some J19's the first or second that they were available for $19.50. That was a little less than half way between the bid-ask spread, which was something like $18-$22.50. If I'd waited until the price dropped by a dollar or two I could have saved a buck, that was due to the SP dip, not the spread. Right now the bid-ask is $19.65-$23.45 so I could sell them for at least $21.40 so nicely green.

I just start placing limit orders, at about five minute intervals until one is accepted. It might not be worth the time if you are buying weeklies with a small spread. But for high priced LEAPS I wouldn't do it any other way.

IMO now is an excellent time to buy J19 LEAPS, if you believe that we are either at or close to the bottom. Obviously if you think that the SP is likely to drop to $140-$175 it's better to wait.

hey mitch, which exactly did you buy?

I bought J19 240's. I feel good about the $240's, but $200-$220's would be much safer though. But please decide for yourself. One tool I use to do that is:
Options profit calculator

Here is their chart for J19 $240s, purchased for $19.50:


The way I use this is to pick a date or dates that I prefer to sell by. A for the J19 LEAPS I used the end of March (Q1) when I'd prefer to roll them, and my personal "worst case" date July-August 2018. I used July-August 2018 because even though I'm highly confident that the M3 will start volume by the end of 2017 I don't want to risk a major amount of money on that, so at the end of March I would make a small profit if the SP is $224 and in July-August 2018 I would make a small profit if the SP is $236. I believe that those are very conservative numbers. I think it's probable that we exceed those numbers based on MS-MX and TE alone.

I believe that $350-$450 is more likely by July-August 2018 than $236 ($450=$19k profit per contract ).

Important Note:
I included my thought process with the hope this will help others reach their own conclusions. Please don't blindly use this as investment advice.

 

[kelevra]

IMO now is an excellent time to buy J19 LEAPS, if you believe that we are either at or close to the bottom. Obviously if you think that the SP is likely to drop to $140-$175 it's better to wait.


I bought J19 240's. I feel good about the $240's, but $200-$220's would be much safer though. But please decide for yourself. One tool I use to do that is:
Options profit calculator

Here is their chart for J19 $240s, purchased for $19.50:
View attachment 203098

The way I use this is to pick a date or dates that I prefer to sell by. A for the J19 LEAPS I used the end of March (Q1) when I'd prefer to roll them, and my personal "worst case" date July-August 2018. I used July-August 2018 because even though I'm highly confident that the M3 will start volume by the end of 2017 I don't want to risk a major amount of money on that, so at the end of March I would make a small profit if the SP is $224 and in July-August 2018 I would make a small profit if the SP is $236. I believe that those are very conservative numbers. I think it's probable that we exceed those numbers based on MS-MX and TE alone.

I believe that $350-$450 is more likely by July-August 2018 than $236 ($450=$19k profit per contract ).

Important Note:
I included my thought process with the hope this will help others reach their own conclusions. Please don't blindly use this as investment advice.

thx alot. i went with some J19 $200s. I calculated a range of different outcomes and assessed those fitted my risk profile best.
I also thought about 240 and even 260. Ultimately i went with 200s though because of potential macro risks or the possibility that the SP wouldn't move that much even with positiv results because it already trades at a premium (compared to more conservative investments). So there is the possibility that investors want to be more conservative with their TSLA investment.

 

[MitchJi]

thx alot. i went with some J19 $200s. I calculated a range of different outcomes and assessed those fitted my risk profile best.
I also thought about 240 and even 260. Ultimately i went with 200s though because of potential macro risks or the possibility that the SP wouldn't move that much even with positiv results because it already trades at a premium (compared to more conservative investments). So there is the possibility that investors want to be more conservative with their TSLA investment.

Great. Exactly what I hoped for. You used the tools and information that I provided to reach your own conclusions.

 

[1kEE]

I've been lurking here for a while, thanks for all the great info! Last time I traded TSLA was before the M3 announcement and have stayed away till recently, now I'm seriously tempted to take it up again.

Curious as to opinions on allocation of TSLA long positions and strategies.... Currently I'm doing the following:

Holding between X and 2X shares in a trading account with a FILO tax strategy.
The idea is the first X shares will be held and not disturbed for at least a year, unless fundamentals or macros degrade in a way that prompts me to sell.
Then add/subtract up to that many shares in day/swing trading fashion as seems fit. Basically bounce the number of shares between X and 2X.

I have never been involved with options and find them confusing and intimidating (I'm probably not the only one!). If I was to want to experiment with options, it seems the long-term (J2019 LEAP) would be an interesting/safer place to start. What are your opinions on this? Would one take 1/4 of the core stock position and shift that into the long-term options?

What are recommendations on buying these options? What's a typical time-frame, say a week or a month of playing with bid price until something happens? What's a good brokerage to use for this? I'm using Scottrade which is OK for daytrading but not optimal in other areas.

 

[neroden]

I have never been involved with options and find them confusing and intimidating (I'm probably not the only one!). If I was to want to experiment with options,

Don't experiment with options. It's a bit like playing with fire. Instead, research the hell out of options until you really believe that you know what you're doing and feel confident in making a particular options trade. That's what I did.

For example, I have an underlying long-term pricing model for Tesla which causes me to believe that the price will not drop below $XXX, long-term. Rather than waiting and watching the stock price, I sell cash-secured equity puts with a strike below $XXX.

If you are quite sure that TSLA will be substantially above $YYY in Jan 20, 2019, then buying LEAP calls for Jan 20, 2019 is a way of gaining leverage. If TSLA isn't above $YYY, however, you lose everything. Even if TSLA is above $YYY, if you don't have the cash (or margin loan ability) to exercise come Jan 20, 2019, you have to make sure to sell the options before expiration or you lose everything as well. If you're planning on using margin to exercise, you have to understand all the risks of margin *as well*.

If you're considering options, you should have understood all of that before I wrote it. You should also understand "intrinsic value" and "time value" at a minimum, and I've learned that implied volatility and historical volatility are very important variables as well. You also need to know about bid-ask spreads (never issue a market order for an option), and watch liquidity and open interest. You need to know what an "option chain" is (all the options for TSLA are one chain) and you need to spend a lot of time looking at the quotes for the entire series.

If there is any of this that you don't follow, just spend a few weeks doing internet research before making any trades. Please. There are several websites devoted to teaching people about options, including optionseducation.org and theoptionsguide.com and investopedia.com. Spend a while there. Spend a while simply looking at quotes (bid and the volume of bid, ask and the volume of ask, last trade, open interest) in different options, following the motion of the quotes for a few hours. Start getting the feel of them.

 

[1kEE]

I appreciate your words of caution. This is something that takes a bit of researching before jumping in for sure.

I only recently started comprehending the parallel between buying calls and buying stock on margin. Still have a lot to learn, and decide if I want to go that route in addition to maintaining a long position in the stock.

I have been watching the option chain and pricing and it sure seems like the 200 and 240 J19 calls are popular at the moment,.

 

[neroden]

I appreciate your words of caution. This is something that takes a bit of researching before jumping in for sure.

I only recently started comprehending the parallel between buying calls and buying stock on margin. Still have a lot to learn, and decide if I want to go that route in addition to maintaining a long position in the stock.

I have been watching the option chain and pricing and it sure seems like the 200 and 240 J19 calls are popular at the moment,.

Popularity can be gauged by volume and open interest. As an investor these matter because they tell you liquidity levels, which tells you how badly you're going to get hosed on the bid-ask spread. But the key thing as an investor is of course the pricing; if you're buying a call where the price has gone way up, obviously you have a lot less chance of making money than if you buy a cheap call. By contrast if you're selling a put it's the other way around; you want to sell high.