TSLA Trading Strategies

[MikeC]

You can reduce the amount of buying power selling puts in an IRA uses up by buying a cheap OTM put around the 5 delta area. This put should reduce the buying power reduction to the spread width instead of the full $37,500 and will somewhat approximate margin buying power.

Maybe I'm misunderstanding you. Are you saying that if I sell a 370 put but I also buy a 320 put at the same expiration, that instead of needing to have $37,000 to cover, I would only need $5,000 (the difference between the strikes)?

Initially that made sense to me, but then I was thinking say the price ends up being $360 at expiration - I would still need $36,000 to pay for the shares I get assigned. That 320 put is worthless - so why would buying it allow the brokerage to decrease the cash I need to hold for the 370 put?

 

[Jonathan Hewitt]

Maybe I'm misunderstanding you. Are you saying that if I sell a 370 put but I also buy a 320 put at the same expiration, that instead of needing to have $37,000 to cover, I would only need $5,000 (the difference between the strikes)?

Initially that made sense to me, but then I was thinking say the price ends up being $360 at expiration - I would still need $36,000 to pay for the shares I get assigned. That 320 put is worthless - so why would buying it allow the brokerage to decrease the cash I need to hold for the 370 put?

Yes, you would need $36,000 to buy the shares but that is not your intent, is it? The brokerage is concerned about you losing more than the account is worth since it's a retirement account. With a put spread your loss is less than the $36,000. When you sell the spread in your example your loss is $5000 for minus the credit you received for selling the put plus the cost of the put you had to buy so that's all the buying power they should tie up. As long as you have enough capital to cover the maximum loss you are good and they don't care. Now if you hold until expiration or get assigned the 100 shares then now you are in trouble as you don't have that cash so you'll have to sell the stock. I'm selling put spreads in my IRA right now and it works great, just not as great as in a margin account. The IRA I'm selling put spreads in is less than $36,000 so it definitely works

Top 15 Questions about Trading in an IRA - Six Figure Investing

 

[MikeC]

Yes, you would need $36,000 to buy the shares but that is not your intent, is it? The brokerage is concerned about you losing more than the account is worth since it's a retirement account. With a put spread your loss is less than the $36,000. When you sell the spread in your example your loss is $5000 for minus the credit you received for selling the put plus the cost of the put you had to buy so that's all the buying power they should tie up. As long as you have enough capital to cover the maximum loss you are good and they don't care. Now if you hold until expiration or get assigned the 100 shares then now you are in trouble as you don't have that cash so you'll have to sell the stock. I'm selling put spreads in my IRA right now and it works great, just not as great as in a margin account. The IRA I'm selling put spreads in is less than $36,000 so it definitely works

Top 15 Questions about Trading in an IRA - Six Figure Investing

Makes a lot of sense, thank you.

In my case right now, it actually is my intent to let the put be assigned if that's what happens. I let a sold call exercise last week and I'm using the proceeds now to dabble with selling a put, so I don't mind if it gets exercised because I'll get my shares back and make a slight profit.

 

[MitchJi]

So, by increasing your strike price as the stock rises, you are using your profits to increase your leverage then, right?

A more conservative approach would be to use your profits to lower your strike price, thereby deleveraging as the risk for a correction becomes greater.

Exactly!

If you believe that. I have believed since the M3 production was pulled forward and the SP declined that the start of production of the M3 would be an epic investment opportunity. As the SP has increased my confidence that the SP will be over $400-$450 has increased, so I rolled my LEAPS up. I don't believe that it's risky. I believe that it would be more risky to not take full advantage of the opportunity.

Not an advice.

 

[MitchJi]

Be careful, the delta drop at high strikes is not consistent with the increased strike, which means leverage might not necessarily increase with a higher strike. For example, currently:

View attachment 231754 View attachment 231753

So you're much better off with 650 (7.15x leverage) than 680 (5.56x leverage).

It seems the major strikes (600, 650) have much higher deltas. Does anyone actually know why this is the case?

Thanks! I didn't know that the same strike prices are available in quarterlies . So now I'm considering following a similar strategy using quarters with about six months remaining before expiration. Might use a lower strike prices. But I'll be sure to check the deltas now!

Must be the IV?

 

[elasalle]

Had sold some Jan 19 puts at 150, 190 . They have accurred like 70-80% of max profits. So closing and reestablishing another set of sold puts at 290-300. Hoping to have some monies based on this to buy some more jan 19 calls.

 

[Jonathan Hewitt]

Miss having you in the CC, though I've stopped trading weeklies as well.

Yeah, miss you guys in the CC also but after trading weeklies for 3 months earlier this year and losing money on those trades while TSLA went up 25% I didn't want to get sucked into trading them again. Too tempting for me to join in when everyone else around you is trading them and thoughts of huge $$$ seem possible.

 

[neroden]

This seems like a nonsense move to me. Some combination of the wave of FUD which came out Monday and today (none of which seems real or material), and algos following market correlations.

I sold one near-the-money weekly put Monday based on an apparently-inaccurate guess regarding support levels; I'll probably pick up 100 shares at an effective price of $365.58 if TSLA doesn't recover by Friday. Which is OK.

 

[vgrinshpun]

This seems like a nonsense move to me. Some combination of the wave of FUD which came out Monday and today (none of which seems real or material), and algos following market correlations.

I sold one near-the-money weekly put Monday based on an apparently-inaccurate guess regarding support levels; I'll probably pick up 100 shares at an effective price of $365.58 if TSLA doesn't recover by Friday. Which is OK.

You can also roll it to the next week, pull extra cash out. I did the same earlier today with 10 $285 weekly puts for a $2.50 credit...

 

[neroden]

You can also roll it to the next week, pull extra cash out. I did the same earlier today with 10 $285 weekly puts for a $2.50 credit...

Well, I'm going to wait and let the time value decay a little more before deciding in any case I'm OK with the stock purchase if it happens, I have the cash.

 

[vgrinshpun]

Well, I'm going to wait and let the time value decay a little more before deciding in any case I'm OK with the stock purchase if it happens, I have the cash.

The premiums are quite high right now - just calculate equivalent APR you can earn on your cash by just rolling the puts, unless you want to accumulate shares at this price. Just something to consider...

 

[Jonathan Hewitt]

Well, I'm going to wait and let the time value decay a little more before deciding in any case I'm OK with the stock purchase if it happens, I have the cash.

A put has the same Profit and Loss curve as selling a covered call on stock. So if you plan on selling a call against the stock you would get from the put then rolling the put to whatever strike you would sell the call at is going to have the same P&L characteristics. One awesome benefit is a naked put requires a lot less margin than taking the stock for a margin account. One negative is ITM puts have worse bid ask spread than OTM calls. If you don't plan on selling a call against the stock then this doesn't matter so never mind but maybe this will help someone

 

[MikeC]

A put has the same Profit and Loss curve as selling a covered call on stock. So if you plan on selling a call against the stock you would get from the put then rolling the put to whatever strike you would sell the call at is going to have the same P&L characteristics. One awesome benefit is a naked put requires a lot less margin than taking the stock for a margin account. One negative is ITM puts have worse bid ask spread than OTM calls. If you don't plan on selling a call against the stock then this doesn't matter so never mind but maybe this will help someone

Say I sold a 375 put that exercises this Friday, my plan was to then sell a July 7 375 call against my new shares. Are you saying that the amount of money risked/gained is the same as if I were to roll the put out one more week?

This is in an IRA, so no margin benefit for me. Would you still recommend rolling?

 

[Jonathan Hewitt]

Say I sold a 375 put that exercises this Friday, my plan was to then sell a July 7 375 call against my new shares. Are you saying that the amount of money risked/gained is the same as if I were to roll the put out one more week?

This is in an IRA, so no margin benefit for me. Would you still recommend rolling?

For an IRA account it isn't going to matter much either way because as you said, no margin benefit. You will have a slight advantage taking the shares because the bid/ask on selling the call should be tighter than the put so you will lose less money on the fill. On the other hand, you probably have to pay an assignment fee to get the shares and then commission on the call instead of just commisions on rolling the put...so it depends on your commisions on these things. Some brokers charge more for exercise/assignment than normal commision, but this could be worth paying if you are going to continuously sell calls against the shares?

There's also possibly tax considerations but I won't go into those.

 

[Jonathan Hewitt]

Oh one more thing: if you roll the put you could buy a far OTM put to reduce buying power (if your brokerage allows spreads) and this will simulate margin. Sucky thing is you have to pay for that put so this lowers profit and it's easier to get into trouble because you are now leveraged more if you make use of that increased buying power.

 

[neroden]

I ended up rolling it down and out, taking the loss. The extra time value for holding across the deliveries announcement was substantial enough that it was a credit trade. I'm more comfortable buying if this one executes.

 

[Crowded Mind]

If you roll an option, are you taxed on the first leg or not? Looks to me like you are. So if I roll a put that's for a loss, do I get hit with a wash sale rule when I sell to open the second leg?

 

[durkie]

If you roll an option, are you taxed on the first leg or not? Looks to me like you are. So if I roll a put that's for a loss, do I get hit with a wash sale rule when I sell to open the second leg?

not a tax advisor, but 1) i believe you are taxed on any profits you make, which don't apply here 2) wash sale rule doesn't count because you're selling a substantially different security. there is some discussion of this a few pages back and it seems like even just moving the strike up or down a single click even at the same expiration counts as a substantially different security.

 

[MitchJi]

How to avoid "frontrunning".

Attn: @luvb2b and @neroden
OptionPundit Interview: Author and Investor Jeff Augen - Options Trading Strategies for Consistent Income - Option Pundit

OPReader: For the strategies you describe in “Trading Options at Expiration”, do you use market orders to ensure a timely fill, especially when closing out trades right at the end of the day or to avoid a loss? Do you consider retail platforms like think or swim adequate for this type of trading, or is there a more specialized platform you can recommend?

Jeff Augen: I always place orders at the midpoint. If they don’t execute then I lose the trade. I would estimate that 90% of the time they execute. However, I never use market orders. Also I avoid “intelligent routing” because many brokers are paid for order flow. So I usually specify ISE or CBOE.

Using the TD Ameritrade Web Site you need to enable a preference (and check a box, agreeing to some conditions) to do this.

 

[luvb2b]

this doesn't help anything.

placing a trade at the midpoint still hands the trade to a market maker who pays for that flow and tries to work against it. specifying the route doesn't help either - the order goes to a market maker with instructions to post to that route. but they will still work against the order and/or front run if they can.

also at many firms going straight to the bid or offer with small orders guarantees better execution than you could get on your own. best as I can tell it is due to specific mechanisms they use that are either market maker or exchange based. when it works, that works for 1 or 2 orders at most, usually 100 or fewer contracts.

the only way to avoid the problem of someone getting your orders to frontrun is to use agency only execution, which take your orders direct to exchanges.

How to avoid "frontrunning".

Attn: @luvb2b and @neroden
OptionPundit Interview: Author and Investor Jeff Augen - Options Trading Strategies for Consistent Income - Option Pundit

OPReader: For the strategies you describe in “Trading Options at Expiration”, do you use market orders to ensure a timely fill, especially when closing out trades right at the end of the day or to avoid a loss? Do you consider retail platforms like think or swim adequate for this type of trading, or is there a more specialized platform you can recommend?

Jeff Augen: I always place orders at the midpoint. If they don’t execute then I lose the trade. I would estimate that 90% of the time they execute. However, I never use market orders. Also I avoid “intelligent routing” because many brokers are paid for order flow. So I usually specify ISE or CBOE.

Using the TD Ameritrade Web Site you need to enable a preference (and check a box, agreeing to some conditions) to do this.