TSLA Trading Strategies

[The Blue Owl]

LEAP calls are a mildly leveraged alternative to holding stock, basically.

As long as they are DITM.

 

[Zhelko Dimic]

As long as they are DITM.

@Familial Rhino, just using your post to answer...

An example of (extreme) DITM is Jan 19, strike $100. It has (and has had) less than one dollar of time-value for last 6 months or so. So your loses are extremely small on holding it to expiration.

Sure, you can't lever too much, and you need to goad MM with multiple price adjustments to get reasonable price in the middle of the spread, but you have a bit of capital protection, and if you choose so, you could maintain 100% investment while still having $100/$360~ 27% cash on the sideline. You just buy as many contracts(/100) as you would be able to buy shares, and there: not levered, cash on the side...

 

[durkie]

What are the conditions that cause the time value of DITM leaps to fluctuate? Is it particularly bad right now because we're near end-of-quarter/earnings?

In early-mid 2016, I remember getting some J18 100s and the time value on them was basically nothing (like $1-$5/contract). TSLA was trading in low 200s so leverage was about 2:1. But when I look at 2:1 LEAPS now that are also about 2 years out (J20 170-180s), time value is like $20-$25/contract. What gives? Is there just higher expectation of volatility baked in to the price?

 

[The Blue Owl]

You just buy as many contracts(/100) as you would be able to buy shares, and there: not levered, cash on the side...

Well, you are still (minimally) levered. Leverage is what allows you to control a given number of shares for less than the amount required to outright purchase them. No free lunch .

 

[Zhelko Dimic]

Well, you are still (minimally) levered. Leverage is what allows you to control a given number of shares for less than the amount required to outright purchase them. No free lunch .

You may be right in terms of definition, but as long as I don't use cash that sits on the sideline, in spirit, I'm not levered.
My portfolio moves exactly as if it were 100%, both up and down. It would start diverging once we start approaching strike price, but that's not realistic possibility, at least in my mind, or I wouldn't have been invested

 

[Zhelko Dimic]

What are the conditions that cause the time value of DITM leaps to fluctuate? Is it particularly bad right now because we're near end-of-quarter/earnings?

In early-mid 2016, I remember getting some J18 100s and the time value on them was basically nothing (like $1-$5/contract). TSLA was trading in low 200s so leverage was about 2:1. But when I look at 2:1 LEAPS now that are also about 2 years out (J20 170-180s), time value is like $20-$25/contract. What gives? Is there just higher expectation of volatility baked in to the price?

I'm not sure, I'm guessing one answer is increased IV. Another is unwillingness of MM to sell you these for cheap, because there is a good chance they would lose, but that's IV again.
But I'd encourage you to look at strikes underneath 170-180. Sometimes there is fairly dramatic drop off of time-value as you go into lower strikes...

 

[neroden]

Implied volatility has been very, very high lately: for those of us with permission to sell put options it may be a good time to do so.

 

[Menifeer]

Implied volatility has been very, very high lately: for those of us with permission to sell put options it may be a good time to do so.

I bought-to-close some Puts on Thursday. If the stock continues down next week, I'll likely sell again.

 

[UnknownSoldier]

Hi guys,

Bought my first calls ever. Jan 18th 2019 $400, because YOLO. Let's see what happens next week.

It's not money I can't afford to lose. Most of my shares are in ordinary long positions.

This should be fun

 

[Blip]

Another is unwillingness of MM to sell you these for cheap, because there is a good chance they would lose, but that's IV again.

This is not entirely true. Market Makers will generally try to stay (delta)neutral and will try to make a opposite trade to the one you make. They make money on the bid-ask spread which is quite high on options far out/in the money. DITM calls does not have much time-value to loose, but the bid-ask loss might be as high as the time-loss when rolling to the next leap.

I would recommend studying the "Greeks" and IV if planning to trade Options. Start to understand one at a time. Start with the basic delta. Maybe move on to theta the move on to Vega and then gamma. Tip.: If you know calculus, option greeks might be easier to understand.

 

[Zhelko Dimic]

This is not entirely true. Market Makers will generally try to stay (delta)neutral and will try to make a opposite trade to the one you make. They make money on the bid-ask spread which is quite high on options far out/in the money. DITM calls does not have much time-value to loose, but the bid-ask loss might be as high as the time-loss when rolling to the next leap.

I would recommend studying the "Greeks" and IV if planning to trade Options. Start to understand one at a time. Start with the basic delta. Maybe move on to theta the move on to Vega and then gamma. Tip.: If you know calculus, option greeks might be easier to understand.

I don't know why you disagree with me and are telling me stuff that I know. I said:
Another is unwillingness of MM to sell you these for cheap
and that 'unwillingness' will result in high bid-ask spread.
Less they like particular direction the more premium they'll ask for and won't hit your in the middle offers. And this would be especially true when position is running on them and they need to chase delta.

 

[TheTalkingMule]

Sometimes I think it may have been foolish to commit so deeply to SCTY LEAPs back in the day, having very minimal knowledge of options pricing, etc.

That being said....these Mar19/Jun19 TSLA calls seem absurdly priced, no? By my math, I'd need TSLA to be at $426 by mid-Mar to make a dime off these $400 strike calls priced at $21.38

Is the volatility so high that a 1/3 jump in SP valuation costs that much to leverage? I guess I'll take another look at we're around $300 in SP by October, though I doubt we even will be next week.

 

[bdy0627]

Sometimes I think it may have been foolish to commit so deeply to SCTY LEAPs back in the day, having very minimal knowledge of options pricing, etc.

That being said....these Mar19/Jun19 TSLA calls seem absurdly priced, no? By my math, I'd need TSLA to be at $426 by mid-Mar to make a dime off these $400 strike calls priced at $21.38

Is the volatility so high that a 1/3 jump in SP valuation costs that much to leverage? I guess I'll take another look at we're around $300 in SP by October, though I doubt we even will be next week.

If you're going to hold them anywhere near expiration then DITM LEAPs are probably the way to go. Those OTM calls will do well if TSLA climbs over the next few months so that they still have a lot of time value left, but not if it takes until February/March to climb moderately.

 

[Menifeer]

Sometimes I think it may have been foolish to commit so deeply to SCTY LEAPs back in the day, having very minimal knowledge of options pricing, etc.

That being said....these Mar19/Jun19 TSLA calls seem absurdly priced, no? By my math, I'd need TSLA to be at $426 by mid-Mar to make a dime off these $400 strike calls priced at $21.38

Is the volatility so high that a 1/3 jump in SP valuation costs that much to leverage? I guess I'll take another look at we're around $300 in SP by October, though I doubt we even will be next week.

Instead of buying, why not consider selling them? (Well, maybe not now that the stock has tanked - wait until it recovers).

I know everyone is hoping for a good news-generated short squeeze that will take the price to the moon. I don't expect that to happen, so I keep selling call options to the "true believers". It's been a very profitable exercise.

 

[durkie]

Instead of buying, why not consider selling them? (Well, maybe not now that the stock has tanked - wait until it recovers).

I know everyone is hoping for a good news-generated short squeeze that will take the price to the moon. I don't expect that to happen, so I keep selling call options to the "true believers". It's been a very profitable exercise.

Any time I sell calls it seems to be a magical spell to make the stock shoot past my strike price. How do you not get burned / leave lots of money on the table?

 

[jbih]

Implied volatility has been very, very high lately: for those of us with permission to sell put options it may be a good time to do so.

I know everyone is hoping for a good news-generated short squeeze that will take the price to the moon. I don't expect that to happen, so I keep selling call options to the "true believers". It's been a very profitable exercise.

So, in short:

• We make money selling put options
• We make money selling call options

Conclusion: We sell put and call options all the time -> profit. Brb, opening margin account...

 

[durkie]

So, in short:

• We make money selling put options
• We make money selling call options

Conclusion: We sell put and call options all the time -> profit. Brb, opening margin account...

Basically. TSLA seems ideal for this both because its volatility is so high and because it has such strong believers on both sides.

I will say that as a long I find it much easier mentally to be assigned shares via puts than give up shares via calls.

 

[neroden]

So, in short:

• We make money selling put options
• We make money selling call options

Conclusion: We sell put and call options all the time -> profit. Brb, opening margin account...

Let me explain the actual conclusion:

You make money selling puts if you have cash (or stable securities to borrow against) and know a minimum reasonable price for the stock.

You make money selling calls if you have stock and know a maximum reasonable price for the stock.

(Of course if you know both the maximum and the minimum reasonable price, you can swing trade!)

The tricky part is knowing those maximum and/or minimum reasonable prices.

The reason I don't sell calls against TSLA is the same as durkie's: I will set them too low and have stock called away right during a big run-up. If I really did have a maximum valuation for the stock which I trusted, I would sell calls (and I have done so on some other stocks where I knew when I wanted to sell them).

 

[jbih]

Thanks for the info, very much appreciated!

 

[Lbkmxp100d]

Basically. TSLA seems ideal for this both because its volatility is so high and because it has such strong believers on both sides.

I will say that as a long I find it much easier mentally to be assigned shares via puts than give up shares via calls.

Premiums are typically very high when it comes to calls/puts for $TSLA so you need to know good entry and exits strategy before buying options.