Mar 1, 2014
kenliles This isn't exactly advanced or newbie but specifically for those interested in LEAPS-stock-replacement strategy. I didn't think a new thread was warranted so- putting it here.
I�ve recently had several requests regarding LEAPS (stock replacement) strategy for TSLA. So for what it�s worth, thought I�d post a little experience based tutorial for the method I use. There are many numerous alternatives, so please don�t view this as definitive in any way- but this is what works for my investment profile. I started this kind of thing back in the Apple growth days many years ago taking my lumps with trying different stock only- margin plays and finally moving to a LEAPS based method that seems to work for me. Always refining of course� but here ya� go:
1) The Warning Label:
Only use LEAPS (over stock) for high growth - capital intensive(=well orchestrated growth pattern) companies
(certainly like Tesla and Solar, Apple for example is more marginal growth now and deserves less use of this method)
2) Set the Stage:
Use LEAPS to lower your risk by aligning the stock level you want rather than a simple dollar level because you are leveraging dollars to achieve a stock risk level- not the other way around- as follows:
Decide given your portfolio and risk tolerance, how much TSLA stock you would like to carry and how long. My current range is 2000-2500(3000 tops) shares for the next 5 years (through Mod E market at least). That aligns with my goals vs capital risk. Use LEAPS to reduce the capital required to carry this investment (not to trade on events etc.)- meaning you must tolerate the swings in the value of your LEAPS as if you own the stock at that level. This seems obvious, but too many people use LEAPS to trade on the swings (that should be relegated to short term options or other methods).
3) Oh My, What to Do:
Now with the net Delta you want to carry decided- you need to select the LEAPS (strike, expiration, # of contracts). I recommend simple spreads both in time and strike. Use 2 spreads for each as follows:
Time spread- about 1 year and more than 1 year- So currently J15 and J16. Think about how the company is expected to grow in proportion to expected development and skew to that arrangement initially starting with a mental 50/50. For example I expect 2014 to be a high growth year for Tesla compared to 2015 due to ModX, SC network, GigaF, J15 intro of GenIII) Next year will be more measured against ModX sales
producing a 60/40 split for me going in (maybe even more skewed).
For each of J15 and J16 use 2 strikes (KISS) as follows:
Take the anticipated TSLA$ value 3-6 months prior to expiration and use that strike(or lower) for lower strike leg;
Take the anticipated TSLA$ at expiration and use that(or higher) for the upper leg strike.
For example my initial setup for TSLA was J15 $250 and $300 (total of 60% by dollar investment) and J16 $300 and $350 (totaling 40% by dollar investment)
Remember with this method you will never carry to expiration (you may choose to accent your investment by keeping something through expiration, but if so that should be considered a conversion to a simply short term option play)
4) Oh My, Why Did I Do That:
The time spreads allow for unexpected timing of anticipated events, capturing value of unanticipated events, capturing value of future roll (explained more below), and capturing long term value before those J16s get too expensive later
The strike spreads allow for capturing value of earlier than expected moves in the stock while provided significant cushion for later than expected moves. For example, the lower leg strike is 3-6 months before expiration, so if not reached you still have plenty of time to let those run or roll them up depending on the events taking shape. The higher leg strike will capture time value if the stock price runs up much quicker than anticipated as follows (and this is the basic tenant behind the strike selection):
5) Oh My, What Do I Do Next or The Roll-Up and Out:
With a high growth company the best LEAPS return will be produced when you RECEIVE the time value in your LEAP. When you first purchase the option you are paying(renting) that time. To illustrate the point I'll use an extreme case. Given TSLA currently at $250, the Time Value of the LEAP is a bell(ish) curve from $150 to $400 always peaking ATM ($250). The goal with the LEAP to is to capture as much of that curve in your strike as possible, meaning let that bell peak at your strike well before the rent is due (bring it to me faster than the rent I'm paying). This is why we chose the lower strike 3-6 months out, when the rent begins to accelerate more (although still low by short term Option standards maintaining our tenant of stock replacement investment). When the peak reaches your strike (ATM), roll up in strike and out in time, by considering the new situation and how much of this year's value you have captured (likely early). For example I'm now rolling all J15 $250 to add some J15 $300 (because my Delta track is now top of range affording cash generation) and to more J16 $350+ (because I believe I have captured significant 2014 value early so adjusting 60%/40% ratio to 40%/60% favoring J16 now)
6) Am I Mental or The Mental Picture:
'swim to where the wave peak WILL BE - wait for the inevitable wave to carry you to it's peak, then move to where the next wave will be'.
Don't fight the ocean of event driven peaks 'n troughs, instead let the big waves come to you.
This produces a flow of investment that allows a mental calculation mirroring a stock position
- less emotive-panic allowing a larger hold position;
- intermediate events are tolerated not played, allowing for a bigger mental picture of the ocean.
After all this is your core belief in the company and what those in the company believe to their core;
And THEY are the ones working to create YOUR value- so aligning your investment mission with those wonderful people is the best possible alignment of your decisions as well.
7) Is That All You Got Bro' or Around the Edges:
Around the edges of this for those times the waves seems to get so deep you can't see sky or so tall your nose is bleeding do the following:
Carry a bit of stock position for those troughs:
The stock won't move nearly as much as those LEAPS of course, so when you get those inevitable lows (like Fire induced), you can convert the stock to add LEAP (or any other option for that matter) position providing a rare occasion additional leverage for the inevitable rise again- remember when it does to convert back to your stock hold position (+ cash earned).
Leverage the LEAPS safely for those crests:
On the other side, when at an unexpected scary crest (I can see the whole world from here) and you know damn well you'll have to suffer some sort of sickly air drop, use the LEAPS position for no margin required sell-write of some OTM Calls to cushion-hedge the ride down. This is also why we have a lower leg in our strike spread. You can sell at or above your lower strike (recommend about 10%-20% higher) and at a shorter expiration (recommend no more than month out) covered by your existing LEAPS- safely hedging or adding some cash generation to your portfolio.
(One More Thing):
Enjoy your Life more than your Money�
Mar 1, 2014
AlMc Excellent ken. Thanks Al�
Mar 1, 2014
pz1975 Thanks for that - nicely explained. I am doing this sort of strategy too but not as refined as you. I have a question about hedging by selling 1 month out calls above the strike price of your lower LEAP. What if the stock continues to climb and those sold calls become way in the money? I realize the net gain by the LEAPS will offset the loss, but would you roll them out further as expiration nears or just buy them back to take the loss? If the latter, would you sell a small portion of your LEAP position to offset the loss?�
Mar 1, 2014
kenliles yes- likely scenario is that you blew the call and the stock never dipped so take the loss. In other words if in a months time it hasn't pulled back, it isn't gonna for the reasons you thought it might. But remember you're only doing this after a big run up that's pushed your Delta tracking now near (or over) it's top of range, so even a loss requiring LEAP covering (assuming no cash added) will only move you down in your range. With this method don't bet on a downturn more than you can cover and still maintain your tracking range (that defeats the purpose)- Use it as an augmentation to your position and an alternative to reducing your LEAPS positions when they seemingly get too high for your risk tolerance. I reached this point recently when TSLA hit $250-$260- my Delta-tracking was too high for my tolerance even after rolling up and out, so I sold small # of calls to help cushion the likely fall, but no more than a covered-loss would result in staying in my tracking-range. I guessed correctly and so this will just go to cash (for when I guess incorrectly next time)
Also keep in mind, given the bid-ask spreads, there's an inefficiency of trading, so you might want to maintain position vs rolling up and out at a given moment, so selling the covered calls can provide a temporary solution while holding for ER (for example).
And always trade the LEAP (during rollup-out) against the bid-ask spread- never Market order, put your Limit buy below midpoint and move up, Limit sell above and move down until filled; always nice slow calm trade- I often roll over several days to average the benefit- although nothing wrong with just getting it done and observing- one of the perks of the long view�
Mar 1, 2014
pz1975 Thanks - great advice. The other components I have been doing is adding medium-term calls (ie. 3-6 months out) on dips where there was no reason for the dip (ie. general market issue, short-attack, profit taking) expecting a correction back upwards where more profit is gained using these shorter-term calls. Also adding short-term calls (1-4 weeks out) in anticipation of major surges upwards (Detroit auto show, ER/gigafactory (turned out to be MS upgrade), etc.). I did this when it dipped to 191 before ER and it paid off well, although I sold most of the calls too soon between 213-245 not expecting the huge jump to 265!, and lost out when I bought more calls at 250-255 expecting another big spike after the gigafactory announcement (got greedy).�
Mar 1, 2014
kenliles yep- the secured long term position allows some speculative plays like that- kept separate can be a great way to advantage event driven moves. I do a little of that on the side as well�
Mar 1, 2014
macman Thank you for sharing your experience. I'm also in search of best option strategy. I have a question. Why do you use spread instead of straight option buying in your strategy? Since you never wait till option expire or even close to option expiration date, I don�t see the advantage of using spread here. For example, on 12/9, the stock closed at $141.9. Let�s say your total investment is $8,900. You can get 10 contract of J15 250 for $8.9 each or 23 contact of J15 250/300 spread for $3.87 each. On 2/15, the stock closed at $248. Straight option buying could have made $35,000. Spread only made $30,700. Maybe I�ve missed something here?
�
Mar 2, 2014
Chickenlittle I doubt there is a "best option strategy". You have to flexible enough to adjust or change your strategy depending on circumstances at the time.�
Mar 2, 2014
macman I agree if you are referring to short term and frequent trader. For long term stock replacement buy and hold play, there got to be some good strategy proven to work over time like Ken's.�
Mar 2, 2014
DaveT Here�s a quick update on the weekly positions that I had going into the MS upgrade (Note: these were small positions for experimental/learning purposes and I�m posting so others can benefit from the learning. My main holdings are stock & LEAPs.). Here�s a post I posted:
Social Chat - Short Term TSLA Movements - Page 174
I had expected TSLA to trade in a range of 200-225 or 200-230 this week, so I had set up an iron condor (200/197.5 bull put spread and 225/257.5 bear call spread) and a 230/232.5 bear call spread, and a 230/235 bear call spread.
After hearing about Morgan Stanley�s price target raise at night (thanks mulder123), I posted that I was planning to exit the short calls from these spreads.
The problem was that I knew TSLA was going to gap up and if it gapped up too much I was worried that my trades would approach max loss. I�m still quite new with selling weekly premium, so this was going to be a good experiment of how much I would get slammed for a huge gap up when I�m leaning short on my weekly trades.
So, I woke up quite stressed. I think it was fluxcap who mentioned something like iron condors can give you an ulcer when the stock moves in either direction. I thought 200-230 was a large range, so I thought my risk was minimal. And even if I lost my max loss it would be minimal since my risk is defined up front when making the trade. So here�s the specifics of the trade and how they turned out. This is more to share my learning experience on selling weekly premium and what happens during a huge gap up and how much you can lose, and if it�s worth selling premium or not.
Trade #1: Feb28 Bull put spread 197.5/200 (sold Friday 2/21 when stock was at $210).
Credit $0.60 (sold Feb28 200 puts for $2.81 and bought Feb28 197.5 puts for $2.21). Max pain $1.90.
Puts expired worthless
Total profit: $0.60
Trade #2: Feb28 Bear call spread 225/257.5 (sold Monday 2/24 when stock was at $216)
Credit $0.55 (sold Feb28 225 calls for $2.35 and bought Feb28 227.5 calls for $1.80). Max pain $1.95
Closed trade at market open on Tuesday 2/25 (day of MS upgrade) for $1.42 debit (bought Feb28 225 calls for $7.80 and sold Feb28 227.5 calls for $6.38)
Total loss: -$0.87 ($0.55 credit, $1.42 debit)
Trade #3: Feb28 Bear call spread 230/232.5 (sold Monday 2/24 when stock was at $217). Double position.
Credit $0.37 (sold Feb28 230 calls for $1.45 and bought Feb28 232.5 calls for $1.08). Max pain $2.13.
Closed trade at market open on Tuesday 2/25 (day of MS upgrade for $1.10 debit (bought Feb28 230 calls for $5.20 and sold Feb28 232.5 calls for $4.10)
Total loss: - $0.73
Trade #4: Feb28 Bear call spread 230/235 (sold Monday 2/24 when stock was at $216)
Credit $0.70 (sold Feb28 230 calls for $1.59 and bought Feb28 235 calls for $0.89). Max pain $4.30.
Bought back Feb28 230 calls a few minutes into market open on Tuesday 2/25 for $6.32.
Then rode the stock up to $143 with the existing 235 calls.
Sold/closed 235 calls for $11.61
Total profit: $5.99 ($0.70 credit - $6.32 + $11.61)
Overall, some quick reflections:
1. I was pleasantly surprised that I was able to exit Trades #2 and #3 with rather minimal loss compared to the max pain of the trades. This was because these are spreads and while the sold calls went up tremendously on the gap up, so did the bought calls as well.
2. This was much better than going into MS upgrade with covered calls (or naked) because I probably would have been forced to buy them back or miss out on a huge run up.
3. The credit spreads all had defined risk going into the trade.�
Mar 2, 2014
kenliles @macman
Sorry I missed your question, been tied up today. Yes I'm using using 'spread' term in a broader sense here than the 'bull call spread'. These are ALL straight LEAPS Call buys but at different strikes to accommodate future roll up and allow 2 sets of time value capture (and the lower strike provides a cover for possible write-sell hedge). Some refer to these as strike 'spreads' and time 'spreads' ; sorry for the liberal use of terminology, but exactly to your point these are all bull call buys. It's only hedge manifests from the long expiration (the reason for never carry to expiration) and an available cover to write-sell from time to time.
Thanks for your comment , good clarification to make�
Mar 2, 2014
DaveT @kenliles
For your LEAPs strategy, are you doing it from a tax-deferred account?�
Mar 2, 2014
macman Thanks for clarification. It makes much more sense now. Very good strategy. Inline with pro's advice that always take option positions with various strike prices and expiration dates.�
Mar 2, 2014
kenliles The short answer is yes. But if tax considerations are predominant, the same strategy with different strikes in an attempt to hold 12 months would be in order. It takes a different plan, for TSLA as example would have J17 available later this year so you would today be in J16s then add J17s, once there you wait 12 months for roll so use higher strikes. I've played with that (using Apple years ago), although it still works better than simple stock hold, It's less effective because it's hard to get the strike to carry the time value to you more than once a year in which case other methods may prove better.�
Mar 3, 2014
3mp_kwh Unless you are writing calls, which is not bullish, time value is something you lose and not something you "capture"?
I'm out of p200, march22's this morning, for a net loss of ~9%. The $237 open completed a limit order, for the last third of a wild 9 trading hour ride, in puts. I usually go out of the money, hoping to fetch leverage on any price delta going my way. That I was in puts, from $249, down to $237 and lost money really sucks. I sold in equal thirds, next to prices of $249, $243 and $237. All limit orders. I'm left thinking market-making when you're deep in/out, against the strike, can simply work against you. Supply/Demand, or someone else hitting a stupid bid, you are left to chase, can ruin your day.
My bad was to realize fundamentals don't auger on the down side as much as I first thought. The capital costs of the latest issue turned out to be borderline free money, with little prospective dilution. Lots of analysts from the utility sector, and folks here, are starting to do other fundamentals, that could bring non-automotive earnings to TSLA's income statement (on a GAAP basis�
Mar 3, 2014
kenliles The premise is belief TSLA(in this example) will grow faster than the cost of the time (the strategy only applies to high growth scenarios).
This bet is more in line with the time risk of owning the stock. In my head (right or wrong), the risk of TSLA not growing into my strike over 1 year is extremely low- they will either grow due to the missions they must accomplish or die, another year reprieve isn't a likely scenario- so this a essentially akin to owning the stock in mind set risk of investment level against the chances of it growing over the time horizon of a normal stock investment.
with that in mind:
The LEAP time loss is not a foregone conclusion, rather an integral part of the option value. You paid up front for a (relatively) linear time 'loss' (especially true for a LEAP which are first available 2 years out)-
Like any option, the bet is the decay is significantly slower than TSLA growth of course. This strategy aligns that bet with the time-risk level associated with owning the stock, but (potentially) increases the return by 'capturing' the market maker's 'miscalculation' of the linear loss vs the risk associated with TSLA meeting/exceeding it's goals in that time.
The 'capture' occurs when TSLA reaches your strike (peak time value component) well before the expiration so now as owner of the LEAP, YOU hold the value of the time remaining (and the increased Delta tracking of the underlying to boot). Advantage has now moved to you (and peaked in your favor when ATM) because your not holding the stock for sale, but an option for sale. Time to roll with that 'captured' accomplished (assuming you are still growth bullish on the underlying over the next 2 years). Rinse and repeat.
Depending on the underlying performance of course, I've found the return to be greater than 2:1 vs owning the entire Tracking investment in the stock- but carrying much less risk. The risk reduction is based on the fact that my capital outlay for the position is nearly an order of magnitude less and yet the scenario of gain or loss plays out the same given the small decay in time value against the REQUIREMENT that TSLA (over a one year period) makes very significant growth objectives. If they don't the stock portfolio will drop as much as the LEAP position, while the LEAP has been forced (from the beginning) to be in a prescribed time value decay that has nearly no bearing against the ability of the company to meet it's growth objectives. I use this prescribed (market maker)disadvantage to my own advantage. I've found this method provides double returns, with less risk, and angst over unforeseen events that I know the company will adjust to if required.
Regardless that's where the 'capture' term comes from because it flips the time advantage to the long term investor (despite the time decay) by him/her bringing the peak time-value of the LEAP (which is always part of it's value). Perhaps think of it as having inside knowledge (relative to the market) that absent a catastrophic event (that will destroy the stock in same proportion as the LEAP), the time value component on this position is going to massively outstrip the prescribed rent-decay (unchangeable by the market after the purchase)�
Mar 3, 2014
AlMc Well, I am giving this a go. I already had in place the lower strike option for Jan 2015. I added the higher strike for 2015 and the two strike prices in 2016. I still hold a sizeable stake in TSLA stock but used proceeds for the sale of some to fund this strategy. Going in with no expectations.�
Mar 3, 2014
kenliles having the underlying stock is a good idea and starting slow to make the comparison also good. You can use the underlying stock from time to time to augment the rolls.
what strikes do you have now for J15, J16?�
Mar 3, 2014
AlMc I already had some that I picked up when we dipped in November: Jan 15 140s and 170s (I will use them as my low strikes, but may sell them for the next 'ratchet up')
I bought Jan15 350s and Jan 16 350s and 500s I know the 350s may be a little pricer than you may have suggested but I did have some nice proceeds from some other short options in Jan and Feb this year. As I get more comfortable with the strategy I may buy deeper OTM LEAPS.
Ken, Thanks for your interest and expertise. Al�
Mar 3, 2014
kenliles sounds good...
yeah when they issued J15s, those $170s were the highest offered at the time- I did the same at the time, moved them up later at roll-time..
all the best!�
Mar 3, 2014
Theshadows I have J16 250's and 400's. I'm thinking about selling half of the 250's when they are in the money again and moving them to 500's, or whatever the highest is at that time.�
Mar 3, 2014
kenliles yep- could see that play. Also consider, doing it in 2 steps.
Roll the (half)250s to 450s, then assuming TSLA moves to $400 well before expiration, move those $400s to $500
If you are a little less bullish 2015 TSLA, you might also
move the $250s to $350s, maintaining the $400s for the upper leg, then leapfrog $350s to $450-$500 if it gets there soon enough.
Any of those scenarios seem a reasonable play to me, matched against how bullish you are.
Sometimes the net result of 2-3 rolls yields a better overall return than 1 move- On the other hand if holding for CapGains Tax is important, your high strike hold might be better for holding 1 year before roll. I don't play against a tax consideration personally.�
Mar 3, 2014
Mario Kadastik Seems I'm already partially in this play though not fully�
Mar 3, 2014
kenliles yep- that would do it Mario-
I've noticed you and I tend to make similar trade (or at least strategic level) decisions, so not surprised to see you're in s similar position already.
I'm currently in the middle of rolling- moving remainder of J15 $250s
to $350s (already holding the $300 for lower leg);
and to J16 $400 ($300s are already in place there, to be moved to $350 if we hit $300 later or LEAP-frog(sorry) to $450 if get to $300 more quickly;
not adverse to carrying a little J16 $500 too if we get a dip on Ukraine
I think we will likely range trade for a while
Also, not forgetting J17 will come available Nov- so will be adding those from the lower leg of the J16s; so want to be a little heavy on the J16 lower leg going into that- and also keeping that leg a little lower strike than normal for that reason.�
Mar 4, 2014
ongba Kenliles,
thanks so much for your posts on rolling leaps. Is there a reference article or book that you are aware of related to rolling leaps or is this a strategy that you have developed over the years?�
Mar 4, 2014
kenliles It's the latter. Although I've had several requests for reference books. I don't really know of any. A few articles I ran across from time to time; Also, see some related posts in the Alternative Energy thread that further delineate what companies qualify well for this method;
Currently, I use it for TSLA of course, as well as small group(definitely not all) of Solars (SCTY, SPWR, CSIQ)- the Solars are just coming into the qualification criteria as they emerge from the huge filtering time. Those that qualify are emerging winners that should grow for years to come�
May 30, 2014
Jonathan Hewitt I'm buying a new house and plan on using the equity in my current house for the downpayment on the next (moving for a new job). It's quite possible that I don't have the house sold in time to close on my next house. I'm looking at a close date for the new house in early/middle August. I am thinking of selling my TSLA stock and buying Jan 16 LEAPS to replace the stock so I don't miss on any upward movement of the stock while I wait for my house to sell.
Once my house sells I could then sell the options and rebuy the stock or put the cash in a "high yield savings account" until I reach long term capital gains on the options and then switch it back or I could pay cash for a relatively large solar system.
The biggest negative I see with this plan is I bought in at $34 a share so I would have to pay significant taxes on these gains. (I'm not complaining about having this problem!) I could try to offset this with installing a solar system on my new house (I offset my gains last year with buying a Model S
I looked at buying options at a strike price of $100, $150, $175, $200, $250, or $300 and different mixes of them. $100s do a great job of being a 1:1 stock replacement due to being so DITM. My favorite for this strategy is probably $175s or a mix of $150s, $175s, and $200s because these options are DITM enough that I'm not paying a lot for time value but if I buy the same cash value as the $100s I would get a greater return if the stock goes up.
Anyone have any advice?�
May 30, 2014
DaveT Have you considered taking out margin if needed instead of selling your stock?�
May 30, 2014
Jonathan Hewitt Don't you have to have cash in your account to pull it out? Or do I call my broker and ask to take money out on margin?�
May 30, 2014
DaveT You don't need cash in your account to pull. You can call your broker and they can usually wire money to your bank account same day or next day.
For example, let's say you have 1000 TSLA shares in your account with no cash. With TSLA at $200, you can probably pull $100k cash on margin (depending on your broker's margin requirements).�
May 30, 2014
Jonathan Hewitt That changes things! Thanks, I'll have to look into that...�
May 30, 2014
Familial Rhino I would also consider the risks. If TSLA has a significant drop before you have a chance to repay the cash, you could get hit with a margin call, which would probably ruin your day. You'll have to decide how likely this scenario is, and how comfortable you are with the risk.
I know I wouldn't do it, but you know best what works for you. Just thought I'd throw this out there.�
May 30, 2014
DaveT Make sure you ask your brokerage about TSLA margin maintenance requirements and do some research on how often your brokerage changes those requirements. Sometimes when a stock drops significantly a brokerage might raise the margin requirement. I think IB did this with TSLA when it dropped from 194 to 120 (I'm not sure the details but somebody with IB could probably share more). But most brokerages I've seen have a 50% margin requirement with TSLA and kept it the same during the 194 to 120 drop. Btw, what brokerage do you have?
- - - Updated - - -
Yep a margin call is a definite risk if there's a significant drop. But overall, taking out margin could be a better move (vs liquidating stock and paying taxes), since if there is a significant drop you could liquidate your stock at that time and then buy Jan16 LEAPs which would be had a discount (vs now).�
May 30, 2014
Familial Rhino True. You'd have to work the numbers, though, for such a scenario to see how many LEAPs you can get after liquidation and paying down the margin (I would certainly not go all LEAPs while being on margin.) This calculator over at optionsprofitcalculator.com is helpful for such what-if scenarios (I've posted it before.)
It's not very likely to happen, but it's better to think it through beforehand.�
May 30, 2014
Jonathan Hewitt I'm using USAA right now. I've been strongly considering switching, though. They are supposed to be changing their services to a Fidelity based service sometime this summer. TSLA is not on their list of volitile securities and I don't think they ever put it there, even during the drop. Most of the solars are, though. https://www.usaa.com/inet/pages/inv_margin_securities
Another option that hasn't been mentioned is I could convert some of my stock to options so not as much cash is borrowed on margin. This could be a good mix of the two options discussed.�
May 30, 2014
DaveT Agreed. When I take out margin I map out various scenarios including if the stock drops to under $100. One of the key variables is if the brokerage changes margin maintenance requirements for TSLA during a big drop, and that's tough to plan for but something to include in scenarios as well.
I also usually have different approaches for holding margin short-term vs long-term.�
May 30, 2014
brysondad Why not just rent until your current house sells and u have the proceeds. I gotta think the extra rent/moving fee is still cheaper/less risky than dealing with capital gains tax, options, margin calls�
May 30, 2014
Jonathan Hewitt I agree. My wife and I were planning on doing that initially as we are going to build a house. We were initially under the impression it would take 5 months to build, which would have been plenty of time to sell our current house for our market. The problem is that when we showed up to sign all the paperwork we were told 75-90 days is the current build time...We could've still have backed out at that point but papers were in front of us, pens in hand, and we were pleasantly surprised about how quick they would build the house as our first thought was less time in temporary housing. It wasn't until we were walking out that I got the "oh shoot" feeling that we might not have our current house sold by then...So yeah, great advice but too late.�
Aug 6, 2014
ckessel Back on March 25th the stock was about $220 and I bought a bunch of Jan 2015 LEAPS. Today, the stock is $25 higher and those Jan 2015 options are worth barely 50% of their original value. LEAPS as stock replacement and rolling them seemed like a sound strategy, but I guess it would have to have been 2016 LEAPS to have any shot at working?�
Aug 6, 2014
AlMc
On the bright side we kept them when they were down as much as 75%.........I am going to ride mine a bit more. The 300s are the only ones underwater for me now, so if we can keep the momentum going we could get closer to breaking even on those. :wink:�
Aug 6, 2014
ckessel Even if I kept them until they broke even, that'd mean the stock was somewhere near $270 (comparing it relative to where the $18 cost basis I paid is against the current price). In which case, I'd break even while the stock had gone up 20%. Still not good.
The idea of LEAPS as stock replacement seemed sound, but I feel like I must have failed in the implementation. I bought very out of the money, which is all time value which steadily drops. If it'd take 20% growth every 5-6 months to combat time decay, that doesn't seem like a terribly good option.
Now, if I'd bought fairly ITM options, I think I'd be showing a decent profit. For example, there's only a $7 premium on Jan 2016 $125s. If the stock moved 20% in 6 months on those, I'd be doing pretty well (better than pure stock). So, I'm guessing LEAPS would be fine, but not to buy so OOTM?
Edit: I dumped my Jan 2015's at around the $246 mark for about 50% loss, so now I'm trying to figure out how I want to reinvest that for the next time around. I'm currently thinking I'll wait 30 days to avoid the wash rule...which of course means the stock will rise 50% in the next 30 days and you should all buy like crazy.�
Aug 6, 2014
AlMc Correct. Way OTM LEAPS work great when you 'know' the stock will continue to appreciate fairly steadily. I agree with you overall and will adjust my strategy to reflect some ITM, ATM and $30-$50 OTM 2017s LEAPS depending on the stock price when they are released in November.
So, you selling the 300s soon? (today??)...Just curious, I will hang onto mine hoping for a little short squeeze help over the next couple weeks.�
Aug 6, 2014
ckessel Yep sold after the jump this morning, we'll see if I regret it. If I get out now, I have something to reinvest, but if it dropped again I'd be completely out. Figured it's better to roll something forward into a new plan than gamble any further and potentially have nothing.
The wash rule is pain in the ass. There's lot of room to run. There's also lots of room to do nothing while the market waits to see if Tesla really does get the line ramped up and waits on the X.�
Aug 6, 2014
chickensevil Sidebar on wash sales and taxes, why wouldn't you just be better off buying new options and gaining all that lost money back? if you get a 100% gain to counter your 50% loss wouldn't that be better than some deduction on your taxes? At what point is the break even here of where you would better benefit? Assuming you have a reasonable expectancy for stock movement.�
Aug 6, 2014
ckessel Heh, yea, that'd be awesome
What would you recommend for 100% gain in the next few months? Because damn near every time I've tried to pick an option for that in the last year it's been 100% loss. The LEAPS approach was supposed to be a more conservative play with options...and I suppose it was only 50% loss this time.�
Aug 6, 2014
Theshadows They have lost time value since then and the other thing is iv is still pretty low. It was massive when we bought those things this spring. (SMH, expensive lesson learned, I hope.) With the stock moving like it has been if we keep this up the iv will start rising and so will the value of our LEAPS. I'm keeping mine. I sold my August 260's I bought back in march today though.
If we hold above 245ish I think we will be looking to chase the ath of 265. However I don't see it this month and we might cascade into a dip if we hit 250, so that's why I sold my August calls today.�
Aug 6, 2014
uselesslogin You won't get as much leverage but I think replacing stock with LEAPS makes sense if the delta of the LEAPS in 0.75 or so. If you were to do that today the strike price for Jan 2016 LEAPS would be $150 or so. I will admit I am more aggressive than that with TSLA but at least that is a frame of reference for what is relatively conservative for the strategy.�
Aug 6, 2014
FANGO I did stock replacement at the same time, but I replaced it with very wide otm call spreads, then when we went down I bought back the short leg and booked a profit. I plan to sell the short leg again if IV goes up...maybe, anyway. I bought some more otm calls when we were down too. So I'm down on the very very otm calls, but up on the otm calls which I bought more of. All in all I've broken somewhat even, which is about where I would be with stock, only I had less money on the line in terms of margin debit.
So maybe that's something people could try?�
Aug 6, 2014
ckessel Well, starting to regret selling those at $246. I can just never seem to get the right end of timing no matter what. I suppose I could buy the 2016 LEAPS now, but then I can't take any loss on today's sale until I roll the 2016's sometime next year.
And the last couple times I felt I should get back in or miss out, TSLA crashed...�
Aug 6, 2014
AlMc Bright side; At least you did not sell them when TSLA was at 230!�
Aug 6, 2014
GasDoc I did the same after my Jan15 310's were GREEN again!
My Jan16 260's are looking really good. Can't remember who suggested buying those on the big dip a while back but thanks for that gem of advice!�
Aug 6, 2014
pz1975 This is a good reminder for us all: when we get the big dips, as long as the Tesla-story hasn't changed, LOAD UP ON LEAPS! Sometime I try to time the dips by buying shorter-term calls hoping for a quick rebound but I usually end up losing $ overall because market timing is impossible. Looking at my 2016 LEAPS, they have gone from 60% red to almost break-even in the last few months. For LEAPS, market timing of these dips and spikes become irrelevant as long as the overall trend is up.�
Aug 6, 2014
chickensevil Don't look at me, I still haven't touched options. I have been slowly working to understand the ins and outs because they seem simple but are vastly complex and I am not willing to risk losing a ton of money just yet. This was one of those pries into understanding them a bit more... I will sulk back into the shadows again and continue watching you all risk your money�
Aug 6, 2014
BlueTan85 I'm with the chicken on options. Never touched 'em. LEAPS sound great and all but I've never found a simple, clear, straightforward step-by-step explanation. As soon as everything seems to make sense, one discovers a gotcha. Kind of like Linux.�
Aug 6, 2014
chickensevil If Linux is a good example, then that means the only way to actually learn is going to be the hard way... unlike Linux there is actual real loss by messing something up with options. There is no reboot or restore or rebuild option�
Aug 6, 2014
pz1975 If you want to learn options, the only real way is to try it. My advice would be to buy a Jan2016 LEAP (maybe with a strike price 10% above stock price at the time you buy) at some point (or wait for Jan2017 LEAPS available in November) and just watch what happens to it. Obviously you'd want to wait until the stock "dips" to do so (could sell some stock to pay for it). It increases profit potential and loss as the stock goes up and down. Doing the LEAP option is safe because there is a huge amount of time to recover if the stock goes down. The main thing would be to roll out (sell it and buy LEAP(S) 1 year further out) at around 5-7 months before the expiration date, preferably at a higher point of stock price (like right now for the Jan15 calls (used to be LEAPS when bought)) to maximize gains.�
Aug 6, 2014
DaveT I hate to say it but I think you need to make better analysis/calculations before you enter into such positions. You really ought to have a spreadsheet for various scenarios and understand your risks. To buy 300 strike Jan15 options at end of March when stock was $220 (btw those aren't LEAPs but are options expiring in a bit over 9 months after you bought them at the end of March), you really need to have very strong confidence that the stock is going to $350-400 by Jan15 expiration. And this is right after the stock was in the 120s in November and nearly doubled to $220. Even if there was a possibility that the stock would be at $350-400 by Jan15 expiration, you shouldn't make decisions off of a small possibility. It really needs to be a very strong likelihood of that happening, and even then you need to understand the risks involved.
I've said this before, but OTM LEAPs really ought to be purchased only when you think the stock is really undervalued and you're going to see a major rise in the stock price in a relatively short period of time (ie., 6-12 months out, but you give yourself another cushion in time as well). If the stock is fairly valued (ie., $200-230 at end of March) and you buy deep OTM mid-term options (ie., 300 strike Jan15) then you're most likely going to lose all your money. The big question though is how you weren't able to see that or what your assumptions were.�
Aug 6, 2014
AlMc Good advice: Other things to consider: Yes, you have the potential for very large gains but also large losses with LEAPS. With stock, as long as the company does not go 'belly up' you always have something of value. With LEAPS, if you get a big dip you could potentially lose your entire invested amount. Overall, LEAPS have been good to me. I agree with pz1975 that it is best to buy something close to the current price. Just buy 1 0r 2 and get a feel how the price changes with time and stock price change. I learned by reading, asking questions and then just trying.
none of us knows each other's finances and risk level that we are comfortable with....So, I would start very small�
Aug 6, 2014
ckessel There was a lot of discussion here at the time about LEAPS as replacement, the rolling strategy and such. The late March price was a decent drop off the ATH and the feeling seemed to be that it was then undervalued and we'd be moving up slowly over time, so the J15 options made sense even if it was just to roll them 3-5 months later. Folks were talking about the J15 300s at that time, which seemed a reach to me, but my understanding was the high strike let you get maximum leverage and you were going to roll them so you got back a lot of the time value later. What I didn't really grasp was the high strike level and the impact of IV changes on that time value.
The IV drop killed a lot of the time value. TSLA's IV had ran high for a long time before hitting the lull in the last few months. And clearly late March didn't end up being anywhere near the bottom of the drop. Given what I thought I understood at the time, I thought I'd made a purchase that was reasonable.
I've been up front saying that I must have failed in the implementation, both as reflection and warning I suppose. It's a bit of rubbing salt in the wound to take that reflection and add "The big question though is how you weren't able to see that..." :frown:�
Aug 6, 2014
DaveT Sorry if it sounded like rubbing salt in a wound. I was just sincerely trying to help you evaluate the decision and share a different perspective.
Btw, I'm not a fan of the rolling LEAPs program as stock replacement plan that was discussed here.
- - - Updated - - -
Actually I re-read my last sentence in the prior post and I apologize. It was not phrased in the right way.
I think I'm just frustrated at the decision-making process when people here were buying deep OTM options/LEAPs during the LEAPs as stock replacement talk here a while back.�
Aug 6, 2014
Auzie I disagree with your wording that you failed in implementation. No need to put such words next to your learning attempts. Everyone trading options makes wrong calls from time to time, people just do not talk about their wrong calls but they happily brag about their successes.
I have been trying similar strategies with leaps as you described. I do not wish to buy more stock as that makes my already unbalanced portfolio even more unbalanced.
Imo first few years of trading in options can be written off as a learning experience. I set a budget dedicated to such learning. Wrong judgement calls are inevitable part of any learning, like a feedback loop. My options bets are relatively small compared to my portfolio, to minimize ouch factor. But there are small ouch ouch here, all dully paid by the author. There were few 'Whoooas' last night as well.:smile:�
Aug 6, 2014
Chickenlittle In RETROSPECT everything obvious. Don't beat yourself up about your investment. If I followed Dave's advise I wouldn't have bought 2014 leaps with a strike of 50 that cost 1.50. Stock clearly not over valued then not able to meet targets in 2012. Price was in high 20s. I would only be upset if you didn't understand the investment and risk or if you used margin or over extended yourself. Learn your lesions and move on. There are many different strategies and I urge you to be flexible. For instance at times I may buy options or sell. Probably about the time you bought your options I sold calls 2016 with strike of 440. Got 11 dollars and would be smiling if they are called away. If stock dropping can buy back (had dropped to about 5) or hold to expiration. I only included this as an example. I am not urging you to do this. Options are not for all personalities and require a lot of practice and frequent monitoring�
Aug 6, 2014
ckessel Yea, I'm not a fan at this instant either
I failed to do enough research. Unfortunately, I don't think I was self-aware enough at the time to realize what knowledge I lacked so I'm not sure looking back in time that I could have made all that much better of a choice.
The tool is there and, while clearly dangerous, I could have done better using it. There are certainly LEAPS where the premium looks like a pretty good deal. If I look right now, I can pick up J16 $125s for about a $7 premium. So almost 2x the leverage and it seems a pretty good bet I'd more than make up the premium by then. That's why I said I failed in my implementation.�
Aug 6, 2014
DaveT Yeah, the reason I disliked the LEAPs as stock replacement plan discussion a while back was because I think it violated a lot of basic principles. First, deep OTM options are highly leveraged instruments and the cost of high leverage is going to be shrinking time value. So, in order to use highly leveraged instruments, it's important to be confidence that your rewards are going to significantly (in a major way) be greater than the shrinking time value and more importantly, the risk of having your options expire worthless. That's why I said if you're buying 300 strike Jan15 options at the end of March, then in order to make the risks worth it you need to be confident the stock is going to $350-400. Second, with deep OTM options (including LEAPs) it's really dangerous to buy when the stock is trading in it's mid-high range (ie., $220 at end of March). I guess this is more personal perspective of how you evaluate and analyze TSLA market cap range, but if you buy at $220 at end of March and it's in it's mid-high range then the chances are even if it's keeps in it's mid-high range then it might end the year at $250-300 or so IMO. So in order to get to $300-350 then it has go to into a very high range. And to get to $350+ (which is needed to make it worth it), it has to get into a super-high trading range. And so in order for the decision to work out the stock has to move to a super-high trading range, which while is possible is very unlikely.
To me timing is the most important factor in purchasing LEAPs. The best time to buy LEAPs is when the stock is in a low/bargain trading zone (ie., $120-150 end of last year), and to give enough time/cushion for the stock to make the dramatic rise you're expecting. So, if you're expecting a conservative $300 price target by Jan16, then when the stock is at $130 one can buy $200 Jan16 LEAPs. Since you're confident TSLA will be at $300 by Jan16, then you're super confident it will be at least $220 (ie., break-even) at Jan16. And the chances of your options expiring worthless are quite low, as long as you're correct on your belief that the company's long-term story hasn't changed and your future projections are solid.
Another thing is I don't mind people making random decisions on their short-term trades, since usually the feedback loop is quick (ie., they're lose money quickly and stop doing what they're doing). But when people start trading their long-term positions in TSLA (which I'm assuming is a significant amount, but I might be wrong) into OTM leveraged options at what I think is not the right time and poor risk/reward profile, then for some reason it's frustrating. But maybe I shouldn't think about it and just focus on what I can control.�
Aug 6, 2014
Wenche I got into options about one year ago, .. studied the behavior of options in a play-account (most brokers has that option, and it is very helpful) you may buy several options, and have a look at their behavior over time. I still use my play-account.
I still have my core TSLA stock, but after my initial buying, I found the stocks to be too expensive! Then I went into options, instead of buying stocks. I bought the strikes with the less premium, and fair price, and always found that the strike about half of the todays price, had little premium and good delta. Delta has been about 70-90%. In my case I could buy 2 options (for 200 stocks), for close to the price of 100 stocks, and still gain up to 1,8 of the stocks gain, when the stock was going up. The Jan 16, 125 strike has a price of today at 130, premium only 5. I have bought both "safe options" as I mentioned, but also more risky ones. Over time the deep in the money (half price), has given more than just stock.
This post may be transferred to the options tread�
Aug 6, 2014
ckessel This is the one that typically kills me, bad timing. A lack of patience has been a good part of it. Still, times like right now are very hard for me to peg. We're nearing the ATH, but we're also seeing analyst increases and significant events coming with the X later. Is the stock high value now? Mid-value? Doesn't seem likely to be low value right now, but if there's no real dip between now and the next steady rise, I guess it was.�
Aug 6, 2014
austinEV Deep in the money leaps are options easy mode. I picked up 170s a few days ago for less than $10 premium.�
Aug 6, 2014
DaveT Yeah it was my bad. In my head what I meant to say or what I was thinking was "If you made an investment mistake (which all of us do at times) it's important to go back and try to find out what you might be overlooking or not seeing when you were going through the decision-making process. And once you found out what you were overlooking (or not seeing), then to find out what was the cause of that overlooking was. That way you can learn from your mistakes and fix/improve on the root causes, and this will improve your investment decisions." But I guess in the heat of the moment it came out differently. Sorry again.�
Aug 6, 2014
Familial Rhino Dave, I hope the desire to avoid the occasional misphrasing will not prevent you from sharing potentially good insights in the future. The great value of this board is in the mutual education it fosters, and it would be a pity to lose that.�
Aug 6, 2014
AlMc Dave, So to continue on the discussion, especially as it pertains to LEAPS vs. stock. You would not be buying LEAPS at this point because we are in the mid-high range unless they were DITM to take advantage of the increased leverage they may have over buying more stock? Also, it appears you would do a LEAPS replace stock in a non taxable account when you feel valuation is very low....Otherwise you would never sell your stock to buy LEAPS?
Thanks......... This may need a new thread or be moved to the 'Dave thread'�
Aug 6, 2014
DaveT Yeah, since we're in mid-high range (IMHO) I don't look at it as a good opportunity to buy a new long-term position (stocks or LEAPs). However, I do look at it as a good opportunity to keep holding a long-term position since a growth stock can keep trading in a mid-high range for many years. So if one sells at a mid-high range thinking they can accumulate more later, they might not get a chance. Even if the stock gets to a super-high range, I still think it's a good opportunity to keep holding a long-term position that you already have, since there would be tax consequences to selling your position and in the longer term future the stock is likely to be much higher. In a tax-deferred account, everything changes since taxes are deferred so I think it makes sense if you have ambition and know how to discern a super-high range, then you could convert a part of all position to cash and wait for a correction. The difficult part is when to buy back again since a correction will likely bring it back to a mid-high range but probably not a low-mid range.
Regarding DITM, I personally wouldn't be buying deep ITM options as a long-term stock replacement during a mid-high range. I don't like the risk/reward profile. I'd much rather be buying stock or LEAPs (of any kind) during a low-mid range.
It all comes down to these principles... buy stock when the company is undervalued (low-mid range or lower) and avoid getting sucked into the hype and enthusiasm (mid-high and super high ranges). Options (even DITM) are leveraged instruments, so the buying opportunity needs to be even better than if/when you bought stocks. In other words, buy LEAPs when the value of the company is even lower than the low-mid range (or lower) price you would have invested stock at.
This is the main reason I didn't agree with people selling their long-term stock positions for LEAPs several months ago when the stock was $220-250 range. I felt like at that time the stock was at a super high trading zone. Enthusiasm is the highest during the super high trading range and the stock looks so sexy (believe me I know), and I understand the appeal of buying or even trying to keep the same number of shares but with less cash via LEAPs. But with LEAPs you're taking on a much more risk asset (although with less cash than stock), which at the right trading range (ie., near super low) can have a great risk/reward profile. But a super-high trading range, the chances are you'll get burned.
I think there are a lot of factors involved. But in a tax-deferred account, if I'm confident in the long-term story of the company and it's trading close to a super low range, then I have no problems selling stock and going all LEAPs, preferably 1.5-2 years out. I also think it's could be okay to start buying LEAPs at a low-mid range but in the lower half of the low-mid range, depending on our goals.
In a taxable account, it's much more complicated because each person's tax rate is different and that affects decisions in a rather profound way when things are all calculated in a spreadsheet. Generally, the lower your taxes are (ie., if you're at 15% long-term capital gains tax and/or lower income tax brackets), then it could make sense to follow something closer to the tax-deferred account strategy I laid out above, but with some adjustments of course (you'd need lower risk and greater reward in order to sell stocks and switch to LEAPs since you'll be needing to pay taxes. So you'd probably want to buy LEAPs as it approaches the super low range. (Note: my personal super low range is quite low and I don't expect it to get there because the bargain investors will sweep it up before, that's why I say "as it approaches the super low range".)
Now on another question, it gets quite complicated when new investors come along and say, "is it a good time to buy some TSLA?" Generally, if the trading range is low-mid, then it usually is a good time to make a long-term investment. But if the stock is at a mid-high range, it's tough because if you make a long-term investment then it could go a lot lower but if you don't make an investment the stock could trade at a mid-high range for quite a few years to come and you miss out. So, in this case if the stock is already at a mid-high range and person really wants to get in with TSLA, I think I'd probably recommend more of a short-mid term position, perhaps with a smaller position, maybe ITM options, maybe stop-loss (although controversial), etc. There's no perfect approach here but I wouldn't disagree too heavily with a person wanting to take a small/modest position if they understand the risks involved. It's just that I'd much rather it was a low-mid trading range, and the person bought a large long-term position. That's a much better risk/reward profile.�
Aug 6, 2014
FANGO I'm always wary when people ask me if they should buy TSLA, which I get a lot since I've done so well on it. I generally never recommend anyone to do anything stock related, because my risk profile is different than theirs, and I don't know when they'll need the money, I can't control when/if they sell, etc., and I don't want to be responsible for anyone else's decisions (or losses, or gains) but my own. I suppose that loosens a little on here, since we're all here for the same reasons and so there's a bit of an understanding there, but yeah, that's a tough question to answer.�
Aug 6, 2014
Theshadows @Dave - I think you should put your last few posts in this thread in yours also. That is where info for the deep thoughts by DaveT
I was also thinking how nice it would be if you put your whole series on your blog page under your profile here. I have been busy and your thread gets so much activity I have to dig for your series articles. (Hint: lots of people enjoy your deep thoughts)�
Aug 6, 2014
Ryo So I'm in the situation bolded above - tax deferred account. DITM J15 150's bought when TSLA dipped to 120 last fall.
I concur that TSLA is trading in the mid-high range currently but am planning on holding since I feel the odds are strongly in favor of TSLA making a new ATH between now and J15.
So naturally I am curious why your investment approach would prefer conversion to stock in this scenario(?)
Thanks�
Aug 6, 2014
DaveT Yeah, I generally agree but I think it can be helpful to give a model/system of principles that people can follow that can help them make better decisions. But in my experience, most people just want to know what to buy and don't want to spend the time/energy to learn principles. An example was yesterday I had dinner with an old college friend, and we talked a lot about investing but I didn't mention Tesla at all. Zero. He has no idea I know anything about the company or stock. He wanted to know what I was invested in and I wouldn't tell him. Rather, I just shared/talked about investing principles because I felt that would be more helpful to him.�
Aug 6, 2014
chickensevil Well thanks for the great responses and info on this all around I think this really helps with investing in general, not just Tesla.
- - - Updated - - -
Coming from someone who up until a couple years ago had never touched stocks and had no clue where to start, principles alone didn't really do it for me. I got a bunch of actual stock recommendations for a bunch of safe plays to kinda help get my feet wet. Stuff that wasn't likely to go anywhere crazy but also not die in a fire. Those recommendations gave me the confidence to take the plunge. If anyone doesn't understand that there are no guarantees in investing and there is always risk of loss no matter how good something seems isn't ready to invest in the first place... But most people have also heard the horror stories and don't want to feel like they are just throwing money away too.
I also feel blessed to have found a couple great resources in helping with research in Tesla that I can't say I got or get with any other company. It is really hard to get this much insight into a company and even if you do it takes a ton of time to just focus on the one. The rest of the companies I traded in the past had far less detail and insight about them. It really almost seems unfair the amount of support one can get on Tesla.�
Aug 6, 2014
DaveT So the general principle is in the mid-high range, you want to be fully invested but you don't want to take too much risk with long-dated options because the risk of loss is higher and reward lower than when the stock was in the low-mid range. Most people would probably be best off just owning stock and long-dated LEAPs that were purchased in the lower low-mid range and have at least 1 year left to expiration. The reason being is if you have LEAPs that are less than a year, then it becomes more of a shorter term play. In your case with Jan15, you have 5 months left until expiration. So it's really a short-term option now and no longer a LEAP. And the value of your Jan15 position will dramatically rise or fall based on the rise/fall of the stock (ie., if stock goes under $200, it'll drop a lot and if goes to $300 it will rise a lot). And since it's in a tax-deferred account you could roll out your position without tax consequences. So, in your case if you're ambitious and wanting to play the short-term stock movement (over the next 4-5 months), then you're free to keep you Jan15s. And I wouldn't necessarily argue with you since I also agree there's a very good chance/likelihood that we break ATHs in the next couple months. I would just advise that you recognize it as a shorter term play. (Note: Roughly 30% of my TSLA position is Jan15 options purchased at various points in May-Nov 2013 in the lower low-mid range or super-low range, but since they now only have 5 months left I consider them a short-term play and not a long-term investment and I recognize the risks of such investment. If I didn't have tax consequences I would have rolled all my Jan15 out to Jan16 in the lower half of the low-mid range back in Nov-Dec last year, and probably would have converted a significant portion of my stock to Jan16 at that time as well.)
If you're not wanting to play the short-term movements as much, you could also roll out your Jan15 150 strike options to something like Jan16 170 strike options (or a bit higher strike to be a bit more ambitious but I'd advise against OTM since we're in the mid-high range). And you could also just convert them to stock (something I would definitely suggest if we reach super-high trading range). You could also do something where you convert some to Jan16 170 strike LEAPs and convert some to stock. This would lower your risk (and reward) a bit but keep you fully invested with stock and some long-dated (over a year) ITM options.
But overall, the investment model I shared is more geared toward the long-term investor with a large (in terms of % of portfolio) invested in TSLA and is looking for 1) lower risk than a more aggressive shorter term investor, but is also looking for 2) greater returns than holding just stock.�
Aug 7, 2014
mulder1231 I did the exact same last fall, except didn't have a tax deferred account then. So my strategy is to execute at the expiration. This means I'll own the stock without having to report a gain on my 2015 tax.
The reason I bought these at the time was that I had just lost a ton of money on Dec '13 $180 strike calls. I was sure that TSLA would hit $200 by end of 2013 but the fires threw the wrench. I didn't have much cash at hand so decided to go leaps instead, versus buying the stock outright, for leverage. I'm glad I did, because come Jan '15 I'll buy a ton of stocks at $150, while TSLA will hopefully be at the $300 level. And, my cost base will be $150 + $35 premium and I will be taxed at the cheaper long term gains rate if I do decide to sell them (versus short term rate if I were to sell the leaps and buy the stock from the proceeds).�
Aug 7, 2014
Familial Rhino Dave, what is your take on selling covered calls, assuming the stock is trading in the mid-high range or above?�
Aug 7, 2014
justdoit I have some Jan 15 $200 calls I bought last November and are now up 300%. I've been debating if it makes sense to sell and take some profits now while moving some up to higher 2016 strikes on any pullback. But also wanted to hold on for a couple more months so the profit can be considered long term capital gains. These were intended to be LEAPS (and of course no longer are) but waiting till November makes it only 2 months till expiry and therefore more risky. I'm confident TSLA be up in the next couple of weeks but not sure about any pull backs from now till November. Would hate to hold it till November only to see its value decrease.
Any ideas on what might be the best strategy? I've considered selling covered calls to create a risk free spread but have heard that that restarts the timer on the calls for long term capital gains. That true?
I usually don't let taxes drive my trade decisions, but this is one case in which I think it does (can?) make a significant difference
Thanks!�
Aug 7, 2014
vgrinshpun I would form cost free bull spread and wait until just before expiration to sell lower leg and buy back the upper leg. Based on your info you bought your $200 calls for about $15 each. You can probabaly sell strike $290 calls of the same expiration date to make cost free $200-290 spread. Assuming that stock is above 290 before Jan 17 you will be able to book $90 per call, while removing any risk of losses from now on. This compares to making $90-15 if you just wait close to expiration with the same assumption of price just exceeding $290 before expiration. So you would make 16.6% more with the spread than just waiting and cashing out before expiration. If you are concerned with taxes you would need to compare your delta between long/short term bracket with this 16.6%. Huge advantage of forming spread, of-course, that the risk of loosing original $15 is eliminated.
I used this tactic with good results as we were moving up from the after-fire lows...�
Aug 7, 2014
Chickenlittle since extensively sharing your principles of investing, can you share with us your percent gain over the past two years so we can gauge the results you have achieved? not asking for dollar amounts just a percentage.�
Aug 7, 2014
DaveT Well, first it's kind of sad that this discussion was moved to Advanced TSLA Options Trading because my original post/methodology was not gear to short-term trading but rather long-term investing, and it wasn't geared to advanced options but rather an infrequent use of leverage (ie., LEAPs) when the stock hits a really low valuation range and mostly holding stock through most of the ups and downs.
Anyway, regarding covered calls I think there's really two audiences/approaches. For the short-term trader who knows what they're doing, they'll use whatever they need to accomplish their short-term trading goals - whether it be covered calls, selling puts, debit spreads, credit spreads, iron condors, etc.
Now for the long-term investor who's interested in selling covered calls, I think there are two audiences here - taxable account holders and tax-deferred account holders. For the tax deferred account holder, if they sell covered calls and their stock is taken away then there are no tax consequences. But for the taxable account holder, there are tax consequences when shares are taken away/sold. And for some the taxable consequence can be as high as 37% (ie., 23.8% federal, 13.3% california state tax). So, with tax consequences it changes the game.
For the general TSLA long-term investor, I'm not too hot on selling covered calls in general since 1) they might think TSLA is high and sell covered calls, but their judgment of "high" might not be accurate, 2) if they get their shares called away, then they need to face the difficult task of trying to enter again which is often very difficult to know when to enter and with how much. If they just keep holding their TSLA shares for many years (assuming TSLA keeps executing) then they don't have to worry about trying to re-enter.
If you're going to sell covered calls though, for a stock like TSLA the best odds are to probably sell them when the stock is in the high end of the super-high range or even surpasses the super-high range. But determining what that high end of the super-high range is not easy (but something I'll attempt explaining in the future in my series).
For me personally, I'm not looking to take profits from my long-term TSLA position so I'm not interested in selling covered calls for part or all of my position, since the possibility of my shares being called away are always a possibility and I don't want to face those tax consequences. But as I mentioned before, if you're short-term trading and/or have a tax-deferred account or really know what you're doing, then it's different.�
Aug 7, 2014
Familial Rhino Thanks. I should have been more specific. I am referring to selling OTM weeklies against the core stock position, with the intent of keeping the stock forever, all held in a non-taxable account. The strike should be safely out of the probable range, being content with a small premium. Repeat every week. The purpose here would be to add a moderate boost of 0.5-2% per week on a continual basis, and deploy the accumulated cash on dips to buy more shares. If one can sell a non-trivial amount of contracts, it can really add up. Also, when done before earnings, the (usually) higher volatility means selling covered calls can increase the size of the boost quite significantly. Staying out of the range where you can get called away is key, as you pointed out.
So I was looking at this as a long-term strategy to boost the long-term return, as opposed to a short-term trading move or as a way to take profits.�
Aug 7, 2014
DaveT [removed. i think i shared tmi.]�
Aug 7, 2014
DaveT You're trying to basically make money over time using a short-term strategy of selling weekly OTM covered calls on your TSLA long-term position. This is difficult because TSLA is so volatile and sometimes when it goes up it really goes up fast and even though you though the OTM covered calls were far enough OTM, still somehow it reaches the strike and you can get your shares called away. You could also buy the calls back before expiry as well. But whatever the case, you're getting into short-term trading and it requires short-term trading expertise.
From what I've seen can work is the following: (note: this is advanced short-term trading)
1. If TSLA is in an uptrend, then sell put credit spreads for income.
2. If TSLA is trading sideways, sell iron condors
3. If TSLA is in a downtrend, sell call credit spreads (or covered calls if you own stock).
That's the general approach, but then it gets more advanced knowing the exact timing of when to sell the options (ie., on a downtrend when price has rebound you sell more call credit spreads counting on the resumption of the downtrend, but if the downtrend is broken then you need to adjust your strategy quickly).
In any case, short-term trading requires expertise and monitoring.
I would suggest learning from the best traders in the world who are making money off of selling options, if you're interested.�
Aug 7, 2014
Familial Rhino The type of account I have (registered account in Canada) doesn't allow me selling options of any kind, with the only exception of covered calls.
I did get called away twice. The last time I did a tabulation of the results (after about 3 months of employing this strategy) I had managed close to 1% per week, including the high premiums from the high-volatility weeks pre-Q1 earnings, but also the penalty for being called away when the stock jumped. I stopped doing it going into Q2 earnings. Anyway, I now get your point about this being a short-term trading technique, even though I am a long-term stock holder.�
Aug 7, 2014
justdoit Yea, great advice. I've been doing a little bit of that. Worse case you roll them forward. I usually buy/sell two to three weeks out (more time premium).
I had sold a bull put spread 230/240 a couple of weeks back which expire next week. Hope they expire worthless. Just sold another bull put spread 260/270 for a couple weeks out. I believe we're in an uptrend and can break ATH's and that's when I'll close that spread.�
Aug 7, 2014
Robert.Boston Sorry, Dave, I was waffling between whether to move this discussion to this thread or to the Long Term Investing thread. I guess I should have chosen the latter, but I thought the depth of discussion here was out of character for the short-term price movement thread.�
Aug 7, 2014
DaveT No worries, I totally understand.�
Aug 10, 2014
EldestOyster I won't claim to understand how half of this works, but I do read the posts and am trying to acquire some knowledge a piece at a time. This turns out to be difficult, because these concepts are interrelated! What I can't seem to get is how LEAPS apparently lose value over time. In my understanding, it's some kind of option, and once the contract is made, the unchangeable factors are (1) price you can buy at, (2) the premium you pay (a fee for the privilege), and (3) the expiration date. If I'm right, the only thing that can change the "value" is the current stock price. So, am I missing a factor (maybe the premium is a monthly fee or something), or did I misinterpret the notion of "time value"?
I hope this can be explained without writing a book�
Aug 10, 2014
Johan Look at at a price chart for calls for a given stock and a given call price. The ones further out in expiry will be more expensive. This is logical of course, since buying an option with a further out expiry gives the underlying stock more time to rise in price. By the same logic from the moment you buy a call it will start to loose time value. In your list above the "premium" (nr 2) is not unchangeable. Premium=time value.�
Aug 10, 2014
Chickenlittle 1. LEAP is just an option with a long expiration date
2. The value of the option depends on demand and supply. There will be more demand and higher price for an option that has a longer time since it is more likely to reach target. Obviously the price of stock affects option price as the lower the strike the more likely to be "in the money" what a lot of people fail to realise is that an option that is just below the current price of stock performs a lot better percentage wise than one that is very deep in the money.
dO NOT invest at this point. You are not ready yet�
Aug 10, 2014
Robert.Boston Think about time value using the following thought exercise:
One minute before the option expires, the value of the underlying security is unlikeLy to change much, so the value of the option "collapses" to equal the difference between the stock price and the option's strike price (or zero, if the option is out of the money). The time premium is (nearly) zero.
The day before the option expiry, there is some room for movement in the stock price--not much, but more than in the case above. An option that's just OTM might become ITM, so it's value won't be zero--very low, but not zero. That's the time value.
Two months before the expiry, there's a much greater chance that a just-OTM option will end up ITM, so people are willing to pay more for it. The time value is much higher.
So, this exercise demonstrates why the time value decays as the expiration date approaches.�
Aug 11, 2014
chickensevil I feel like I have a decent enough grasp on options at this point that I am going to take the plunge... Just going to end up buying like... 1 option here soonish, and let it play out. I figure I can risk a total loss on such a relatively small amount... and with the overall sentiment of TSLA looking bullish again, it should be relatively safe. It will take a while to get the approval and the account funded, but will definitely report back what single trade I make and how it pans out.
Just a question because I am trying to avoid margin accounts, if I purchase a call, and take it to expiration, will I be able to roll that as an immediate sell of shares on the open market, or would I need to sell off the option before it expires? Will the broker just do that for me by default? (might depend on who I use, I suppose...) That was the only thing never clear enough to me.�
Aug 11, 2014
Familial Rhino If you hold 1 call to expiration, and it expires in the money, you must have sufficient funds in your account to purchase the 100 shares under the contract. If you don't have enough funds, the portion of the call not covered by sufficient funds will expire worthless, or at least that's what my broker will do, because I don't have margin enabled. I don't know what might happen if you have margin; the broker may buy the shares for you (at the strike) or not, I don't know.
But one thing is clear, they do not "roll out" as an immediate sell of shares, since you don't have shares. You need to buy them first, then sell them.
You can sell the call before expiration, and you'll get (roughly) the amount corresponding to the number of shares covered by the contract multiplied by the difference between the call strike and the price of the underlying, assuming the call is in the money. I said "roughly", because the price of the option before expiration also depends strongly on the time left (the time value.)
To see the effect of time and price of the underlying on a call option, see this calculator.�
Aug 11, 2014
Chickenlittle I have a lot of options but am Leary of buying more at this price. I suspect you own stock. Have you considered sellin a covered call? Could get over 11 dollars for a 450 strike in 2016. You would either keep the money or essentially sell shares at 461 then if called away. Not bad options. Of course you should hold onto the shares to keep it covered but if stock is dropping the price of theses calls will drop steeply and you can buy them back for a lot less than sell your shares if you desired
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Sorry not true. You can sell your call if in the money without exercising or needing any cash�
Aug 11, 2014
Familial Rhino That's what I said (in the last paragraph). His question, as I understood it, is if the call expires, will the broker credit him for the difference between the strike and the price of the underlying. The answer to that question is no.
You cannot sell your call after it expires. You can sell it any time before, whether it's in the money or not.�
Aug 11, 2014
chickensevil So basically, I have to sell my Option off each time before expiration or it will expire worthless? Hrmmmm. Very well then... is there a strategy to how long you could reasonably hold an option before you get locked out? 1 day? 1 hour? 5 minutes? (as in time left before expiration)
I wouldn't want to risk covered calls on the chance that they get pulled away from me. Then I would have to deal with having the sell, trying to buy back shares, and such.�
Aug 11, 2014
Familial Rhino You can keep them for as long as the market is open, and there are buyers for your calls, just as for any other security. You can't trade options after hours. As for strategy, it's anyone's (or yours, really) guess. You want to maximize profit, so just sell them when they reach maximum value
Yes, you run that risk with covered calls. BTW, in that case, the selling of shares from under you happens automatically (after expiration.)
Please do yourself a favour and peruse the site I recommended earlier. You will see, at a glance, the effect of time on the price of the option, which is dramatic. That will help you with the timing of the exit.
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Just for reference, this is what my broker sends me every time I have options expiring that week. Emphasis mine.
---
Dear client,
Please be aware your account currently has one or more option positions which are approaching expiry.
As options may be automatically exercised or assigned at expiry, please monitor your account and ensure your account always maintains sufficient margin.
Maintaining margin
If:
� your options positions are likely to expire in-the-money
� you do not have sufficient margin to cover the auto-exercise(s) and/or assignment(s)
� you do not take action by 2 p.m. EST on the last business day prior to expiration
We may close your positions or elect for any long in-the-money options in your account to expire worthless.
If you do not have sufficient margin in your account to cover auto-exercises or assignments, choose among the following actions:
1. Deposit additional funds to your account.
2. Transfer funds or positions between your accounts.
3. Close the option position(s).
4. Close other position(s) in your account.
5. Let your long option(s) expire worthless.�
Aug 11, 2014
FluxCap Of interest from a trader I follow occasionally re: market pricing IV too low for TSLA:
Risk Laboratory: Ophir Gottlieb: * Tesla Motors (TSLA) - Risk Mis-priced Again; Stock Booms on New Model. And Now, What?
(article from 8-6-14, but interesting still)�
Aug 11, 2014
chickensevil I did, and thank you for the link it is a pretty nice calculator. I will probably just go based on my feeling for where I think it will go, and sell when it hits the point that it seems like it has ran its course (within the confines of that option). I plan to just take about 1k go until I run out of cash... although if I manage to double it, I will certainly just back out the initial investment so I am basically playing with the house's money (minus taxes)�
Aug 11, 2014
Jonathan Hewitt I did weekly covered calls a few weeks ago for a $220 strike I think. TSLA was about .10 ITM at that strike or so but the premium was still like .60 or something stupid right up until the minute before the bell so I ended up getting lucky and bought them back at .30 or so with a market order to make sure it went through even though it ended only a few cents ITM...I knew they were trying to pin it near the .00 but I almost lost all my shares! Sometimes you can get the strike and the timing right and still be wrong�
Aug 11, 2014
chickensevil So you basically were trying to hold it as close to the bell as you could just so you didn't have to pay a lot to get your shares back? That's ballsy... Reminds me of bidding wars on eBay items and waiting until just the last second to put in your bid.
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Something I have learned as I have messed around a bit with a test account is certainly how quickly in one day you can go way up or way down... You really have to get the call right or you lose big time! I hope I have enough nerve to do this haha! We shall see. In a few days when my money clears I think I'll start with something that is a bit off in timing. Like 2 or 3 months... Maybe just before the next ER... Since I am not willing at this point to risk the ER.�
Aug 11, 2014
Jonathan Hewitt My shares would have been called away if I did not buy them back. I could've taken a small loss 10 minutes before the bell but because "i was right" I didn't want to and managed to walk away with a small gain...Sanity wise it would've been better to take the loss�
Aug 11, 2014
pz1975 Just some advice: if this is the first time you are buying options, start with a single Jan16 LEAP and go from there. Shorter-term options seem cheaper but have much greater chance at big losses. I think most of us have learned this lesson the hard way. Short-term options are good when you think there is a high chance of an imminent positive or negative catalyst.�
Aug 11, 2014
chickensevil With Tesla isn't there always an imminent catalyst? Haha! I have considered that, but I really don't want to risk more than about 1k right now to sorta just throw away, and it is touch to find a ~10$ Leap that seems reasonable. I mean sure I could buy a 480$ Leap, but the chances of the stock hitting 500 is about the same as it staying right where it is right now... So I was thinking something a bit more short term. With there still being some potential movement upward between now and Q3 ER I think I might be OK with that bet. At the very least I should have enough time and the stock is volitile enough that I feel like I could set a reasonable limit and jump out early if need be. Baby steps, I suppose, right?
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Unless someone really wants to convince me we will see 500$ with a year and a half... Stranger things have happened�
Aug 11, 2014
gym7rjm I built a no cost $500-$510 spread just for kicks.
I'm not sure it will go that high by Jan 16, but at some point in the near future -- Model 3 pre-orders?? -- people will see the true potential that Tesla will have. I still think estimates are way too low for how many cars Tesla will be building in the future. We'll see a big pop when trajectory aligns more with Tesla 3.0. Not betting the house on this happening before 2016, but it doesn't hurt to have some relatively low risk / high return positions.�
Aug 12, 2014
AlMc If you buy this LEAP you are probably not going to see $500, but if you buy the option when TSLA is $260 and it goes to $320 in 2-3 months the price on that option may have gone up 50-60% and you sell it WAY before expiration.�
Aug 12, 2014
Theshadows I was thinking the same thing. I personally am not buying leaps right now. I learned that lesson in the spring. If we have another big up day today I will likely sell a leap or create a delayed bull call spread.�
Aug 12, 2014
Chickenlittle And if called away, bought back with the money you got from the sale of stock, plus you kept the money you sold calls for and cost small amount it rose above the strike�
Aug 12, 2014
chickensevil I guess this is a mindset I haven't quite gotten down yet, that will likely come as I get into this a bit more. That actually seems like a pretty decent strategy. Because actually, if I bought that today and we hit 320 in 2-3 months... lets say Nov 28, that would actually be an 81% return. I might actually just do that... it might be worth the 10$ price.�
Aug 12, 2014
AlMc BUT...The 'gamble' is that TSLA does not trade sideways for some time and the time value eats away at your option price. I had that happen with my Jan15 300s that were down as much as 70% at one point and are just now entering 'break even'. Kessel sold his at 30-40% loss. I am holding mine for now but if we get a big dip then I am SOL.
The way I started is Sleepyhead suggested I buy one OTM option and just watch the price change over time and with TSLA price fluctuation.�
Aug 12, 2014
Chickenlittle It's human nature but now excitement here about learning about options and investing in them with ATH. Time to do that was when it dipped on fires or recent drop to 190s. Would be happy to sell you the ones I picked up then�
Aug 12, 2014
AlMc Agreed. I did not buy the J15 300s at ATH, but when it dropped to about 220, as I recall. Then it dropped to the 180s and I was in deep red. While it recovered time value ate away at any gains with rising TSLA. Now close to 'break even'.
Luckily, I added other long options in the 180s, so they have more than made up for any losses.
IMO, this may not be the best time to buy LEAPS. I will wait till J17s are out and look again at them at that time.
For Chickenevil it appears he just wants to 'wet his beak' by trying a single option that he knows may be a total loss just as a learning experience.�
Aug 12, 2014
Familial Rhino Not encouraging anyone to buy or sell anything, but just wanted to point out that one big difference between now and the spring is that TSLA implied volatility right now is at historic lows. Before the most recent implied volatility drop, I used to take into account only time to expiration to gauge the range of outcomes for my options (and the projected price of the stock, obviously.) However, IV has a huge influence on the price of options, everything else being equal.�
Aug 12, 2014
chickensevil Yeah, seriously, losing 1k means I skip eating out for a little while and I would be back where I started. I am not really risking anything serious here. Overall this seems like a not so great time to buy for a serious play. I can see the stock easily going up into 300 or back down to 230 (I think we have a pretty solid bottom around there at the moment with the whole 100k production rate that is going to happen in 2016.) But the market has a mind of its own sometimes...�
Aug 12, 2014
sleepyhead If you have LEAPS and want to take profits without paying gains, then yes you can sell higher strike calls against those LEAPS to collect cash and create a spread, but:
1. If you sell a deep ITM call against those LEAPS then you will be taxed on those gains anyway, since IRS considers selling deep ITM covered calls (I think it applies against underlying stock position as well, but can't remember for sure). Deep ITM is considered anything more than 1 strike ITM, but nothing is set in stone and is open to interpretation by the IRS.
E.g. you have J16 $200 LEAPS and want to sell a covered call, you can do so and not pay taxes as long as it isn't Deep ITM. TSLA is at $255.36 right now, so if you sell the $255 or above then you don't pay taxes. $250 might be okay, but is open to interpretation. $245 might not be okay and you will be hit with a tax bill.
2. If you sell a call against your LEAPS then you may lose LTCG (long term capital gains) benefit of LEAPS if short call is held for less than 12 months.
E.g. If you have J16 $200 LEAPS and sell a J16 $260 LEAPS against it, then you are okay. No tax paid today, since it isn't deep ITM. If you hold this delayed bull call spread for more than 12 months, then you can cash out and pay LTCG on entire spread.
But if you Had that $200 LEAPS for 6 months now, and you sell a J16 $260 against it today, then the clock resets and you need to hold another 12 months to get LTCG treatment. So if you sell 8 months later, you are forgoing LTCG even though you held the long LEAPS 14 months, and will have to pay STCG tax instead on gain.
Alternatively, if you have J15 LEAPS that you held for 14 months now; you can sell them today and claim LTCG. But if you sell a $260 J15 against it today to create a delayed construct bull call spread, then your holding period resets and you are screwed. You will then incur STCG on all of this.
In the end the tax code is extremely complex. I have done a lot of research on this topic and this is how I understand it. I may have misinterpreted IRS language, which is extremely easy to do, so please consult your tax advisor; although I guarantee you that he will not know the correct answer either...�
Aug 12, 2014
justdoit Thanks for sharing @sleepyhead. This was something I was looking into also. I have some Jan 2015 $200's that I'd like to start taking some profits from but if I wait another 3 months I'll qualify for Long term gains. I thought about selling Jan 2015 $230's or something to create a spread and take some profits but that'd reset my clock for long term gains. So possible options I'm considering are
1. Just waiting 3 months before selling and rolling forward and out
2. Just creating the spread (at least on some contracts), taking the tax hit but hoping the additional profit would be worth it
3. Exercising the contracts close to expiration and buying the shares for $200 and holding.
4. Selling a March 2015 $230+ call which I'd close out when
Regarding option 4, does that also reset the clock for long term capital gains? I haven't been able to find out if the clock is only reset if you sell a call with the same expiration. Kinda hoping this is a small work around�
Aug 12, 2014
sleepyhead It is really complicated and best to consult a tax advisor, since I am not 100% sure and may be giving bad information. But here is how I see it:
First of all, if you sell $230's against your J15 $200 LEAPS, they are considered deep ITM and you will treated by the IRS as someone who just cashed out the J15 $200's, so you will trigger short term capital gains automatically by doing this. Result = STCG in 2014; how much exactly I don't know because you did not cash out 100%, so most likely the amount that you collect from selling the $230's.
1. Best option IMO if you think that TSLA will go higher. If you don't then sell now and roll forward now and pay STCG. I almost never let taxes dictate my trading strategies, because what if TSLA tanks to $180 over the next 3 months?
2. If you create spread now, then you will be paying STCG on whole thing since only 5 months left till expiration. If you hold till January, then you will not have to pay taxes until April 2016. But remember it can't be a deep ITM option, so you would have to sell a $255 or more strike price as of today
3. Also best option along with 1. If TSLA keeps going up then convert in 2015 to not have to pay taxes in 2014. Risk is that TSLA tanks and you lose everything.
4. Your J15 will not hedge that March call and you are exposing yourself to unlimited losses. Calendar spreads will also trigger clock reset, so that is not a work around.
Here is what I do sometimes:
Buy J16 late last year and then continously sell covered calls a month or so out on those J16's to generate income. Then middle of 2015 I will sell a J16 against that J16 to setup a bull call spread. Clock resets and I can cash out in middle of 2015 at LTCG or hold to expiry and get LTCG in 2016, which means paying taxes on it in April 2017.
But to be honest, I never let tax decisions affect my trading. I just do what is best at the moment and let taxes take care of themselves. Way too easy to lose a ton of money trying to save 10% on taxes.
In your case, I would just roll them now or sell them outright when you think we peaked. If you think that TSLA will continue going up for the rest of the year, then simply hold. But if you are unsure and are waiting 3 months to get LTCG before rolling, then that is way too dangerous. What if TSLA tanks again in Oct-Nov. You will only have 2 months left till expiration and not enough time for the calls to recover.
It is best to roll 4-6 months before expiration. In your case waiting for LTCG is way too risky.�
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