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
- - - Updated - - -
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.
- - - Updated - - -
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.
- - - Updated - - -
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?
- - - Updated - - -
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.�
Aug 12, 2014
Robert.Boston Moderator's Note:[\B] While we all benefit from the experience and expertise of fellow TMC members, any advice posted here is no substitute for professional tax counsel. No posting here constitutes a tax opinion. TMC takes no responsibility for the accuracy of any post nor consequences of any action taken because of postings here.�
Aug 12, 2014
chickensevil
Shame you have to put that... Should be obvious that we are all adults capable of making our own decisions, but this day and age you know someone might try to sue the site over something like that. A moderators work is never done, I suppose!�
Aug 12, 2014
c041v I am essentially in the same boat. I've started shedding the J15's, wether they are at a loss or not. I stand to walk away with nothing if TSLA tracks sideways or falls from now until Jan, and time is not on my side. I'm hoping nothing too crazy happens from now until the J17's are available, as I'm building cash reserves.Although, if we hit $300 or something silly, I have enough exposure to capture some gains. Will then decide the appropriate time to get into J17's. I've never slept so easy trading options when dealing with LEAPS.�
Aug 12, 2014
AlMc Ideally, we would have rolled the J15s up, but TSLA did not follow the plan:biggrin: and move slowly but steadily up after we bought them. I will probably sell 1/2 of them in the next 2-3 weeks after (hopefully) some upward price movement then try to decide if I wait for a good Q3 ER or just sell (roll over) the rest.�
Aug 12, 2014
justdoit Yea, good points. I haven't really let tax determine the trade decisions I've made and I probably shouldn't start now. I think this stuff is pretty complicated and I'll probably get it wrong anyways. Don't think it's worth 15% or so.�
Aug 13, 2014
bsd Where do you get your IV estimates? I'm a bit baffled by Schaeffer's Volatility Index for TSLA: it shows TSLA's volatility at super high on July 31 (0.65, just as we started on our current upwards trajectory) but now it's turned ultra low (0.37). Do they incorporate analyst projections?
I too have been burned by IV drops. I bought some medium- and long-term calls when we dropped to $190 (very low IV), but then made a mistake of "rolling up" the medium-term calls to higher strikes when we then soared to $220 (higher IV) in an attempt to book some of the profit. But the stock then dropped the next day and they went deep into the red as the value drained when the stock went sideways. I held onto them and ended up breaking even when we went to $240, but I was not a happy camper.
I've being playing with options for about 10 months now and the real lesson for me is that, like the stock, it's best to buy when everybody's scared (low IV) and sell when exuberance is high (high IV). I'm not buying anything at the moment. I'm considering selling my J16s should we go to $300 and buy back in later.�
Aug 13, 2014
Familial Rhino I don't have one spot, they're all over the place. Here is another one: Optionistics - TSLA Price and Volatility History.
It has nothing to do with analyst projections, they just compute the volatility implied by the actual option prices on the market, from the Black-Scholes pricing formula. They also show historical volatility, meaning the actual variability of the stock price in the past (as opposed to what the option prices implied at the time.)�
Aug 13, 2014
bsd (Back from reading the Wikipedia page.)
Oh I see � they look at the pricing of the available options to calculate an implied volatility of TSLA.�
Aug 14, 2014
sleepyhead I had some SCTY and SPWR Deep ITM BCS's that I set up over 10 months ago and only needed a couple of months for LTCG. But GTAT crashed from $20+ to $13+ in less than a month, so I couldn't wait any longer. I cashed those deep ITM BCS's for about 80 cents on the dollar and will pay STCG; instead of holding another 2 months to cash them out at 90 cents on the dollar and pay LTCG. I bought GTAT J16's when it was in the $13's with that cash, and now it is pushing up agianst $17 just two weeks later.
Bad tax decision, but great investment decision. As of today, I have more than offset and LTCG tax effect, probably by an order of magnitude.�
Aug 17, 2014
chickensevil Well, my option account is now funded (the money cleared) and I am finally able to purchase... What is usually the best day of the week to buy? Anyone think we will have a short downturn soon? (I mean we haven't had any pullbacks for about 2 months now) Think we might consolidate back down to the 240 levels?
I was actually debating this in my head, if I can do a Jan 16 call and potentially have enough left over, I could potentially risk just a little bit on a put that would ride out maybe 2 weeks for a consolidation around 240. I mean it might not happen, but the technicals seem to be there to say that we might have a pull back (the last run up was about 2 months before having a drop which stopped at around 239 and it has been 2 months again of green), plus this warranty thing impacting the short term financials I think might actually make people pause...
I am definitely going to buy a LEAP... just curious what other's thought are on the short term options?�
Aug 17, 2014
Robert.Boston Anecdotally, Tesla has traded down on Tuesdays. If you're planning on buying long positions and Tessa, I would look to the afternoon sessions on Tuesdays to do so.�
Aug 17, 2014
mershaw2001 i've been using calendar spreads more and more when I initiate leap positions at a point where the stock is not rock bottom. My current thought would be something like: Long 220 call (jan 2016) and short 330 call (Jan 2015). This strategy fails when the price goes up significantly before the short option expires, but I think that you would be able to roll that option forward until telsa has one of its implied volatility crushing pullbacks. For instance, if in jan 2015 the price is at 350, you just buy that 330 call back and sell a 380 jan 2016 call. If tesla is over 380 by jan 2016 then obviously this wasn't better than straight up leaps. But, I'd rather have a higher probability of success (as you're profitable at a lower tesla stock price) than a "more-win" situation, where you win bigger when you do win. I guess that might be personal preference. Anyway, just a suggestion.�
Aug 17, 2014
chickensevil You're right, at least as far as I can see going back in the short term... Unless we see a huge drop tomorrow that is too good to pass up, I will probably wait until Tues. I think I will try to do the put first thing Monday though since it will give me the best bet on the 240 target playing out with the best return... We shall see, I almost feel bad betting on the price to drop in the short term... We will see what happens. As stated before this is mostly a learning experience for me more than anything.
As of right now, I have my eyes set on either the 22 Aug @ 250.00 or the 29 Aug @ 242.50... On the one hand I get more time out of the 29 Aug but I must be absolutely right about the 240 mark vs the weekly which is a shorter time period but won't need the stock to pull back as far. Of course if I did the 29 Aug and just bailed at the sight of any drop (if it hits say 250 this week I will be comfortably in the green and can bail at that point) Hrmmmm so reasoning it out, it seems to me, if they both are going to cost about the same, it might just be best to go with the 29 Aug, or am I missing something?
Of course, this is all reasoning on the technicals saying we are right at that 2 month mark for *something* to happen with the stock... this stock seems to go in 2 month mood swings... and there being the mixed news about the warranty actually going to impact the short term Q3 earnings, and likely solidify them reporting a negative EPS this time around (unless they really pull out some magical cars from nowhere). The put is mostly a short term hedge against the LEAP I am buying anyway, since people seem to buy these at all the wrong times (at least the short term thread indicates some were having terrible timing).�
Aug 17, 2014
pz1975 My advice is if you are hoping for a specific price at a certain date, buy the option with that price at twice the time from now. That way the time decay loss in your call/put is lessened.�
Aug 17, 2014
chickensevil Makes sense, my issue is that I am restricted on how much I can spend and was only planning to buy one single option. The farther out I go the more I have to pay up front. The only way I see what you are suggesting work is if we get a price jump for a little while. I really don't see it going lower than 240 outside of a catalyst. So really my reasonable target would be 250. So really what I should try is get the 29 Aug 250.00 put based on what you are suggesting. I guess I will see how the prices look as we get closer to the market opening... And see where the premarket trading is sitting at.�
Aug 17, 2014
pz1975 Honestly if this is your first time with options, what you are doing is essentially gambling. What I mean is do you really think TSLA will go down in the next 2 weeks or are you just guessing? If just guessing the you are just gambling and since you are buying an option you need to be right at least 60% of the time (due to time decay) to make money on buying short-term options. I learned this the hard way and now focus almost exclusively in longer-term options�
Aug 17, 2014
chickensevil Honestly I was looking at it as more of a hedge against the LEAP I was going to buy. There is enough pressure on the stock to make it drop back down at this point. Since I really dont feel like right now is the perfect timing to buy the LEAP. As stated above the stock goes in ~2 month mood swings so we are either going to break out and continue going up or we are going to pull back down and consolidate (potentially as low as 240).
Based on the warranty news (which is long term awesome, short term bad) and we have no other news to feast on, and we are sitting right at the ATH, I don't see us actually breaking out here but pulling back. I reserve my final judgment for 9:30AM but I put a rather high chance of the stock dropping. I have usually been right about it in the past, I have just never put my money on it. Unless someone can give compelling reason why they feel it will break out, I just don't see it (mind you I am totally a long bull... Q3 is just going to suck... Let's face it)�
Aug 18, 2014
gym7rjm
You really think there is a lot of pressure to push the stock back down at this point? I think options expiring last Friday was keeping the stock pegged around 260, no surprise it closed at 262 on the button. ATH closings almost every day last week seemed bullish to me... feels like this week is going to be a breakout week. I've mostly stopped doing weekly lottery ticket options, but I bought a bunch of weekly $272.50 strikes on Friday with anticipation of a breakout past the intraday ATH of 265.�
Aug 18, 2014
pz1975 I didn't see the part about hedging against a LEAP. In that case, instead of buying a put, you could also consider selling a short-term call against the LEAP instead and letting the time decay work for you. Just make sure if you do this that the strike price of the sold call is the same or higher than that of the LEAP so it is truly "covered".�
Aug 18, 2014
chickensevil Yeah, I do, I just think the warranty news is not going to go over well. It is likely to be a 15-20 Million hit on an already tricky Q and this is going to drive short term estimates down and likely make the stock pull back. I hope I am wrong.
And based on the first few minutes of premarket it looks like I might be wrong. Depending on how 9:30 looks I might be singing a different tune.
Hmmmm I will look into that. That seems like a decent move. Thanks for the input�
Aug 18, 2014
Theshadows I think the warranty is going to have a positive impact on the stock price. No other company has one that is even remotely close and IMO most investors (including institutional) are in tsla for the future value they see in the company. The warranty move is a future value move.�
Aug 18, 2014
chickensevil I was wrong, and I am glad I was, looks like this isn't being hit as a negative on the warranty. I did not execute any puts.�
Aug 18, 2014
bsd Your put's looking good now though @ 261.88�
Aug 19, 2014
chickensevil Man, pre-market that put is really looking good... If this trends down I am going to kick myself for not sticking with my first instinct... At the time I was mauling this whole thing over yesturday was during the best time I could have made that trade... and I decided against it because I thought we had a decent breakout... and with TSLA's history of having bad Tuesdays, we are very likely to dip down even lower today (even if it does recover) which would have been more than enough to sell them off and made some money on it... oh well. Live and learn right?
Maybe today we will break the Tuesday trend!�
Aug 20, 2014
chickensevil So far my measly options purchases have been quite eye opening about price movement and time decay. Seeing a pretty chart is one thing, but seeing it actually happen in real time is a whole other thing. Especially with the huge movements all over the board we have seen in the past three days now. I ended up doing a call for the end of the month and a Jan 16 LEAP which was a good decision on my part to see movement effects between the two very different expiration dates. Even if my call at the end of the month becomes worthless (though I actually intend to potentially cut out early just to avoid that), it was a good learning experience, and worth the ~220$ I spent on it.
I just hope that it doesn't take me as long as stocks did to really get a good handle on making the right decisions... because it took me quite a while before I could make good timing calls on when to buy a stock and when to sell. Options really amplifies those decisions (good and bad). Anyway, thanks again for the input in this thread, it has been really helpful�
Aug 20, 2014
LonghornDub For anyone who's willing to tie up a fair amount of margin, I think a far-month call backspread is a worthwhile play here, with TSLA near a major pivot point. If you put the strikes wide enough, you can enter the spread for a net credit and profit even if TSLA falls. And you also enjoy unlimited upside if TSLA goes to the moon. The downside is that you risk big losses if TSLA stays in the same range for the next several months, but that's arguably a smart risk to take given the stock's volatility and possible upcoming news events.
It's not a strategy for the faint of heart, but I like it very much in certain situations. For anyone unfamiliar with the strategy: Call Backspread | Back Spread Options - The Options Playbook .�
Aug 21, 2014
Chickenlittle You can do this without buying the option and just observing, if you can keep your interest up without money involved�
Aug 29, 2014
smorgasbord Too much TSLA
Yeah, I know, but TSLA has grown to 37.5% of my total portfolio. So, been a great ride.
But, to be prudent, I should probably start reducing my future risk. What are your suggestions? I think they all start with selling some shares at the new ATHs we're hitting, but what then?
1) Sell some Puts. Jan 2016 $230s are still going for a good penny, enough that I'd buying TSLA back below $200 if necessary, or that I sold close to $300 ($270 plus option premium). All of those outcomes are good, what I lose is upside if TSLA skyrockets above $300.
2) Buy some Calls. I suppose I could build a ladder of sorts. Any suggestions? The idea here is that if TSLA drops, I lose only the option premium, but I am fully participating in any upside from here.
3) Buy some DITM calls. The idea is to pull $100 of profit out now, but still gain from any upside. That doesn't appeal to me as much.
4) Diagonals Call Spread. One suggestion was to buy January 2016 $180 calls, and sell December 2014 calls with a strike in the $300-$325 range.
I have TSLA shares in both taxable and IRA rollover accounts. I'm tempted to go with #1 above because it's in my comfort zone, but I think getting into some calls might be good for me. Any and all suggestions are welcome. While I am looking to protect myself from a big decline (say Gigafactory financing causes stock dilution), I'd be happy to have taken some money off the table now to buy back cheaper later. But, the bottom line is that I shouldn't be risking so much of my overall portfolio on one investment and now seems like a decent time to start scaling back, even if I do believe that $300 is likely within the next 12 months. Very likely.�
Aug 29, 2014
chickensevil For the stock selling piece, you could do covered calls which then when your shares get carried away from you you end up with a little extra money on top for the premium paid? And if it doesn't get carried off, you could do it again and again. Although this really depends on how many shares you have and how much you wanted to sell.�
Aug 29, 2014
mitch672 smorgasboard, used to be "shorting against the box", where you actually short the same number of shares you own.
what it does is locks in the current price, without you having to actually close the position.
if the stock drops, your short position makes money, if it goes up, your long position gains.
of course since both positions are opened, you essentially are at the same profit as when you "sold short against the box"
SEC.gov | Selling Short Against the Box
it can't be used to avoid capital gains taxes though:
Short Sell Against the Box Definition | Investopedia�
Aug 29, 2014
mershaw2001 I am critical of your strategies. I think you need to take money off the table in the form of selling covered calls just out of the money. 300 strike, or 280 strike. Or if you're really concerned, in the money calls.
it sounds like you are not reducing risk significantly by selling shares and then selling puts, it creates a tax obligation if you do it in your taxable account, it creates slippage as you have to pay bid ask spreads and transaction fees, and you create a position equivalent to a covered call position. Seems better to just sell in the money calls which creates an equivalent position, or at the money calls. Why not sell a 240 strike march 2015 call? That gives you 47.00 which is awesome, equivalent to 17 in premium (extrinsic) and the ability to "buy back" if the stock falls at 240. Furthermore, if you're wrong and the price stays at 290 you can roll it and still be profitable. If you read the tax advice, and in the money call may create a tax obligation too, so I would suggest you sell the 280 strike (just out of the money) 2015 and 2016 calls.
why sell shares to buy calls? That increases your exposure in a lot of ways. At the risk of sounding too harsh, it sounds like you don't know what tesla is going to do in the future and you are making option plays to try to capture every possible outcome. If that is the case, common shares win. Deep in the money calls make you lose the most if tesla does poorly. If it does poorly and stagnates at 230 for a year or two, you paid premium and you lost intrinsic value. The only way deep in the money saves you is if the company really dies or if you want to reduce your margin balance.
Seriously, just sell covered calls. there's no strategy out there that can beat that and it only really fails if tesla goes up too fast.
------------
Sorry if that came off in a confrontational tone- it's been a long friday and I don't have the energy to rewrite it- I am all ears to how your strategies would reduce risk.�
Aug 29, 2014
smorgasbord Sure I am. Sell TSLA at $270. Sell Jan '16 $230 Calls for $33 or so. That gives me a buy-back price under $200, which means I've pocketed $70 of profit versus just holding. Or, Tesla goes up from here and I keep the $33, which is like Tesla going up to $303.
Because it limits my downside. Buying calls let's me participate in any upside, while my losses are capped at the cost of buying the calls (Jan '16 $330s are $30). So, if Tesla drops to $100, I sold at an effective $240 and still have 18 months for it to recover. If Tesla shoots above $330 in the next 18 months I've paid $30 to lock in $240, but am still profiting from the rise. If Tesla goes to $400, well then I effectively sold at $370, and the $30 was the cost of protecting me from a way bigger loss.
OK then, you tell me: What is Tesla going to do in the future?
- - - Updated - - -
That offers me almost no protection from TSLA dropping. If I sell calls at a $290 strike and TSLA goes to $288 and then crashes down the $150, I'm in almost as bad shape as if I just held my shares.�
Sep 18, 2014
FluxCap So I am playing my first strangle on YHOO for tomorrow (fairly advanced strat for me). I am forecasting big movement in one direction or another based on BABA. We'll see if this works out.�
Sep 18, 2014
chickensevil This was basically what I was doing with TSLA during this past week of super uncertainty and it worked out REALLY well for me. I don't know if there is a technical name for it, but it was a combination of a Strip and a Strangle where both strikes were OTM but it favored the Put side by doing a 2/1 contract ratio (2 puts for every 1 call). Since it is very likely that BABA is going to cause a positive uptrend on YHOO you might want to consider the inverse of that trade with 2 calls for every 1 put. Unless you really think it is a 50/50 for up or down.
The thing I liked the most about doing that is if you get the direction right, it pays out so much better, but if you get the direction wrong you still make out with something just not as much. On a highly volatile stock I like the risk profile of a strangle, assuming you don't spread them too far apart because you run the risk of the stock only floating between the two limits which is where you will eat a loss. Again, for TSLA it doesn't sit still for very long. Hopefully this works for you on YHOO�
Sep 30, 2014
clmason Hello - I have a question about Call option premium prices for those of you with more experience than I .
I have been tracking March 20th Calls and keeping a log of the premium prices at a range of strikes from $260-$285 (basically spot checking in the morning). The "Premium Cost / Share Price" range has been as high as 10% to as low as 6%. I don't know if this a typical metric to watch. My intent was to track this % over time to know when the premium became cheap (or at the low end of the historical spectrum).
I was wondering from you all when you consider an option to be "cheap"? What helps you gauge the expensiveness of a given Call? Does anyone use such a formula? if yes, what % do you consider cheap? I understand this will vary significantly depending on the amount of time of before an option expires.
Thanks!�
Oct 30, 2014
Theshadows Has anyone ever tried a weekly earnings play with a short straddle and a long strangle. Expecting big volitility. This is the setup I'm thinking. Using current prices for weeklies expiring tomorrow. (I know it's not earnings week)
ATM calls and puts are both roughly 2.50, both 4 strikes otm are roughly .25.
So if one were to sell 1 ATM call and put. Then buy 10 calls and puts 4 strikes otm you would be roughly net $0 (minus fees)
Then if the stock would run one way or the other the leverage on the strangle would offset the losses of the straddle. What would your max loss be then? Just your fees since you pretty much opened the position for nothing.
If the stock stagnates you can buy back the short side taking advantage of the IV crush.
I'm trying to think through the scenarios and don't see one that would make this a super risky play, but I'm probably missing something.
Or is this a pretty dumb idea?�
Oct 30, 2014
hershey101 The premiums will be much higher on the OTM options, both calls and puts, for a week where IV is already pretty high. So you will have to go much further out to break even. Eg. check for next week. The ATM are around $12 and $10 OTM are ~$7.50. So you need the stock to be above $260 or below $215 to break even.
Check the payout graph below:�
Oct 30, 2014
Causalien
Hmm, it's weird that you'd be tracking this. From my point of view it is not useful.
Usually you'd want to track bid/ask spread over theoretical price. Since the premium over strike can be calculated with several formula and they all seem to arrive within several cents of each other. The difference of which is too insignificant when compared with the bid ask spread.
My guess is that the 10% to 6% difference is caused by either theta decay or vega volatility multiplier. Most likely theta decay since you are always looking at March.�
Oct 30, 2014
Theshadows Thank you for clarifying that. So I guess my scenario would only work on a Thursday or Friday. But then there are no catalyst to get the stock moving.
If the stock stays stagnate up into earnings, buying this type of play on Wednesday afternoon might be more cost effective for the otm side?
I've never paid this close of attention the day of earnings to the option price ratios. What is that site people go to to find what option prices were in the past? Can you look at entire chains with that site?�
Oct 30, 2014
Causalien Again, this is where TOS shines. You can use the thinkback function or the Oracle. I forgot the names since they've changed quite a few times. Basically whatever backtest function that exist. I remember I had to call support to get them to enable that orange button for me. Might need higher level clearance.
There are also some services out there that offers back testing data. Costs a few hundred dollars per month. i believe. Quantolian might have options data in the future.
Prodigio, an auto trading firm that used to be witny TOS will definitely have tick by tick data.�
Không có nhận xét nào:
Đăng nhận xét