Advanced TSLA Options Trading

[blakegallagher]

Would any one here write Jan15 puts for $110? Please share your opinion either way. I've done the math on this and worked out the worst case scenario (holding shares worth zero lol) and most likely bad scenario (caught purchasing shares above value, or buying back the puts at a loss). I'm very bullish on TSLA long term. I've thought about writing some OTM calls but I do not want to give up any upside, and writing them far enough OTM to make me feel comfortable isn't worth locking myself in. Thoughts?

I have been thinking about doing something very similar. I would then buy some jan 2015 leaps because I think that is a safe bet too (in my extremely bullish view) If it dips below 110 and I have to buy the shares I will most likely sell the newly acquired shares and buy some more leaps or shorter term stocks with them depending on the situation. Waiting to see what the stock does. I Think I am going to wait and execute this on the next pullback so I get a higher premium for the put I am willing to write and get my leap cheaper.

 

[sub]

Thanks to both. I'm new to the options thing so I don't quite understand how time and stock price affects options. For example, if I were to sell a put at 110 and for some reason the stock fell down to that level in say 6 months, approximately how much would it cost to close out the put before its exercised and maybe roll it down?

another thought I've had with similar questions. What if I sell my stock and replace it with jan 15 leaps, I think I was looking at the 110 strike as well. I'm bullish on the stock, I'm extremely optimistic the stock will be higher than it is today. If it is higher, can anyone compare what the returns would be roughly? Looking at the delta, I thought I would need approximately 25% more leaps to have the same return?

 

[DonPedro]

First of all, if you are new to options, many people would caution you strongly against writing options. A very important contributor to this forum, luvb2b [where have you gone to?], wrote this in a post here:

99%+ of option trades i have done in about 20 years are simple buying calls and puts. i pretty much never sell options because you end up in situations where you sell something for $1 that eventually ends up being worth $50. despite time erosion, i always want to be on the other side of that, where i risk $1 and i have a shot to make $50, 100, or whatever. the other thing when you sell options is you have to be much more aware of your short options being exercised, so there's a heightened level of diligence involved and more unusual things that can go wrong due to early or unexpected exercises.


i would say most people will be well served to avoid any strategies that involve selling options (including spreads, butterflies, etc. etc.). just learn how & when to buy a call or put option and how & when to sell it and you will do very well.

[...]


options trading is very dangerous and addictive. it's pretty much gambling that's legalized with sometimes better odds than vegas, but most of the times worse odds than vegas. many traders i knew traded for years and were completely wiped out by being short options at the wrong time. others got too aggressive buying options and lost huge amounts that way. so don't be in a rush to get into this dangerous world. take your time, understand the risks, and use very small amounts of capital starting out. or... paper trade.


good luck and be very careful.

Second, if you do decide to write puts, I would strongly advise you to consider the very real risk of a strong correction (also called a "crash") in the general market. In my book, that is a scenario that could return TSLA to the $40-50 price level, in which case your puts would cost you 3x or more what you got for them. One way to work with this risk would be to use some of what you get for the puts to buy puts on QQQ, SPY or some other market indicator (QQQ is the one that has the highest correlation with TSLA, but has the disadvantage of a strong sensitivity to one stock - AAPL).

Thirds, the answers to your questions: You can use an options calculator to figure out how much a put would be worth under different scenarios. To get a rough idea of the first scenario you mentioned, you could look at the cost today of 150 puts with about one year to expiry. The one thing that is unpredictable is the volatility that the market will be pricing the TSLA options at in 6 months. Personally, I think it will remain high (i.e. expensive options).

Fourth: 17 months is a loooong time. You will be writing a put which consists solely of time value. You will see that it erodes very slowly, and that there is almost no limit to how different the world and the stock can look in those 17 months. Just think about how different TSLA is now than 17 months ago! There is every reason to think that everything will change in the next 17 months as well. Writing puts is not the easy money it looks like when you have the trading console up.

 

[smorgasbord]

I'm new to the options thing...

Might I suggest that this thread isn't for you yet? There is a Newbie Options Trading thread which might be a better read for you at this time.

 

[Gtoffo]

Hey guys, here's my situation:
I've got a September Bull Call Spread with strikes at 140$ and 160$. It's actually the first time I try this strategy and since we just surpassed 160$ I was wondering what I should do with those.
Does it make sense to roll the 160$ option upwards? Or should I roll/close both options to bag some profits?
Anyone doing similar strategies?

 

[sub]

Here the other day I became aware that - speculating about potential investment strategies - I had more or less decided to do two things: (1) Buy puts and (2) sell puts.

As a consequence, my option strategy is now: Don't do options.

i laughed out loud after reading this the day you posted it. I appreciate the help and education. I'm in the learning phase, no where near actually buying or selling an option. My conclusion so far is don't do it! I posted in this thread because I thought the more advanced traders would be in here and they could slap some sense into me.

question, I am currently using scotrade. What are you guys using and what are the benefits if not scottrade including costs? Also, is there a way to setup a "loop" so that scotrade or whatever brokerage you use will purchase and sell a stock at a given strike price multiple times if the price is bouncing above and below? So, for example, if I only wanted to own tesla above $160 because I think it will run, but I want to sell at 159.99 if it drops, then repeat as many times as necessary until stock sticks above $160 and continues up?

im aware of the fees on this and potential small losses on the sale side. Anyone know if this is possible? Looking at advanced orders on scottrade I cant figure out a way for it to repeat after first time. The better way to make this work is a trailing stop after a $160 purchase, sale when it hits stop but that action then triggers a rebuy as the stock passes back by the trailing stop and then the stop moves up again, process repeats. Am I an idiot or living in fantasy world, or both?

 

[mershaw2001]

gtoffo- If you don't feel like you can see the future, and you don't have a strong feeling about where tesla is going to go before options expiration, your best bet is to do nothing with your spread. Each time you move in and out of it, each time you adjust it, you lose a large amount in bid ask and transaction fees. Each time you second guess yourself you will be eating heavily into your profits. Right now, the time decay on the 160 contract (9 dollars extrinsic) is probably pretty large and that should get eaten away faster than the time decay on the 140 (3 dollars extrinsic). If you can't predict the future, and up is as likely as down as sideways, you can at least be guaranteed that time will pass and your option position will appreciate in value.

 

[smorgasbord]

I had more or less decided to do two things: (1) Buy puts and (2) sell puts.

As a consequence, my option strategy is now: Don't do options.

Actually, there are two reasonable strategies involving BOTH the buying and selling of Puts:

1) Bull Put Spread: Sell a high strike put and buy a low strike put.
For example, you could Sell a TSLA $170 Sept Put for $15.50 and Buy a TSLA $140 Sept Put for $2.60. If TSLA is above $170 next month, you keep the $1290. If TSLA is below $140, you lose $1710 ($3000-$1290).

2) Bear Put Spread: Sell a low strike put and buy a high strike put.
For example, you could Buy a TSLA $160 Sept Put for $9.25 and Sell a TSLA $150 Sept Put for $5.13. If TSLA is below $150 next month, you make $578 ($1000-$422). If TSLA is above $160, you lose the $422 it cost you to get into the position.

Either way, you Buy the Put you think will make you money, and then you Sell the Put you think will expire worthless to finance it. What's nice about these positions in uncertain times is that your risk is limited. What's a bummer is that your reward is similarly limited. But, it's a cheaper way to bet the direction of the stock than just buying a Put or buying a Call.

 

[Causalien]

Actually, there are two reasonable strategies involving BOTH the buying and selling of Puts:

1) Bull Put Spread: Sell a high strike put and buy a low strike put.
For example, you could Sell a TSLA $170 Sept Put for $15.50 and Buy a TSLA $140 Sept Put for $2.60. If TSLA is above $170 next month, you keep the $1290. If TSLA is below $140, you lose $710 ($2000-$1290).

2) Bear Put Spread: Sell a low strike put and buy a high strike put.
For example, you could Buy a TSLA $160 Sept Put for $9.25 and Sell a TSLA $150 Sept Put for $5.13. If TSLA is below $150 next month, you make $578 ($1000-$422). If TSLA is above $160, you lose the $422 it cost you to get into the position.

Either way, you Buy the Put you think will make you money, and then you Sell the Put you think will expire worthless to finance it. What's nice about these positions in uncertain times is that your risk is limited. What's a bummer is that your reward is similarly limited. But, it's a cheaper way to bet the direction of the stock than just buying a Put or buying a Call.

A bull put spread is best used in a very scary >15% drop. When the premium is highest and you want to limit the potential downside of selling a put.

Bear put spread are more traditional unidirectional bet.I don't usually use it with stocks of low price due to the commission cost. But it is a better option when stock price is high and when combined with a price prediction model. Such as fibs or elliot wave.

 

[Gtoffo]

gtoffo- If you don't feel like you can see the future, and you don't have a strong feeling about where tesla is going to go before options expiration, your best bet is to do nothing with your spread. Each time you move in and out of it, each time you adjust it, you lose a large amount in bid ask and transaction fees. Each time you second guess yourself you will be eating heavily into your profits. Right now, the time decay on the 160 contract (9 dollars extrinsic) is probably pretty large and that should get eaten away faster than the time decay on the 140 (3 dollars extrinsic). If you can't predict the future, and up is as likely as down as sideways, you can at least be guaranteed that time will pass and your option position will appreciate in value.

Thanks for the advise mershaw. I agree the time value on the 160 contact is way high... I guess the stock went up a bit faster than what I had imagined and I'm now getting nervous about a possible pullback. I would hate to see the nice profits I'm sitting on go down the drain because of too much greed....

 

[sleepyhead]

Thanks for the advise mershaw. I agree the time value on the 160 contact is way high... I guess the stock went up a bit faster than what I had imagined and I'm now getting nervous about a possible pullback. I would hate to see the nice profits I'm sitting on go down the drain because of too much greed....

Your Sep 140/160 bull call spread is now worth about $13.50. Your maximum gain will be $20 if stock finishes above $160 and you will lose everything if stock goes below $140. Therefore from this point you can gain another 50% or you can lose up to 100%. Your break even is if the stock finishes at $153.50 on Sep 21.

It is up to you on when to sell, but if TSLA goes up to $170 this week and your spread is worth $16, then I would sell it immediately at that point for sure since the risk is not worth the reward anymore.

How much did you pay for the spread initially? If you paid $6-$7, then I would sell half of it to get all of your initial capital and let the other half ride out for a possible "risk-free" gain.

 

[Gtoffo]

Your Sep 140/160 bull call spread is now worth about $13.50. Your maximum gain will be $20 if stock finishes above $160 and you will lose everything if stock goes below $140. Therefore from this point you can gain another 50% or you can lose up to 100%. Your break even is if the stock finishes at $153.50 on Sep 21.

It is up to you on when to sell, but if TSLA goes up to $170 this week and your spread is worth $16, then I would sell it immediately at that point for sure since the risk is not worth the reward anymore.

How much did you pay for the spread initially? If you paid $6-$7, then I would sell half of it to get all of your initial capital and let the other half ride out for a possible "risk-free" gain.

Yes I paid around 6$ for those. I like both of your advices. I will definitely sell if it gets that high and will consider selling half on monday. So you also agree it's better not to roll in any way with this kind of strategy?

 

[sleepyhead]

I don't like the idea of rolling, because if you keep doing it, eventually you are going to lose all of that money when things turn south.

Instead I would cash in some gains and wait for a pullback to establish a new position.

 

[Johan]

Gtoffo: With regards to rolling, whether you're rolling some type of spread or just a simple call or put what you are really doing is just exiting one position and taking up a new position simoultaneusly, right? So if you are selling/exiting your spread because you think it is coming to a point where the risk/reward ratio (for your particular spread) when it comes to waiting for an even higher price in the underlying is not worth it but you think TSLA is still on the rise then it would make sense to roll, if you want continued exposure. If you think TSLA is nearing a short-term peak then of course there is noe sense in rolling, just exit and sit with the cash and wait for a better day to get back in.

 

[Gtoffo]

It is up to you on when to sell, but if TSLA goes up to $170 this week and your spread is worth $16, then I would sell it immediately at that point for sure since the risk is not worth the reward anymore.

Well that was fast.....and I don't feel like selling anymore. After all I have 12$ of margin for my position to appreciate thanks to time decay.

 

[smorgasbord]

With TSLA at new (again) all time highs, I've been thinking of doing some hedging on my stock gains. I've sold the calls I purchased and rolled, and so option-wise have only some sold Puts that will expire worthless in the next couple of months (they're in the $30's).

What do you-all recommend for hedging? I've got TSLA stock in 3 different accounts, and so thinking of selling the ones in an IRA to buy back later (no tax implications). But, I'm mostly interesting in what hedging plays I should consider.

 

[Gtoffo]

With TSLA at new (again) all time highs, I've been thinking of doing some hedging on my stock gains. I've sold the calls I purchased and rolled, and so option-wise have only some sold Puts that will expire worthless in the next couple of months (they're in the $30's).

What do you-all recommend for hedging? I've got TSLA stock in 3 different accounts, and so thinking of selling the ones in an IRA to buy back later (no tax implications). But, I'm mostly interesting in what hedging plays I should consider.

+1. I'm also trying to find a way to hedge my gains. I've been making fun of the shorts for so long I'm worried karma will bite back if I buy puts.....

 

[sleepyhead]

Well that was fast.....and I don't feel like selling anymore. After all I have 12$ of margin for my position to appreciate thanks to time decay.

And 2 hours later your "$12 of margin" went down to $0.25. That is why I said that once your spread reaches $16 of value (or 80% of max gain) that you should be selling it. I looked earlier and you could have gotten just about that $16 price had you sold earlier in the day.

Too much risk for too little reward.

 

[Gtoffo]

And 2 hours later your "$12 of margin" went down to $0.25. That is why I said that once your spread reaches $16 of value (or 80% of max gain) that you should be selling it. I looked earlier and you could have gotten just about that $16 price had you sold earlier in the day.

Too much risk for too little reward.

Well we are above 165 AH. So to sell those options above 16$ I still have 9$ of margin. At close the spread was worth around 14$ and the day high was slightly above 15$. I was about to pull the trigger on a 16$ LIMIT order but stopped: that 25% extra gain made me greedy... but I still have some time if things go south during Tesla Tuesday (and time is sort of on my side with this strategy).

I sold a chunk of my stock today (was a few minutes slow and missed the top but still averaged out at around 169$)... so I still feel like I capitalized on the run up after all.

So did you buy puts sleepy? I still need to figure out a good way of hedging my stock.... I hate selling it.

 

[Jonathan Hewitt]

So did you buy puts sleepy? I still need to figure out a good way of hedging my stock.... I hate selling it.

He did, he talked about it over in the short term thread.