I'm guessing here, but I would hazard a guess that shorters are using the Calls as insurance against a margin call on their short positions. See that latest from Andrea Kramer here.
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Advanced TSLA Options Trading
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I'm guessing here, but I would hazard a guess that shorters are using the Calls as insurance against a margin call on their short positions. See that latest from Andrea Kramer here.
mershaw2001
I'm short the short sellers
Actually, the high cost to short tesla (see other thread) forces people who are betting against tesla to use other option approaches instead. These include buying puts, driving the price of puts up, and selling calls, driving the price of calls down. Since you are hedging a long position by selling a covered call, you're essentially opening up a "short position" through options, and you will feel the pain of the shorts by selling the calls.
ShortSlaver
Member
Yeah, I agree. I never liked the idea of selling a covered call on a stock that is volatile and has a lot of potential, even short term. You assume all the risk if it falls through the floor and limit your upside - potentially considerably.
The earnings call and guidance could move this stock one way or another considerably. Selling a covered call here gets you a bit in pocket right now but you could miss out on a huge upside or be forced to hold the shares if it falls past a point you would have sold at to get some profits.
the regular put-call parity relationships are screwed up due to the high cost of shorting. that causes the calls to trade much cheaper than they otherwise would, and the puts to trade much more expensive.
no one in their right minds would do a buy-write in tesla for this reason. it's much more economical to just sell a cash-secured put vs. doing a buy-write. this has been discussed at lengths in other threads.
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most of the reporters have been way off in understanding the tesla options. virtually all of the large blocks of out of the money calls are part of synthetic longs. go back and look and you'll probably see 750 $65 puts trade at the same instant.
++1 - playing TSLA options for a year now and I've never seen this level of mis-match. Right now the play is to either sell-open puts for income or stock acquisition and/or straight call buy for long position (or some combination spread yielding the same);
In addition, the bid/ask spreads are as narrow as I've ever seen (still wide, but much better due to the volumes and demands on calls)- good time to go long or sell to a short
ShortSlaver
Member
Right but it's still a volatile stock. I mean you can pick a number and sell your covered calls there but if it's that improbable then you might not be getting much premium for them anyways. Everyone has their own strategy but I tend to find highly volatile stocks, like TSLA, dangerous to write covered calls on. You lose the upside and hold all the downside. Just my opinion though.
perhaps inadvertently you stated this backwards? the great side business is selling cash secured puts, not covered calls. meaning, the best business is selling insurance to the longs.
That's what I've been doing for the past few months. I've been riding it up all the way. The premiums are too large to ignore. I'd suggest writing puts as an easy way to acquire the stock as well. Worst case, you keep the premium.
No, that's not the worst case. The worst case when selling puts is having the stock put to you and the stock goes $0.
true, but that worst case is the same as that of a buy-write. selling the put vs doing the buy write yields higher returns with the same risk.
I started six months ago and my first short put was 25 when the stock was 27 or so. Since then, I've been writing puts $5 OTM and about three months out. I typically cover every month or six weeks and write new ones as the stock goes up. It's been very profitable and I've yet to get put the stock. I probably would have been better just buying the stock but I'd rather do it this way. It gives me more flexibility, less risk, and I make almost the same amount.
I think of put writing as a way to buy stock cheaper than the current market price. If you would otherwise buy the stock today, then you might consider selling a selling a Put instead. If the stock goes down, you buy it cheaper. If the stock goes up, you keep the premium. If the stock goes way down, you're lost less money then if you had just purchased the stock that day. If the stock goes way up, you've made less money. So, in that frame of mind, it's actually a risk reduction play that has the corresponding reduction in potential gain.
Completely agree. Plus you use the volatility and higher premiums in your favor.
+2. That's the way I use them as well. One other risk consideration however. You desire to accumulate the stock is current. Upon learning the conditions that drove the stock down, those desires may change. If you think that has a moderate chance of happening (based on your beliefs), then keep the Put sell closer in expiration, balancing against those risks
Causalien
Prime 8 ball Oracle
My robot uses TA signals from 4 main sources to analyze whether or not to short call or put options and it is slowly losing profit margin as the call/put disparity widens. So, I took out the short call part of the equation and just ask the robot to sell the stock if it ever gets assigned to revert back to the put calculation. OR, I could use the bearish call spread, stop loss on the actual stock with a short put to turn it into some type of weird iron condor (This has been lucrative, but I have yet to figure out an algorithmic way of analyzing a sure entry point). This year, I've recently found out how to get short interest data and alternative way of evaluating a company based on market cap vs price divergence. So I will be integrating them into the robot this year. It has netted me about 3% per month so far... BUT! it looks like loaning my shares out is actually a more lucrative strategy vs taking on the assignment risk.
Yeah, that sounds great. The crazy call/put disparity is messing with a lot of algorithms. Agree, finding the entry point is the toughest, algorithmically or otherwise. I don't use a robot yet, but working in that direction. So far stuck with e analogue robot sitting in the seat of my pants! No iron condors yet either but like the looks of those with so much short induced movement. Can't believe the interest rate paid on stock. It's definitely viable to the put sell
I'm sitting on a couple Jan '14 $40 Calls. Any suggestions for rolling them today, before earnings are announced? Stock just touched $62...
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