Advanced TSLA Options Trading

[InTheShadows]

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

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.

 

[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.

 

[bsd]

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.

Your put's looking good now though @ 261.88

 

[chickensevil]

Your put's looking good now though @ 261.88

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!

 

[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

 

[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 .

 

[Chickenlittle]

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

You can do this without buying the option and just observing, if you can keep your interest up without money involved

 

[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.

 

[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.

 

[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

 

[mershaw2001]

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.

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.

 

[smorgasbord]

it sounds like you are not reducing risk significantly by selling shares and then selling puts

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.

why sell shares to buy calls?

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.

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.

OK then, you tell me: What is Tesla going to do in the future?

- - - Updated - - -

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.

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.

 

[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.

 

[chickensevil]

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.

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

 

[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!

 

[InTheShadows]

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?

 

[hershey101]

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?

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:

 

[Causalien]

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!

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.

 

[InTheShadows]

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:

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?

 

[Causalien]

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?

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.