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Advanced TSLA Options Trading
- Thread starter smorgasbord
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OK guys i am looking for a bit of help on a move to make before the Q2 report. I have much of my money already tied up in a Long position but I figured I could toss a bit at the Options side for Q2 which is the last of my cash that I would be willing to part with if things turn sour.
I have $2500 to spend on options and with the writings from Julian and Sleepyhead I am willing to put that last bit of cash on "Black" (buying calls)
Now I know, and I have been bit before, buying calls that are due shortly after an earnings report can turn into the titanic (thanks Bernanke for messing up my MU earnings call) but the premiums are so high I its hard to really buy any real amount of anything but these short term calls.
So i want to ask your opinions. I was going to grab up Aug17th $175 strikes at 75 cents but is that to bullish? Should I make a safer bet?
What are you guys planning on doing?
I have $2500 to spend on options and with the writings from Julian and Sleepyhead I am willing to put that last bit of cash on "Black" (buying calls)
Now I know, and I have been bit before, buying calls that are due shortly after an earnings report can turn into the titanic (thanks Bernanke for messing up my MU earnings call) but the premiums are so high I its hard to really buy any real amount of anything but these short term calls.
So i want to ask your opinions. I was going to grab up Aug17th $175 strikes at 75 cents but is that to bullish? Should I make a safer bet?
What are you guys planning on doing?
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Jonathan Hewitt
Active Member
If you treat it as a lottery ticket and don't load up on too many as a % of your portfolio then it's not too bullish! I might grab a couple myself...If a short squeeze happens then it's easily achievable. Posts from others think that $175 is possible without a squeeze effect.
I am interested in what others think, though.
I am interested in what others think, though.
Uhh... Lets not get carried away. TSLA is already sustaining a $15B mkt cap, up from <$5B not too long ago, and while it has gotten a lot more attention, we still don't have much clarity on the future of the business. Is tesla here to stay? Yes. But is GENIII going to take the market by storm and destroy everything that stands in its way? I'm not too sure. I think this quarter will be good, but won't amaze like last quarter did. Before last quarter, the price for TSLA was around $40, and it didn't take a lot for the results to "amaze" people. But today we are holding steady at $130, and I'm skeptical that we can run another $50+ on a good quarter. I'm looking for ~5100 manufactured and ~4700 sold. I'm not convinced thats enough to make this quarter profitable, and if we don't see a profit, the chances of going to $180 are very very slim.
I would be more comfortable with $150 calls, but I'm not sure how high the premiums are, and whether they would be worth it. I might just buy and sell during the run up next week into earnings.
I dont think the price will hit 175 but i think taking the run up to earning and the day or two after then selling them back off might get some good returns.
$150 for Aug 17th is at $2.75
This is also why I am asking maybe its better to grab September Options which have higher premiums, but the safety of a bit extra time after the report. $175 was at $1.67 and $150 strike was at $4.60
But even as you said, getting them for the run up and then selling the day after (if positive) you get you gains, but then its up to the person to see if they want to hang around to see how high it will actually go. As Julian has pointed out, with that GS dip we may very well had alot of extra people jump on the short side bus which would only help the squeeze grow in size, if it were to actually happen.
$150 for Aug 17th is at $2.75
This is also why I am asking maybe its better to grab September Options which have higher premiums, but the safety of a bit extra time after the report. $175 was at $1.67 and $150 strike was at $4.60
But even as you said, getting them for the run up and then selling the day after (if positive) you get you gains, but then its up to the person to see if they want to hang around to see how high it will actually go. As Julian has pointed out, with that GS dip we may very well had alot of extra people jump on the short side bus which would only help the squeeze grow in size, if it were to actually happen.
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I've just started toying with the idea of a Long Strangle. The problem is the premiums: you buy both a Put and a Call. But, as long as the stock moves enough either way, you make money. If the stock stays put you lose the premium.
Back to more basics, if you're not bearish, there are some Puts worth considering on the sell side:
Aug $115's will fetch almost $7. That's over 90% annual return, or you buy stock at about $108. Yeah, it's risky as Tesla could drop below $100.
If you're willing to buy TSLA under $90 then there's:
Mar $105, fetching over $15. That a 22% annual return, or you buy stock just over $89.
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ShortSlaver
Member
I've been considering a similar strategy. I sold some covered calls last week when we hit 130 before it fell. Maybe should have bought them back then. Decided to buy some calls at a lower strike on the same expiration as well. But like you, also considering some way out of the money calls. I'm not convinced we will not fall a bit before earnings though so holding tight and not paying for the extra time premium right now.
Causalien
Prime 8 ball Oracle
Buying strangle on TSLA is a bad idea due to premiums. It is best used on stocks that has volatility less than 0.4 but you know a huge disruptive move is coming up. Take BAC for example.
If you buy Aug $175 calls, then you have a 90% chance of losing all of your money. That said, I actually bought some Aug $190 calls today, but only spent a couple hundred dollars on this lottery ticket. If you want to make a big gamble then wait till the day of earnings and buy the weekly call that is about 20% OTM; this will give you two days after earnings to reach this strike price.
The reason I bought today though is that IMO the stock will continue to go up slowly leading up to earnings. I envision a $140 - $150 stock price on the day of earnings. If it is anywhere near $120 or less, I will also load up on weekly Aug19 calls, if I don't get wiped out by then.
My $200 TSLA call, does not necessarily mean that it will reach that target the day after the earnings call. I am just saying that $200 is a small albeit realistic possibility and I see it happening in the near future, i.e. by the end of the year. For now, I can't find a flaw in my thinking but there are just so many things that we as investors don't know about that could have a significant financial impact on a company. E.g. Why did Tesla file a law suit against that machinery company? Did they lose $thousands, $millions, or $tens of millions; if it is the latter, then forget my $200 price target and get ready to start accumulating shares at $90 instead. Too many variables, but based on all public information my $200 price target is better than most analysts' opinions.
The reason I bought today though is that IMO the stock will continue to go up slowly leading up to earnings. I envision a $140 - $150 stock price on the day of earnings. If it is anywhere near $120 or less, I will also load up on weekly Aug19 calls, if I don't get wiped out by then.
My $200 TSLA call, does not necessarily mean that it will reach that target the day after the earnings call. I am just saying that $200 is a small albeit realistic possibility and I see it happening in the near future, i.e. by the end of the year. For now, I can't find a flaw in my thinking but there are just so many things that we as investors don't know about that could have a significant financial impact on a company. E.g. Why did Tesla file a law suit against that machinery company? Did they lose $thousands, $millions, or $tens of millions; if it is the latter, then forget my $200 price target and get ready to start accumulating shares at $90 instead. Too many variables, but based on all public information my $200 price target is better than most analysts' opinions.
This is basically what I'm thinking. I am planning on running something like a strangle, but have a few more calls outside of the play. However, my final play will be determined by the premiums. Although I think the stock will pop on earnings, it's too hard to tell what the street will see. They might come out and say "we sold an extra 1000 cars, but damn, we did so many leases our EPS is -30c..." the street freaks out and the stock is down 25%. Or maybe it goes up 25% lol. Either way, my play will be with money that I'm planning on throwing to the wind and it won't be a huge percentage of my account.
I do like your thought of selling the Mar 105, but I have only option level 3, so I have to secure it with something lower and the March options do not have anything low enough. I might do 105 Jan 2014 and secure it with a long $50.
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deonb
Active Member
Is the following a valid tax strategy using a vertical call spread?
BUY 1 TSLA AUG 9 125 CALL - $19.80
SELL 1 TSLA AUG 9 126 CALL - $18.80
There's no upside there, and $1 downside. So why do this?
Let's say TSLA on Friday is at $172.15 ($30 up from today).
Close to expiration that 125 long call will be $47.15 and the 126 short call will be -$46.15.
Now let's also say I have accumulated $17250 in other option profits, and I want to buy 100 TSLA shares with it on Friday. If I sell those options on Friday I have to pay $6037 in taxes on it.
However, if I instead exercise the 125 call, it would show no profit, and it would make the 126 call a complete short-term loss ($2735 loss). Now I only show $14515 in profit, so only have to pay $5080 in taxes. Eventually the exercised stock will be sold, but then it's at the capital gains tax rates from a base of 125 + initial premium of 19.80 = $144.80. At $172.50 that's another $415 extra in tax some ways down the road, once taxed at capital gains rates.
And if TSLA falls below 125 you're out max of $100.
This seems too easy... What am I missing?
Is there maybe an additional tax basis for the value remaining in an option at the time it's being used to exercise? I know the initially paid premium forms part of the cost basis, but what about the value at the point of exercise?
BUY 1 TSLA AUG 9 125 CALL - $19.80
SELL 1 TSLA AUG 9 126 CALL - $18.80
There's no upside there, and $1 downside. So why do this?
Let's say TSLA on Friday is at $172.15 ($30 up from today).
Close to expiration that 125 long call will be $47.15 and the 126 short call will be -$46.15.
Now let's also say I have accumulated $17250 in other option profits, and I want to buy 100 TSLA shares with it on Friday. If I sell those options on Friday I have to pay $6037 in taxes on it.
However, if I instead exercise the 125 call, it would show no profit, and it would make the 126 call a complete short-term loss ($2735 loss). Now I only show $14515 in profit, so only have to pay $5080 in taxes. Eventually the exercised stock will be sold, but then it's at the capital gains tax rates from a base of 125 + initial premium of 19.80 = $144.80. At $172.50 that's another $415 extra in tax some ways down the road, once taxed at capital gains rates.
And if TSLA falls below 125 you're out max of $100.
This seems too easy... What am I missing?
Is there maybe an additional tax basis for the value remaining in an option at the time it's being used to exercise? I know the initially paid premium forms part of the cost basis, but what about the value at the point of exercise?
Makes sense to me. Tax basis for your new 100 shares exercised would be the premium you paid for your option call (not market value), plus commission, plus cost to exercise. Hold for a year and pay just long-term capital gains.
sahanim
Member
so glad im using a Canadian TSFA account for my options. no tax whatsoever. woohoo!
The Canadian TSFA account is purely awesome. I researched about it a few months ago and was very impressed.
If it seems too easy then it will probably not work. The tax code is very complicated and there are measures to close such loopholes. Although in your case you are risking $100, so maybe it just might work.
Example: if you bought TSLA a few months ago and wanted to sell at current price to lock in profits, but didn't you didn't want to pay short-term capital gains you could come up with this strategy:
Buy ATM put and sell ATM call. This will guarantee that you lock in profit at basically no cost to you, while you wait for your TSLA position to cross the LTCG threshold of one year. Such a strategy is disallowed by the IRS and you would end up paying STCG anyway even if you held for one year.
Tax code is very complicated. I have a masters in accounting and I can't even give you an answer to that question without doing some extensive research.
OK, post Q2 2013 earnings, are there any good TSLA plays left? Or do we sit around and wait for some irrelevant piece of news to create an good re/additional entry point?
sahanim
Member
if the trend is anything like q1 earnings (so far it's pretty damn accurate) you should be seeing crazy price movements and volume in first first hours of trading. I'll be looking to unload some aug calls that i bought pre-earnings. I am hoping there were a lot of margin calls made tonight which means shorts will be looking to close their position early morning.
I personally want to get rid of my aug calls asap. and the crazy volatility would create a sweet premium.
If there is no crazy volume when the market opens tomorrow morning... i dont know what to say.
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