Advanced TSLA Options Trading

[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.

 

[chickensevil]

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.

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!

 

[c041v]

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.

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.

 

[AlMc]

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.

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.

 

[justdoit]

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.

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.

 

[bsd]

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.

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.

 

[The Blue Owl]

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 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.)

 

[bsd]

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.)

(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.

 

[sleepyhead]

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.

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.

 

[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?

 

[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.

 

[mershaw2001]

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?

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.

 

[chickensevil]

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.

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).

 

[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.

 

[chickensevil]

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.

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.

 

[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

 

[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)

 

[gym7rjm]

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)

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.

 

[pz1975]

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)

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".

 

[chickensevil]

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.

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.

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".

Hmmmm I will look into that. That seems like a decent move. Thanks for the input