Johan
Ex got M3 in the divorce, waiting for EU Model Y!
I guess it also depends on if the "rolling up" happens mostly with regard to strike or expiration (usually it's a combination of both).
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Alternative Energy Investor Discussions
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I guess it also depends on if the "rolling up" happens mostly with regard to strike or expiration (usually it's a combination of both).
yeah (as sleepy noted) you'll do better rolling at local peaks (we're talking LEAPS or longer term options here of course). For the same $s you're more highly leveraged and the advantage is the distance your strike is now from the current price (further away). If the underlying price goes down (as expected when rolling at a local peak), the Delta tracking of the higher strike will accelerate lower (reducing the loss) MORE than it would with the lower strike. On balance that's a better time, given all else equal. That's especially true if rolling up at the same expiration; if rolling up and out, it's less so, but still better than a trough time. The other point I'll make is this is usually a good time to hedge that roll and maintain your Delta tracking on the stock, by precipitating some cash. If you roll out, then you should be able to go up in strike enough to minimally drop your Delta while taking some cash (acceptable because your Delta will easily recover that). That way the cash can be ready for an unexpectedly sever downturn from the current peak, providing great use of the cash to average down and build the Delta.
The basic technique is to maintain a Delta range as if you own the stock at that level, precipitating cash at the high end of the range to use if the underlying drives you under the low end. Unless there's some mitigating circumstance like a pending ER or similar (sometimes extreme IVs will mitigate this timing)- better to roll up(and up/out) at local peaks rather than troughs.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
Thanks, makes a lot of sense. I also read through you post in the Advaced options thread and I think I get your points. Using LEAPs as a form of leveraged stock replacement is quite new to me but I think I will try this strategy with some of the solars where I felt I didn't get in with common stock "early enough". Your point about maintaining exposure roughly the same but with every roll taking some off the table (cash) and keep that for "a rainy day" or as you say "severe downturn" is also wise, since so far all of these have turned out to be buying opportunities in retrospect.
mershaw2001
I'm short the short sellers
I would like to hear your strategies for when this particular set up fails- how do you recover. It seems like this strategy fails if the momentum of the stock doesn't remain- if it doesn't continue to accelerate.
-If the stock drops like crazy, you've done well because you've banked money and your current options expire worthless but you can buy more options for the future. So it's a win.
-If the stock continues to rise at the same rate or faster, you've got the same or better delta as it rises. So it's a win.
-If the stock slows slightly in growth or plateaus for a while, you're going to lose via theta. I guess you probably roll before theta loss becomes serious... but let's say that the stock doesn't move much after you've rolled up, and it looks like it's plateaud. What is your move then? Do you let the options expire?
edit, maybe i've missed the answer to this, but i've looked through advanced options too and it looks like this discussion is now seeping into all the threads.
-If the stock drops like crazy, you've done well because you've banked money and your current options expire worthless but you can buy more options for the future. So it's a win.
-If the stock continues to rise at the same rate or faster, you've got the same or better delta as it rises. So it's a win.
-If the stock slows slightly in growth or plateaus for a while, you're going to lose via theta. I guess you probably roll before theta loss becomes serious... but let's say that the stock doesn't move much after you've rolled up, and it looks like it's plateaud. What is your move then? Do you let the options expire?
edit, maybe i've missed the answer to this, but i've looked through advanced options too and it looks like this discussion is now seeping into all the threads.
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You may want to go over to advanced options strategy thread where Kenlilies has posted the strategy he employs in more detail. I am new to it but it works for high growth stocks. So, TSLA and the solars may be good choices. You are correct that if you have a slow growing, stagnant or dropping period you are gambling that the strike date being so far out allows you to recover.
That's about right. On average, assuming the stock is indeed the growth stock you bet on, you're return (for lower risk due to less capital outlay) will exceed 2:1 (I was hitting more like 4:1 during some years with APPL and of course TSLAs big year yielded better than that)-
Keep in mind when SCTY drops 5% those 20% drops seem scary. It's important to stay disciplined, long in view, and not to over leverage- this is a stock replacement (rather than a trade investment) -
That's easy to do if you simply correlate the net Delta to your desired stock position (it's tempting to over leverage).
That said, I use this approach successfully currently with TSLA, SCTY, SPWR, CSIQ (and a little JASO, JKS)- The solars are particularly wild in swing (reminds me of the earlier TSLA days and APPL way back), so try not to despair when days don't look like today. Assuming they grow as expected, the up days vastly out number the down---
Stay Frosty!
@mershaw2001
You're instincts are well placed. The candidate stock is one that you determine has years of high growth ahead of it. Those that are making fundamental changes to the marketplace. Apple was great example because it's now in hind-sight. But that growth for Apple has now mitigated, so this approach is less effective. Currently I carry AAPL stock instead (and some small simple LEAPS positions) for that reason. These candidate companies in fact must grow fast and for years, because it takes that long to form the disruption. Once they start the disruptive lead, though and the management proves to be up to it, that growth is a relative lock for several years. Judgement does come in later when that will slow and you back out of this method to a more traditional stock hold, but that type of growth change happens over time.
So in answer- it would fail if the underlying doesn't grow or grows slowly. It also doesn't work well for fast, but short growth. those that have a single play and will fall off rapidly. I believe today's candidates are Tesla and the Solars who have clearly won the survival battle. I did not use this for early Solars for example as they were moving in and out of survival mode. Remember by maintaining the discipline of keeping the Delta at your stock level and knowing long term (years in view), you do need to be beyond the point that complete collapse is not an inherent risk, coupled with the industry disruption leadership role. In fact, they will grow (via the new market created) or merge or die suddenly(in which case the downside is the same as losing the stock position you were going to hold anyway).
In addition, to address some of your last question; I will balance the position with a holding of underlying stock. The proportion of that is relative to the company's position. By example currently my TSLA stock position is very low in comparison to the LEAPS because I'm confident they have reached a critical scale with any downturn correctable. Less so with some of the Solars- I keep a higher proportion of stock that allowed me to convert it to LEAPS on a major downturn, then return it to stock on major upswings. This provides a dampening mechanism for those companies on the verge of reaching a critical position in the growth and industry.
In summary, for the company you determine is to grow strongly with disruption for several years (TSLA out past GENIII for my current mindset), my experience using this method provides significantly greater return than equivalent stock hold(by Delta, not $s), with less capital risked. The key as you've rightly noted is correct determination of the company in this position. My suggestion is to hold stock and try this with small additional position for a while to become familiar with it's dynamic and build into it - took me years to get to that point myself.
edit- these posts might fit better over in Advanced Options thread with the others- mods feel free if you agree
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Everything i watch was up as a rebound from yesterday, solar tends to trade as a pack if one of them does really well you'll see sympathy from the others and vice versa. That's what I figured anyway. Possibly also some people realizing energy independence is a good thing in light of recent events.
Mario Kadastik
Active Member
CSIQ dropping hard on ER. Haven't heard/read it yet as I have to run and have been in meetings, would love a recap by someone.
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Ok, couldn't resist. Looked it up from the first source I found: http://247wallst.com/technology-3/2014/03/05/canadian-solar-earnings-falter-outlook-also-soft/
This looks like the EPS came in about in line and the full year beat. The guidance revenue is soft and that is causing the selloff? Then again they mention that it's mostly shipping and new year and will be recognized in Q2. Sounds like a buying opportunity or does someone disagree?
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Ok, couldn't resist. Looked it up from the first source I found: http://247wallst.com/technology-3/2014/03/05/canadian-solar-earnings-falter-outlook-also-soft/
This looks like the EPS came in about in line and the full year beat. The guidance revenue is soft and that is causing the selloff? Then again they mention that it's mostly shipping and new year and will be recognized in Q2. Sounds like a buying opportunity or does someone disagree?
check out chief sleeping head and others on TCI, they are discussing heavily.
The Blue Owl
Endangerous Herbivore
Chickenlittle
Banned
ok, i have become a believer. my home is 10K sq ft, all propane house (dryer, stove, heat, hot water). looking to down size and just saw a 8000K, all electric house with 6kw solar system, solar hot water system, special insulation, special heating units ( all electric). electric per month costs 7.43 dollars (the connection charge only). my current home even with LED and gas appliances runs an electric bill of 500 per month. i have seen the future in homes
It seems like a big move down on high volume, I'm tempted to see if it follows through tomorrow w/ another drop before adding to my position. What do you think? I have a pretty small position in CSIQ at the moment, and wouldn't mind increasing my exposure to the stock. I cut down my position in half sometime last week when it went above $43.
Mario Kadastik
Active Member
I reduced my leaps in half a week or two ago when it was nicely up. Then I earned ****loads on TSLA with the MS upgrade and now as my portfolio is bigger in total I'm reallocating some to solar so it's a nice buying opportunity. Keep adding contract by contract as it drops
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I reduced my leaps in half a week or two ago when it was nicely up. Then I earned ****loads on TSLA with the MS upgrade and now as my portfolio is bigger in total I'm reallocating some to solar so it's a nice buying opportunity. Keep adding contract by contract as it drops
I honestly wouldn't mind a 15% drop in TSLA right now. My exposure to TSLA became very small once we crossed $250. I want to buy more but I just can't justify the purchase right now, espeically with taxes being due so soon.
Okay just bought some CSIQ Jan '15 $35s.. Couldn't resist w/ CSIQ being at $37!
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