Newbie Options Trading

[Johan]

Yea. I guess buy a straddle a day or so before the ER, then close it out by the EOD to make the most of the volatility?

Not really a newbie strategy I guess though

Ooh, be careful there. It's not like it's a given that the premiums will just keep going up and up and up all the way to market close on Wednesday. Not at all. What you're suggesting will really be a hot potato. When those option premiums loose momentum it will collapse pretty quickly. Don't be fooled in to thinking you could outsmart the market makers with a play like that, which isn't really based on interpreting news or info about the stock but is basically just an arbitrage play. The house always wins.

 

[ckessel]

Ooh, be careful there. It's not like it's a given that the premiums will just keep going up and up and up all the way to market close on Wednesday. Not at all. What you're suggesting will really be a hot potato. When those option premiums loose momentum it will collapse pretty quickly. Don't be fooled in to thinking you could outsmart the market makers with a play like that, which isn't really based on interpreting news or info about the stock but is basically just an arbitrage play. The house always wins.

I was just commenting based on chickenlittle's observation that the day before ER is volatile. I'd be betting on movement more than IV (though lots of movement tends to increase IV), selling before EOD because IV does crash hard after the ER so if I were betting on pre-ER movement, I wouldn't want to hold those options through the ER.

 

[pz1975]

I personally bought some protective puts with Dec20 expiry as that is far enough away that there shouldn't be any (or very minimal) IV collapse so I won't lose value there. I won't gain as much as a shorter term put (1-3 weeks out) if there is a huge drop in stock price, but even a modest drop will be eaten up by IV collapse the next day for shorter-term puts and they can be in the red despite the stock price going down. I am literally 98% long overall (mostly LEAPs) so I may buy some more puts if the stock goes up over the next 2 days.

 

[ckessel]

I was just commenting based on chickenlittle's observation that the day before ER is volatile. I'd be betting on movement more than IV (though lots of movement tends to increase IV), selling before EOD because IV does crash hard after the ER so if I were betting on pre-ER movement, I wouldn't want to hold those options through the ER.

Well, meh. The cost of a straddle is about $20. I think we'd need to see 5% movement or more tomorrow to make money. Seems like that's happened historically on pre-ER day, but I just don't know...both bears and bulls seem to be at a loss for how to spin this ER.

 

[tdiggity]

Looking for some advice!

I picked up a weekly $245 Call today. I won't be around from 8am-1pm (pacific). What's the best way to offload this option contract? Will a trailing stop work for options? Or do you think holding onto it till Friday is a good move.

 

[hershey101]

I'm not sure what price you got them for, but those are going to be barely ITM or ATM when we open tomorrow. I would take $5-$6 on them if you can get it since they have an IV of 155 and a theta of -2.5 as of close today! Those two things are going to implode the value of the option within an hour or two, especially if we see a pullback tomorrow, which I think is very likely. Weeklies are tough to play, especially with the high vol., and high theta.

 

[tdiggity]

I'm not sure what price you got them for, but those are going to be barely ITM or ATM when we open tomorrow. I would take $5-$6 on them if you can get it since they have an IV of 155 and a theta of -2.5 as of close today! Those two things are going to implode the value of the option within an hour or two, especially if we see a pullback tomorrow, which I think is very likely. Weeklies are tough to play, especially with the high vol., and high theta.

Thanks for the advice. I got them for 5.15.

 

[hershey101]

Thanks for the advice. I got them for 5.15.

I hope you can be happy with a 40-50% gain. I have a strong feeling that we trace back to the low 240s tomorrow. I may be wrong, you can see in the premarket. 8am PST is 11am EST. By that time you will have a good idea what direction the market is headed, and you can adjust your limit accordingly.

 

[chickensevil]

Only reason to hold through opening tomorrow is if you strongly believe we are going to continue to rise up through tomorrow and potentially Friday with the goal of coming in well north of 250. My hope is that we open at or above 250 tomorrow which should make whatever you sell them for on the open worth quite a bit. If you miss the first few minutes of trading you had better hope that the stock keeps going up.

In retrospec, I would avoid some kind of very short term play like this unless you have the time to babysit the contracts. The only contracts I would ever buy that I didn't feel like needed to be watched like a hawk would be either stuff I anticipate going to 0 or stuff I am holding longer than 2 weeks. Once you get within a 2 week expiration the price dumps off way too fast based on stock movement.

 

[mejojo]

Newbie Options Question - If the stock is up 11+, why are the Jan17 @265 and @280 down for the day?

A newbie would think if you get closer to the strike, the value of the option would increase.

 

[chickensevil]

Newbie Options Question - If the stock is up 11+, why are the Jan17 @265 and @280 down for the day?

A newbie would think if you get closer to the strike, the value of the option would increase.

You know how people said IV crush doesn't affect long term options? Apparently this is not the case. Something has killed the volatility of everything after earnings because my Dec 14 and Jan 15 options are also bleeding in the red.

 

[Chickenlittle]

You know how people said IV crush doesn't affect long term options? Apparently this is not the case. Something has killed the volatility of everything after earnings because my Dec 14 and Jan 15 options are also bleeding in the red.

Need to pick expiration dates better. The earnings reports are the big volatility periods. You just had your last repot before they expire. Next report is February. What is going to move the stock now? No production numbers, no new tech reveals, model x pricing and reveal next qtr.

 

[chickensevil]

Need to pick expiration dates better. The earnings reports are the big volatility periods. You just had your last repot before they expire. Next report is February. What is going to move the stock now? No production numbers, no new tech reveals, model x pricing and reveal next qtr.

It isn't about the expiration date... just about everything either ATM or OTM going far out is in the red today. The ONLY one I see that is actually green across the board is the Jan 16 options. This impacted even the Mar (everything from 325 and up) and Jun (everything from 335 strike and up) options... Jan is currently only in the green on the ATM and everything from 245 and up is red for the day... and then it gets worse as you go backwards closer to present.

And many people here think that March 325 would be a pretty solid target.

My point being that the IV crush extended out to everything. what is actually in the green today is not in the green by much.

Consider this, if yesterday I had bought a March 230 call (which was the ATM for yesterday's close) I would only be up by about 3$ yet the stock went up by 10 or more at different periods today. That tells me that there was a decent inflation of the price value for the ATM March calls too (and there is an ER between now and then). Vega could not have killed that much value off of a March Call in just one day, so the only major thing that is left is IV.

Unless I am totally missing something? I don't have the tools on hand to point you at the historical values for these strikes.

- - - Updated - - -

Oh and this morning when the stock opened, EVERYTHING was in the red. I don't recall seeing any strike call or put that did not eat a loss on opening of the stock.

 

[MikeC]

Newbie Options Question - If the stock is up 11+, why are the Jan17 @265 and @280 down for the day?

A newbie would think if you get closer to the strike, the value of the option would increase.

JAN 17s don't exist yet. Another reason they could be red is when there is a wide bid-ask spread, during trading hours if you own the call, they will show you the bid price because that's what you can sell it at for sure. The actual value is somewhere between the bid and ask price - after the market closes, it will list a more accurate value. For this reason, I notice my account value goes up a few thousand dollars after the markets close every day.

 

[chickensevil]

JAN 17s don't exist yet. Another reason they could be red is when there is a wide bid-ask spread, during trading hours if you own the call, they will show you the bid price because that's what you can sell it at for sure. The actual value is somewhere between the bid and ask price - after the market closes, it will list a more accurate value. For this reason, I notice my account value goes up a few thousand dollars after the markets close every day.

Might depend on who you use for a trading platform. Mine reflects it as the "market price" which is basically the mid point between the bid and ask.

 

[AndreN]

JAN 17s don't exist yet.

He means 1/17/15. I saw the same thing - options close to the current stock price increased in value (which worked out for me) but options farther out of the money actually lost value. My thinking is the earnings report causes a decrease in uncertainty for the next couple months. That is, before earnings, people weren't sure what the possible range of performance of Tesla was going to be, but were more sure after earnings. And from performance comes stock price. So a price of $220 seems more likely in January ($220 option is up $4), but $280 is less likely (that option is down about $1).

 

[MikeC]

Might depend on who you use for a trading platform. Mine reflects it as the "market price" which is basically the mid point between the bid and ask.

Very possible, that's my experience using Schwab.

JAN 15 lost value because they're still way out of the money and only two months out.

 

[mejojo]

Very possible, that's my experience using Schwab.

JAN 15 lost value because they're still way out of the money and only two months out.

But therein lies my question....they are significantly less OTM today than they were yesterday....

 

[MikeC]

But therein lies my question....they are significantly less OTM today than they were yesterday....

But not significant enough that they are likely to end up in the money. And they lost some IV because two months isn't that far out.

 

[chickensevil]

But not significant enough that they are likely to end up in the money. And they lost some IV because two months isn't that far out.

With the swings of this stock how is 260 NOT likely in 2 months? ESPECIALLY when we moved at one point over 50% of the way to that target in just one day? To me that means IV as opposed to time value was what was killed today. Which was my point. The uncertainty surrounding this ER extended into all options which from what people had been saying and even what I have experienced is not "normal". IV around ER generally extends to short term options only.