Newbie Options Trading

[Chickenlittle]

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.

Can't wish it up. No positive announcements expected gen 3 model x reveals next yr. no production numbers. Doubt any new reveals nor raising price targets. When tesla without new events usually drifts down. I though months ago that 300 was a target for end of year but now I would be happy with 250.

 

[MikeC]

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.

I was referring to the 280 strike when I said "not likely". While its certainly possible, I think it's clear from the price of the option (~$400) that it would be considered a longshot to get back up near the ATH in the next 2 months. While the swings give it a chance to get there, using that argument there's an equal chance we go down $40 and hit $200.

I agree with you that it is a decrease in IV because, clearly, only one day has passed so loss of time value has to be minimal. IV always affects all options to some degree, but the closer to expiration they are the more they are affected (and if expiration is a year or more out, the effect is negligible). My point was that 2 months is not really that far out and the IV collapse reflected that.

 

[mejojo]

So, I guess you could say that we know today something we didn't know yesterday.....that TSLA did not report 5c/share earnings and did not produce 8000 cars, so less likely to go up to XXX so that option should cost less/lose value.

And that is a decent part of what IV is about, right?

And so it follows that although IV is deepest right before ER for nearest term options, the effects do carry out much farther.

 

[pz1975]

Strangely the IV values for the Dec20 calls are about the same as they were yesterday (0.45-0.50) according to Nasdaq.com and yet their values are down with a higher stock price and a greater proportionate loss the more OTM you go. I can't explain this as theta loss is minimal 1 day later.

 

[Chickenlittle]

with current situation good time to sell covered calls. A lot less likely to run away from you. I try to pick levels that I do not believe the price will reach. Use short term periods. For instance sold calls strike 250 yesterday for 6.30. Hopefully will not reach and I will sell more. If it does doubt price will be above 256 then. I find this strategy useful at times where I do not expect stock to run. If it doesn't get called away, my cost basis (not talking tax wise) is lowered by 6.30. In the past with lower volatility was able to do 4 times in a row with expirations 1-3 weeks away

usually will buy back before the expiation. Don't wait to pocket all 6.30. If option were to get to less than a dollar will buy back early so I can sell more calls

 

[ckessel]

with current situation good time to sell covered calls. A lot less likely to run away from you.

The IV premium for selling is quite low right now and we still have the possibility of analysts weighing in from the Q3 ER. Seems like a bad combo for selling calls.

 

[Chickenlittle]

The IV premium for selling is quite low right now and we still have the possibility of analysts weighing in from the Q3 ER. Seems like a bad combo for selling calls.

Yes I feel horrible. After selling them for 6.30, less than 24 hrs later I can buy back at 4.30. What a mistake. Other analysts coming in more likely to give lower price target than higher.

 

[ckessel]

Yes I feel horrible. After selling them for 6.30, less than 24 hrs later I can buy back at 4.30. What a mistake. Other analysts coming in more likely to give lower price target than higher.

This is the "newbie" thread, so I'm just noting that right now is about the worst possible premium you'll get for selling a call or put. If you're going to sell a put/call right now, you'd better be really sure of the stock's direction.

Congratulations if you've got that sort of visionary insight.

 

[The Blue Owl]

Yes I feel horrible. After selling them for 6.30, less than 24 hrs later I can buy back at 4.30. What a mistake. Other analysts coming in more likely to give lower price target than higher.

Why the snark? That your bet worked out this time is not a valid counter to a general comment about the actual strategy. I thought ckessel's post was reasonable, it simply offered some caveats, which are always useful for those newbies for whom this thread is supposedly for, no?

 

[Chickenlittle]

This is the "newbie" thread, so I'm just noting that right now is about the worst possible premium you'll get for selling a call or put. If you're going to sell a put/call right now, you'd better be really sure of the stock's direction.

Congratulations if you've got that sort of visionary insight.

yes premium low because we are headed down if your a buy and hold investor looking to mitigate the dips this is a good strategy. would you sell a share at 256.30 this week or next? i am sure you would answer yes. selling a call with the stock going up will net you a larger premium BUT your likely to lose your stock and possibly watch it going through your target and not enjoying the increased profit. i am happy to post my selling calls trade and compare to what i would have while i continue this. i only risk a small part of my shares in this strategy. so far

nov 6th 10,000 shares price 244 sold 100 calls strike 250 expiration 11/28/14 proceeds 63,000

will update when i either sell more or buy back

- - - Updated - - -

Why the snark? That your bet worked out this time is not a valid counter to a general comment about the actual strategy. I thought ckessel's post was reasonable, it simply offered some caveats, which are always useful for those newbies for whom this thread is supposedly for, no?

not snark to state the obvious. i dont enjoy watching it go down but hold out hope that price targets are going to be increased based on the last report??????

 

[The Blue Owl]

nov 6th 10,000 shares price 244 sold 1000 calls strike 250 expiration 11/28/14 proceeds 63,000

100 calls.

not snark to state the obvious.

When you said you felt "horrible" and that it was "a mistake" you weren't stating the obvious, I presume. Moreover, what is obvious to you may not be as ironclad as you may think. I mean, this is the market we're talking about.

 

[Chickenlittle]

with current situation good time to sell covered calls. A lot less likely to run away from you. I try to pick levels that I do not believe the price will reach. Use short term periods. For instance sold calls strike 250 yesterday for 6.30. Hopefully will not reach and I will sell more. If it does doubt price will be above 256 then. I find this strategy useful at times where I do not expect stock to run. If it doesn't get called away, my cost basis (not talking tax wise) is lowered by 6.30. In the past with lower volatility was able to do 4 times in a row with expirations 1-3 weeks away

usually will buy back before the expiation. Don't wait to pocket all 6.30. If option were to get to less than a dollar will buy back early so I can sell more calls

Last time I employed strategy tesla was in the 150 range. Made almost 400k watching stock drop. A good strategy for buy and hold but mitigate loss. If I picked wrong target would buy deep in the money calls to have to replace stock lost. Deep in the money to avoid premium. In this case if price approaching 250 would buy 100 such calls and limit the gain to 6.00

 

[ckessel]

A newbie question I guess, but can't you normally sell a "covered call" against a call that's further out? Just2Trade doesn't seem to let me do that, but I thought that was fairly standard functionality. For example, if I have a Jan $245, I can sell a Dec $245 without any margin impact. Just2Trade seems to only allow it if you own the underlying stock.

 

[MikeC]

A newbie question I guess, but can't you normally sell a "covered call" against a call that's further out? Just2Trade doesn't seem to let me do that, but I thought that was fairly standard functionality. For example, if I have a Jan $245, I can sell a Dec $245 without any margin impact. Just2Trade seems to only allow it if you own the underlying stock.

Maybe it requires a higher options approval level?

 

[Blip]

This would be a calendar spread and not a covered call.

 

[ckessel]

This would be a calendar spread and not a covered call.

Right, that'd be the technical term, but it's basically the same concept as a covered call...selling an option on something that underlies it.

I just asked Just2Trade and they said no, they don't support it. They support spread and straddle, but not calendar ones.

Edit: Ok, I take it back. They do have diagonal call spreads (calendar spread) as an option, but it doesn't seem to let me do this after the fact. I've got a query into their support.

 

[Blip]

No, they are not the same. Covered call is the same as a short put and benefits when the stock price don't move or increases. A calendar will go negative in both directions, but may be positive if the stock ends up at the strike on expiration on the nearest date.

 

[mejojo]

I'm curious what your internal monologue sounded like when we were at 255+ this morning.

How do you think about your options when the stock pops up 2-3% like that with no solid backing?

 

[Robert.Boston]

@mejojo: So I'm holding some ITM Mar'15 and ITM Jan'16, and a substantial underlying stock position. (They weren't ITM when I bought either, but life has been good.) About 10:-00-10:30 this morning, I thought the stock was looking a little frothy. Here was my inner monologue:

Sell stocks? Nah, those are mostly core holdings, and the stock price isn't so high today that it seems time to sell.
Sell Jan'16s? Nah, those LEAPs are basically stock equivalents, holding until Model X starts delivery and takes the world by storm.
Sell Mar'15s? Nah, those are there to pick up the updraft when the Model X is shown at Detroit this January and we overtop the ATH.

So, I sat tight.

 

[InTheShadows]

@mejojo: So I'm holding some ITM Mar'15 and ITM Jan'16, and a substantial underlying stock position. (They weren't ITM when I bought either, but life has been good.) About 10:-00-10:30 this morning, I thought the stock was looking a little frothy. Here was my inner monologue:

Sell stocks? Nah, those are mostly core holdings, and the stock price isn't so high today that it seems time to sell.
Sell Jan'16s? Nah, those LEAPs are basically stock equivalents, holding until Model X starts delivery and takes the world by storm.
Sell Mar'15s? Nah, those are there to pick up the updraft when the Model X is shown at Detroit this January and we overtop the ATH.

So, I sat tight.

I went through a similar scenario only looking at my dec week 2 and dec calls. I choose to buy this week's puts instead and sold them this afternoon for a 77% gain. Although I'm surprised they sold because I thought the stock would have to go .50 lower than they did to execute.

My feeling is that this run should make it to 265, so my plan is to sell them all when we hit the mid 259's and possibly buy some short term puts.