INTRO TO GUIDE
This is for long-term investors...
There's a huge opportunity with options that 99% of uber Tesla bulls are simply missing. If the company is grows exponentially as they have--most have reasonable confidence they will--then the investment could be best in an exponential investment vehicle. What if they pair the exponential grower with the exponential investment type? Owning the stock is the linear investment vehicle while stock options offer exponential power.
It's possible you are using options now but still think they are "too risky" and have most of your Tesla exposure in stock. If so, read on. If you are using only options now but feel you could benefit from a greater understanding, read on. Or maybe you have all stock and are curious and open to transitioning/augmenting your investment.
But there is a knee jerk reaction. People are programmed to think options are "too risky," and they're right too. The way that people typically use options is too risky. Either they gamble on weeklies, or they always employ a certain tactic (call selling against stock, strangle writing, collars, etc) no matter what, or they get sucked into going "All In" multiple times until they go bust. YOLO anyone?
Yes, options can be "weapons of mass destruction" as per Warren Buffett. They definitely are ticking time bombs.
But if stock is at $900, you don't have to tie up all $900 to get your exposure to the moves in the stock. This is the beauty or the benefit of the leverage of options.
Options are also a way to define your risk. David Lee, investing great on these boards, has eluded to adding to his position in shares by using LEAPS. Options can be a way to grow your wealth and/or seek to profit from specific catalysts and specific timeframes.
I have to warn you though. You have to make your own decisions. There is no golden answer. There is an option tactic I prefer right now, but that has changed in the past 6 months. I think I've found one I can live with. START with the fundamentals I am going to provide. Read each post. Comment and ask questions.
And don't do the opposite of what I am about to say... Do. Not. Skip. To. The. Tactic!
Be curious yet disciplined. You have to have solid fundamentals in mind. A solid foundation. But first...
BACKGROUND
All the learnings in this guide and posts have been gained from a friend who was a stock options market maker for 5 years at the CBOE. They are a professional investor and were lucky enough to see through the veil of media and WS lies about Tesla in April 2019. They made a fateful purchase and also invested for themselves. At first they only owned stock, then they added a position in options in a $60k Roth. The options have been changed over multiple times. They tell me that account today is 3.5--not measured in the mere thousands. This growth has been over the course of less than a year. Only 5% of the gains came from one weekly play.
Luck? Probably... and the implications of that will be covered as well.
Their goals are not the same as yours. Their situation and risk tolerance is different. Yet maybe there is a different way for you to think about your risk? At least a better understanding should be gained and with that comfort and peace of mind.
START WITH A GOAL
Simple thoughts will help guard you against getting caught up in all the minor details and dramas.
This may sound "woo woo", but it is the crucial beginning. Before anything else, you have to start with a goal. This is your intention for the investment. It can be very simple. For them it was to start with 10% in Tesla exposure and let it play out. (10% means 10% of their investable net worth). In June 2019, the goal was 8% in stock (a certain number of shares), and added 2% more in options in order to double the number of "potential shares." They have a wife and kids and will not YOLO with this investment.
Is your goal to keep a certain % of your net worth in Tesla?
Around December 13 2019, after a confluence of positive news that went ignored by the media, the fateful decision was made. By this time, the Roth had 4x'd from $60k to over $240k. Some version of this thought can be powerful for you... "What if all the stock is sold, and only the gains are invested in the options, then if the options go to zero, nothing will have been lost in the lifetime investment in Tesla. Worst case, nothing gained in the investment. Best case, it could be life changing money."
Is your goal to ride your lifetime gains in options to grow your ability to own more shares? What's possible for you if this became your goal? What are the implications for you if Tesla enters a channel for 2 years and options go to zero value?
The goal has evolved over time as the position has grown. In mid January 2020 with stock around $500, the account had grown to $800k and the deltas to 5,500. Which means for every dollar move in the stock, the value of the options would fluctuate on average by 5,500. The goal then became "own 5,000 deltas for the next 6,000 points on the stock." What if those deltas could be held for the duration of Elon's compensation plan? That could mean walking away with 5,000 x $6,000. What if those deltas could be held until WS is (nearly) uniformly bullish (which would take many years)?
Is your goal to make a certain amount of money in your Tesla investment?
Your goal and the following fundamentals (and your fundamentals) are what needs to be the mantra in your mind to stay long and strong during the ups and downs. The position was not trimmed until 1/30/2020. By this point, the account had grown to over 1.5 and the deltas trimmed down to 7000. By this time the daily swings were becoming more normal.
Your goal must be specific. It cannot be "I will own it the rest of my life no matter what, and want to make as much money as possible." This is a recipe for missed opportunity. The value of an investment always matters. Tesla bulls value the stock different from everyone else and even different from each other. When price gets disconnected from that value, you have an opportunity.
Having a goal helps you stay disciplined. Options add leverage to an already volatile stock, making discipline difficult.
It's OK to change your goal over time, but you have to revisit what's the worst that could happen.
Before you read on to the next section, or the next posts. Write down your goal. Look at your lifetime gains. What if you risked a portion or all of the gains and capped your loss there? Start a journal for your investment, or a Word doc to go with your spreadsheet. Reply in this thread with your goal and/or how your goal has evolved over time. No need to be specific with dollars or share count.
Coming Up...
THREE FUNDAMENTALS
WARNING ON WAITING
EXPIRATION CHOICES
STRIKE CHOICES
WHEN TO MAKE CHANGES
WHEN TO STOP
This is for long-term investors...
There's a huge opportunity with options that 99% of uber Tesla bulls are simply missing. If the company is grows exponentially as they have--most have reasonable confidence they will--then the investment could be best in an exponential investment vehicle. What if they pair the exponential grower with the exponential investment type? Owning the stock is the linear investment vehicle while stock options offer exponential power.
It's possible you are using options now but still think they are "too risky" and have most of your Tesla exposure in stock. If so, read on. If you are using only options now but feel you could benefit from a greater understanding, read on. Or maybe you have all stock and are curious and open to transitioning/augmenting your investment.
But there is a knee jerk reaction. People are programmed to think options are "too risky," and they're right too. The way that people typically use options is too risky. Either they gamble on weeklies, or they always employ a certain tactic (call selling against stock, strangle writing, collars, etc) no matter what, or they get sucked into going "All In" multiple times until they go bust. YOLO anyone?
Yes, options can be "weapons of mass destruction" as per Warren Buffett. They definitely are ticking time bombs.
But if stock is at $900, you don't have to tie up all $900 to get your exposure to the moves in the stock. This is the beauty or the benefit of the leverage of options.
Options are also a way to define your risk. David Lee, investing great on these boards, has eluded to adding to his position in shares by using LEAPS. Options can be a way to grow your wealth and/or seek to profit from specific catalysts and specific timeframes.
I have to warn you though. You have to make your own decisions. There is no golden answer. There is an option tactic I prefer right now, but that has changed in the past 6 months. I think I've found one I can live with. START with the fundamentals I am going to provide. Read each post. Comment and ask questions.
And don't do the opposite of what I am about to say... Do. Not. Skip. To. The. Tactic!
Be curious yet disciplined. You have to have solid fundamentals in mind. A solid foundation. But first...
BACKGROUND
All the learnings in this guide and posts have been gained from a friend who was a stock options market maker for 5 years at the CBOE. They are a professional investor and were lucky enough to see through the veil of media and WS lies about Tesla in April 2019. They made a fateful purchase and also invested for themselves. At first they only owned stock, then they added a position in options in a $60k Roth. The options have been changed over multiple times. They tell me that account today is 3.5--not measured in the mere thousands. This growth has been over the course of less than a year. Only 5% of the gains came from one weekly play.
Luck? Probably... and the implications of that will be covered as well.
Their goals are not the same as yours. Their situation and risk tolerance is different. Yet maybe there is a different way for you to think about your risk? At least a better understanding should be gained and with that comfort and peace of mind.
START WITH A GOAL
Simple thoughts will help guard you against getting caught up in all the minor details and dramas.
This may sound "woo woo", but it is the crucial beginning. Before anything else, you have to start with a goal. This is your intention for the investment. It can be very simple. For them it was to start with 10% in Tesla exposure and let it play out. (10% means 10% of their investable net worth). In June 2019, the goal was 8% in stock (a certain number of shares), and added 2% more in options in order to double the number of "potential shares." They have a wife and kids and will not YOLO with this investment.
Is your goal to keep a certain % of your net worth in Tesla?
Around December 13 2019, after a confluence of positive news that went ignored by the media, the fateful decision was made. By this time, the Roth had 4x'd from $60k to over $240k. Some version of this thought can be powerful for you... "What if all the stock is sold, and only the gains are invested in the options, then if the options go to zero, nothing will have been lost in the lifetime investment in Tesla. Worst case, nothing gained in the investment. Best case, it could be life changing money."
Is your goal to ride your lifetime gains in options to grow your ability to own more shares? What's possible for you if this became your goal? What are the implications for you if Tesla enters a channel for 2 years and options go to zero value?
The goal has evolved over time as the position has grown. In mid January 2020 with stock around $500, the account had grown to $800k and the deltas to 5,500. Which means for every dollar move in the stock, the value of the options would fluctuate on average by 5,500. The goal then became "own 5,000 deltas for the next 6,000 points on the stock." What if those deltas could be held for the duration of Elon's compensation plan? That could mean walking away with 5,000 x $6,000. What if those deltas could be held until WS is (nearly) uniformly bullish (which would take many years)?
Is your goal to make a certain amount of money in your Tesla investment?
Your goal and the following fundamentals (and your fundamentals) are what needs to be the mantra in your mind to stay long and strong during the ups and downs. The position was not trimmed until 1/30/2020. By this point, the account had grown to over 1.5 and the deltas trimmed down to 7000. By this time the daily swings were becoming more normal.
Your goal must be specific. It cannot be "I will own it the rest of my life no matter what, and want to make as much money as possible." This is a recipe for missed opportunity. The value of an investment always matters. Tesla bulls value the stock different from everyone else and even different from each other. When price gets disconnected from that value, you have an opportunity.
Having a goal helps you stay disciplined. Options add leverage to an already volatile stock, making discipline difficult.
It's OK to change your goal over time, but you have to revisit what's the worst that could happen.
Before you read on to the next section, or the next posts. Write down your goal. Look at your lifetime gains. What if you risked a portion or all of the gains and capped your loss there? Start a journal for your investment, or a Word doc to go with your spreadsheet. Reply in this thread with your goal and/or how your goal has evolved over time. No need to be specific with dollars or share count.
Coming Up...
THREE FUNDAMENTALS
WARNING ON WAITING
EXPIRATION CHOICES
STRIKE CHOICES
WHEN TO MAKE CHANGES
WHEN TO STOP