-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
TheTalkingMule
Distributed Energy Enthusiast
AquaY
Member
I thought the only "margin" in an IRA was the ability of use unsettled cash from transactions?Same here - definitely added them too early, between yesterday and this morning when stock was as 780. Don't want to add anymore in my brokerage account - too close with the margin exposure limits for my comfort.
However, in the IRA, I sold 600 shares and added LEAPS - also too early I think, but for over 2years expiration, it is fine. Strikes that I now have are 550, 850 and 950 for June'23 and 690 & 840 for Jan'24. Also added some 690 strike for 19Nov2021 as a bet for the Q3 results.
I don't fully understand how the margin portion is working for the IRA - with level 2+. Keeps telling me I don't have sufficient intraday power, but I do have overnight trading power? Well, then I realized that I could use this money to buy calls or shares if I change the "margin" option to "cash" while placing the order. I guess it means I cannot use the cash to sell spreads which requires cash to cover margin?
Anyways, fully leveraged now to the extent where I wanted to be. About 60% stocks and 40% in calls and LEAPS, with reasonable cash set aside for selling spreads. Now, let the games for Q3 begin
I haven't started playing with my IRAs yet for options so I don't know the reality of how it works.
Hopefully someone else explains it .
I think that the better way to view OI and volume are that they are reasonably independent. Open Interest is the number of open contracts - that's an indicator of the accumulated historical interest at that strike.
Volume is the number of contracts that trade at that strike. We might view this as the interest in that strike, right now.
Every trade is always a Buy paired up with a Sale. But we also know from what we're doing around these parts, that Buys can be Closing or Opening, as can Sales. Thus a Buy To Close (such as when we close a short put or call) paired up with a Sell to Close, generates a net reduction in the Open Interest.
A Buy to Close paired with a Sell to Open (or the reverse) holds the Open Interest unchanged.
And Buy to Open paired with Sell to Open increases Open Interest.
If you can somehow put the Volume information together with whether the transactions are happening at bid (buy low, sell low - the buyers are in control) or at the ask (buying high, selling high - the sellers are in control) might provide better insight into the sentiment, while still not necessarily indicating how volume is going to translate into open interest.
The one truism I can come up with is that as we get closer and closer to expiration day, the more that volume will translate into a drop in open interest (pretty obvious probably).
Just a note to all that it's worth paying close attention to the US debt limit issue over the next few weeks. I'll probably be playing it safe with put spreads maybe as early as the middle of next week unless something changes. The US Treasury has cited 10/18 as the date at which the US will no longer be able to meet its obligations, and as much as I'd like to think they'll get something done at the last minute like they always have, the posturing I'm seeing right now has me a little spooked.
I see the same message with Fidelity. My guess is that you can use the limited margin to cover the settlement period, but they don’t want you doing it more than once per day for each position (i.e., they don’t want you daytrading it).
This has got me thinking of selling some of my shares for LEAPs while generating more cash for puts.
Now, to figure out what percentage to turn into LEAPs? 50%?
AquaY
Member
I think that's just standard violations. Doesn't have to do with IRA Margin.
From Fidelity: "you can avoid trading restrictions or potential good faith violations. That's because limited margin allows you to trade unsettled proceeds to buy and sell securities in your IRA."
Oh, of course, as you've been considering. As I'm thinking of if and how to cap my total exposure to TSLA (year-end or $900? then quarterly rebalancing a la ARK), perhaps your risk management approach would be superior to share sales, e.g., continued income from lcc.
Because 840 is 2X 420 and Elon likes the number 420 - I am superstitious and choose strikes in multiples of 420 when possible
. There is no 840 strike for June'23, so 850 is close enough! Same reasoning for the 690s btw - it is just some nerdy entertainment value.More seriously though, I had posted my calculations before - goal being to get maximum leverage without being too aggressive. From 2019 to now, I did extremely well with Calls - in some cases with over 100X returns on the premiums. The SP went up by over 20X during that time (my oldest lot is at $28) I am not expecting the stock price to go up in the next 2 years by over 2X of current price. So, I am choosing strikes that give me the best balance. If the SP only goes up by 1.5X before expiration, I want to still come out positive compared to just buying the stock currently.
Here are the relevant tables - if SP goes up by 1.5X or 2.0X, sorry about the copy-paste format. My worksheet of calculations is also attached - scroll all the way down for the analysis based on today's closing prices. The way I like to look at it is if I had a constant number of investment - in this example I am assuming a 100K investment in any of these options or in stock.
Looking at this, options in the range of 600 - 850 are providing good leverage over buying stock.
If SP goes to 150% these go up to 150-200%.
If SP goes to 200% these go up to 300-400%
If you go too far up in strike price, say 1200 - those provide excellent leverage if the SP at least doubles. But, you have a chance of loss if the SP only goes up by 50% at expiration. Remember, TSLA went sideways for over 5 years from 2014 to 2019. Conversely, a very deep ITM contract, like 350 - you miss out on leverage and returns are not that much higher than just buying stock.
So, it comes down to your gut feel - where do you think SP will be before these options expire. Conservatively, I think minimum of 50% growth over 2 years, with at least 50% increase in SP is a good assumption. All my LEAPS for June'23 and Jan'24 are ranged from 550 to 950, its a good balance of leverage and still being conservative. As I said before, the actual strikes are usually a fun number like 840 or 690 (there was no 960 strike, so selected 950).
I also have a couple at 1250 - these are just as lottery tickets in case all the crazy bullish predictions come true. (there was no 1260 strike, so selected 1250 - keeping to the theme of multiples of 420).
Options Analysis ROI
Trading in 2000 shares for 20x c600 calls isn't a straight across trade in $ for $ benefit. For a very large price move, which we both think likely between now and Jan '24, then that $ for $ move is a good approximation.
You can more accurately measure the equivalence using delta. If those contracts are .80 delta, then 2000 shares (2000 total delta, where each share has a delta of 1) turns into 20 contracts / 2000 shares * .80 delta, or 1600 share equivalents.
Clearly the thing to do is to buy 25 contracts! Then .80 delta on 2500 shares = 2000 share equivalents. If / when the shares go up, you'll not only be gaining value on the 2000 share equivalents, the increasing delta will make it look like you're owning more and more shares. Ahhh - leverage.
This was my solution - I just needed to buy more contracts to keep my current delta same or higher.
InTheShadows
Active Member
You nailed it exactly. It allows trades to close instantly using margin that is borrowed and repaid immediately. It also gets rid of good faith violations. Before I had the Ira margin setup I would be extremely selective about when I would use one of my good faith violations because I felt entering or exiting that trade was extremely important. If I was down to only one left, that was to exit a trade only.
InTheShadows
Active Member
if only I knew then what we know now. Actually looking forward to the next multi year sideways TSLA movement. (If it does ever happen again.)
InTheShadows
Active Member
Wouldn’t you still get roughly 2x leverage with these? I didn’t look but it takes half the capital if price is like $710-$720 and they are likely at an 80-90 delta depending on expiration. And if the purchase was when IV percentile is less that 10 like the past few months then closing them at high IV I would think would get you slightly better than 2x leverage.
Which is actually a nice ratio for good growth when you need to be more risk adverse like closer to or during retirement.
Unless you are in a tax deferred account you also in the US have to consider tax on capital gains with leaps as you are forced to close the position unless you exercise. Shares can grow for a longer timeframe
note to self, buy more leaps in my IRA
Exactly.
I don't have the option chain handy (and don't care enough
), but when I've looked in the past, the max date ATM strike would be about a .67 delta and cost 1/3rd of the cost of 100 shares. So one could buy 3 ATM leaps for the same price as 100 shares, and get a net delta of 200 (vs 100 from the shares).With the DITM options I tended to buy, I paid a bit more than the price of 100 shares to get 2 leaps around the .85 delta. That gets me 170 delta in the form of 2 contracts instead of 100 shares (probably closer to 110-120 shares).
So you do get leverage, even if the leverage is quite lightweight to what many are looking for when they purchase calls.
This is also why I treat DITM leap purchases as share replacement, and evaluate them in that light. They do bring some leverage to the table, but not a lot, and better approximated in their relationship to just owning shares.
So, uhm, I just discovered that one of my orders went through in the wrong account. Yay margin! I think I'm going to be finding out just how aggressively Fidelity manages my margin calls tomorrow. The first two (House and Fed) call says I have 5 days to satisfy the shortfall - of course Fidelity can close stuff earlier at their discretion.
The Exchange calls - those say 2 days to satisfy that. At least it's a Friday position - I predict aggressive closing of positions, at least partially, in my near future
Sigh
I also need to revisit that account that didn't get any positions opened - I'm missing out on income there!
The Exchange calls - those say 2 days to satisfy that. At least it's a Friday position - I predict aggressive closing of positions, at least partially, in my near future
Sigh
I also need to revisit that account that didn't get any positions opened - I'm missing out on income there!
TheTalkingMule
Distributed Energy Enthusiast
I had all my holdings within my Fidelity IRA "converted" to margin positions and pretty much every trade is of the type "margin". But you can't use true margin within an IRA. From what I can gather it just lets me trade my entire cash/margin/unsettled balance without good faith violations.
Similar threads
