Social Chat - Short Term TSLA Movements

[kenliles]

Pretty much any long strategy fails when the stock goes down and works when the stock goes up .

I bought Jan 2015 300's back when we were talking about the LEAPS strategy. They're still about 1/2 value even after today, which seems a little odd because I thought I bought them back when the stock was about the price it is now and thus the time decay seems overly large. Must be my memory is faulty, I'll have to go look up exactly when I bought. I'm right about that 6 months from expiration point where you're supposed to roll forward, so I'm hoping this run continues (perhaps prompted by other news, like the Gigafactory) and I can break even and roll into 2017 LEAPS

IV is running very low currently at 43 - it peaked at ER last May at 138;
If IV was 138 today, those J15 $300s would be worth 6x the value you see right now ($66 vs $11). The spike in IV was typically short- so doubtful you bought at the peak-
unless you believe TSLA is going down significantly- my advice is to hold for ER before rolling; when rolling around the ER period be very careful of the IV values- If the TSLA underlying has priced in the ER, it's often advantageous to time delay the roll. Sell into, then hold for IV to come in for the buy or at least do it in phases. IV is an important factor when buying or rolling around ER spikes of IV

 

[pz1975]

IV is running very low currently at 43 - it peaked at ER last May at 138; If IV was 138 today, those J15 $300s would be worth 6x the value you see right now ($66 vs $11). The spike in IV was typically short- so doubtful you bought at the peak- unless you believe TSLA is going down significantly- my advice is to hold for ER before rolling; when rolling around the ER period be very careful of the IV values- If the TSLA underlying has priced in the ER, it's often advantageous to time delay the roll. Sell into, then hold for IV to come in for the buy or at least do it in phases. IV is an important factor when buying or rolling around ER spikes of IV

kenliles, be careful about extrapolating IV for short-term calls to longer-term calls/LEAPS. When the IV was 138 pre-ER (it was actually 1.69 for the weekly calls), that was for that week's calls. The IV was definitely higher then now for longer-term calls/LEAPS, but past about 1 month out, the IV doesn't change very much pre- vs. post-ER. I made a comparison back then in the "Newbie options trading" thread of IV pre- and post-ER of ATM calls at various expiration dates. Here it is: >Pre-ER (Q1): Time to expiry - IV 2 days (May 9) - 1.69 1 week (May 17) - 0.90 2 weeks (May 23) - 0.84 3 weeks (May 30) - 0.73 6 weeks (Jun21) - 0.61 4 months (Sept20) - 0.53 8 months (Jan2015) - 0.50 1 year,8 months (Jan2016) - 0.47 >Post-ER: Time to expiry - IV 0 days (May 9) - 1.66 1 week (May 17) - 0.48 2 weeks (May 23) - 0.50 3 weeks (May 30) - 0.47 6 weeks (Jun21) - 0.47 4 months (Sept20) - 0.53 8 months (Jan2015) - 0.48 1 year,8 months (Jan2016) - 0.46

 

[kenliles]

kenliles, be careful about extrapolating IV for short-term calls to longer-term calls/LEAPS. When the IV was 138 pre-ER (it was actually 1.69 for the weekly calls), that was for that week's calls. The IV was definitely higher then now for longer-term calls/LEAPS, but past about 1 month out, the IV doesn't change very much pre- vs. post-ER. I made a comparison back then in the "Newbie options trading" thread of IV pre- and post-ER of ATM calls at various expiration dates. Here it is: >Pre-ER (Q1): Time to expiry - IV 2 days (May 9) - 1.69 1 week (May 17) - 0.90 2 weeks (May 23) - 0.84 3 weeks (May 30) - 0.73 6 weeks (Jun21) - 0.61 4 months (Sept20) - 0.53 8 months (Jan2015) - 0.50 1 year,8 months (Jan2016) - 0.47 >Post-ER: Time to expiry - IV 0 days (May 9) - 1.66 1 week (May 17) - 0.48 2 weeks (May 23) - 0.50 3 weeks (May 30) - 0.47 6 weeks (Jun21) - 0.47 4 months (Sept20) - 0.53 8 months (Jan2015) - 0.48 1 year,8 months (Jan2016) - 0.46

yeah- that's a good point the IVs don't correlate to short term calls at all. I was addressing ckessel (and others) J15 $300s. IV on those may well not return to 138 this ER; but even if IV for those goes to only to 75 pre ER, the value of those J15s 60 days from now is $23 (vs current $10 today). You have to close at the spike though, which only lasts 1-4 days at most.

 

[c041v]

yeah- that's a good point the IVs don't correlate to short term calls at all. I was addressing ckessel (and others) J15 $300s. IV on those may well not return to 138 this ER; but even if IV for those goes to only to 75 pre ER, the value of those J15s 60 days from now is $23 (vs current $10 today). You have to close at the spike though, which only lasts 1-4 days at most.

Thanks ken! I've got a bunch of these and was wondering what to do with them. I think mine are up to $11.5 or so, but it'll take $23 to make me whole. Was disappointed to see such little movement, but I remember reading about the depressed IV in someone's post (Maybe yours?) about a week ago and knew not to expect much.

So I guess I'm wondering if it potentially makes sense to close them using the spiked IV (Assuming it does happen around ER) rather than wait for the ER itself, which historically deflates anything OTM, especially $300.

One more question - is IV homogeneous across strike range for a given expiry date, or is their some sort of distribution dependant on the moneyness?

 

[pz1975]

yeah- that's a good point the IVs don't correlate to short term calls at all. I was addressing ckessel (and others) J15 $300s. IV on those may well not return to 138 this ER; but even if IV for those goes to only to 75 pre ER, the value of those J15s 60 days from now is $23 (vs current $10 today). You have to close at the spike though, which only lasts 1-4 days at most.

Sorry, again, maybe I am wrong, but my point is that long-term calls/LEAPS do not spike at all leading up to ERs. In my example from TSLA Q1, IV for anything beyond 1 month out did not change between pre-ER and post-ER (they were all between 0.47-0.53). I just don't see where you are getting the idea that J15 300s would go to an IV of 75? I would expect them to stay right where (0.4-0.6 depending on stock volatility) they are leading up to and after ER without any sort of spike/crush. Please correct me if I am wrong but my (poorly formatted - won't let me edit it) TSLA pre- and post-ER in my last post shows that.

 

[pz1975]

- - - Updated - - - plot for the past 100 days covering the last 2 ERs - light blue line is the J15 $300 option price (scale on left); red line is the J15 $300 IV value (scale on right inside the TSLA value scale); View attachment 51735

Thanks - I guess I am mistaken. However, I did write the IV values (taken from the NASDAQ option chain web page) for the ATM calls for the various expiration dates 2 days prior to ER and then 1 day after. For the Jan2015 ATM calls, the pre-ER IV was 0.50 and the post-ER IV was 0.48. I just don't see how that data matches with the chart you posted where it shows a big spike up and down. Strange. Do you have those historical IV graphs with y-axis values for IV?

- - - Updated - - -

I can't edit my posts for some reason. I do see the IV scale now (going up to 130). I wonder if maybe your scale represents overall stock IV (and maybe only relevant to week-month out calls) and not reflective of anything beyond 1 month expiration. Because if it did reflect the Jan15 300 calls like you say, then the value of the Jan15 300 calls (compared to the stock price) should have gone way up as the IV spiked and then way down as the IV crashed, but it did not. It stays relatively consistent compared to stock price around the ER. That is the only explanation I can come up with that correlates with my known data showing the IV to be almost the same for Jan15 calls pre and post-ER.

 

[ckessel]

So all things being equal, the next best time to roll is in the pre-Q2 ER IV spike. Well, roll out anyway. Then as kenliles mentioned, it might be best to delay buying the new LEAPS until after post-ER IV crash.

 

[Auzie]

Here is a good explanation of Implied Volatility, its drivers and calcs.

Output is fair value or price of an option.

This model is then solved for volatility, backward calc is used to estimate IV using iteration

"Rising IV will generally lift all boats, but IV skews may become more pronounced if they are regular features of a particular market. Skews, also known as IV "smiles" or "smirks" are cause by the warping of prices by the marketplace away from theoretical prices. Therefore, IV levels can vary for each strike along a strike price chain, or across different expiration dates."

 

[kenliles]

Thanks - I guess I am mistaken. However, I did write the IV values (taken from the NASDAQ option chain web page) for the ATM calls for the various expiration dates 2 days prior to ER and then 1 day after. For the Jan2015 ATM calls, the pre-ER IV was 0.50 and the post-ER IV was 0.48. I just don't see how that data matches with the chart you posted where it shows a big spike up and down. Strange. Do you have those historical IV graphs with y-axis values for IV?

the y-axis (right side, inside scale) does show the scale values - lowest(27.72) mid(81.35) high(134.98) - linear scale; note the spikes only occur for a few days - also note- this is the IV on Calls; not sure what the .50 values are on nasdaq- they may may a composite of calls and puts IV or some a wider normalization in time of the IV percentage- not sure on that measure

 

[Student_Forever]

Not exactly sure on what is going on the graph. However, for European options on a non-dividend stock, shouldn't the Implied Vol. be the same for both Calls & Puts on the same strike & expiration? -- That's the Put-Call Parity principle.

 

[pz1975]

the y-axis (right side, inside scale) does show the scale values - lowest(27.72) mid(81.35) high(134.98) - linear scale; note the spikes only occur for a few days - also note- this is the IV on Calls; not sure what the .50 values are on nasdaq- they may may a composite of calls and puts IV or some a wider normalization in time of the IV percentage- not sure on that measure

Yes, I saw the scale (update to my post). I think NASDAQ lists IV as a fraction of 1.00 (ie. 0.48 would = 48 in your scale). I still stand by the fact that I don't think your chart can be accurate in that if the IV FOR THAT PARTICULAR OPTION (Jan15 300) spiked the way it shows up to 138 (1.38), then the option price should have spiked too which it didn't. And then it should have spiked back down when the IV went back down, which it didn't. I just wonder if that historical IV plotted there is for the short-term stock movements rather than that particular call option. Obviously, different expiration date calls will have different IV levels depending on how far they are from expiration. Here is what the NASDAQ page shows for that Jan15 300 call right now (Impvol being IV): Delta0.24 Gamma0.00 Rho0.26 Theta-0.06 Vega0.52 Impvol0.43 Sorry to keep going on about this but I think it's important for everyone to see what actually happens to the value change of longer-term calls/LEAPS due to IV changes around ER. I'm not trying to call you out, but please explain why the call value did not go up and down along with the IV on your chart if that was truly the IV for that call option.

- - - Updated - - -

Gaaah, my posts lose all their formatting and I can't edit them!

- - - Updated - - -

Gaaah, my posts lose all their formatting and I can't edit them!

 

[Auzie]

Thanks Ken. That extra green dot looks good on you:biggrin:

 

[pz1975]

Thank you for that explanation. I think it ends up being the same thing as what I said - that the IV spike pre-ER has a much much lower effect on the value of the LEAP than the weekly (almost negligible). If the stock itself is volatile leading up to ER, then the IV will go up of course. I still say that I don't see any response in the chart above in the LEAP value when the IV spikes up and down. It looks like it is simply following the stock price.

The other issue we haven't resolved yet is that the NASDAQ listed IV for the Jan15 call was 0.50 2 days pre-ER (while the IV for the weekly call was 1.69) and then the Jan15 LEAP IV was 0.48 1 day post-ER. It doesn't correlate with your chart showing an obvious change in IV up and down for the Jan15 LEAP. I still think that the chart you are showing is for maybe a stock price IV overall or the IV values NASDAQ showed is some adjusted IV based on expiration.

 

[Norbert]

I think when speaking of "the" IV, usually the IV of at-the-money options is referred to.

However, speaking of the specific IV of a specific option, for example that of a LEAP: IF everything else stays constant (days to expiration and stock price not changing very much), then the IV and the option price can only change together. According to the option pricing formula being used.

So I think what you are effectively saying is that the IV of Leaps doesn't spike as much as the IV of short-term options (around an ER).

 

[kenliles]

Thank you for that explanation. I think it ends up being the same thing as what I said - that the IV spike pre-ER has a much much lower effect on the value of the LEAP than the weekly (almost negligible). If the stock itself is volatile leading up to ER, then the IV will go up of course. I still say that I don't see any response in the chart above in the LEAP value when the IV spikes up and down. It looks like it is simply following the stock price.

The other issue we haven't resolved yet is that the NASDAQ listed IV for the Jan15 call was 0.50 2 days pre-ER (while the IV for the weekly call was 1.69) and then the Jan15 LEAP IV was 0.48 1 day post-ER. It doesn't correlate with your chart showing an obvious change in IV up and down for the Jan15 LEAP. I still think that the chart you are showing is for maybe a stock price IV overall or the IV values NASDAQ showed is some adjusted IV based on expiration.

certainly a possibility- pz- as I don't have a good explanation for that difference currently- I'm working on it though; checking with my brokerage on the data to make sure it's behaving corruptly- I'll report back whatever I find out; maybe my charting is doing something I'm not aware of.

I have the brokerage doing a check on it- I deleted the posts of the chart until I get confirmation from the brokerage on correct plotting by the tool- I don't want anybody using it if not correct or if it's not interpreted the way it suggests. The actual values for IV on the J15 $300s though is in fact currently low historically and the advice on best roll op still stands for a higher IV if possible around ER.
processing...



edit 2:
ok just heard back- it is an average of IV not specifically for that expiration. The values I gave for theoretical value of the option for higher IVs were dead on- but the plot itself is a mashup average of options- hence the more difficult direct correlation. So I'll leave those charts down- so it's not confusing the issue. The advice would still stand of course- you can do the theoreticals if you like - an IV move up will give a better sell point. I was able to capture some of that last ER when I did a partial time-lag role per my usual method.

So just to clarify- regarding this discussion: The IV did spike at ERs, that spike was greatest for the shorter expiry options (the point pz was making) than the LEAPS. The effect of the rise in IV at ER can creat an important 2nd derivative effect even for LEAPS to increase it's value and time to perform the delayed-roll out and up per previous discussion. It was the magnitudes of the chart relative to the option that was confusing as it represented an average of IV change across multiple expiry options that cause the confusion- hopefully now corrected; For that reason, I'll leave the charts down. How's that?

 

[Auzie]

How's that?

Great! I will roll my leaps before er

 

[pz1975]

Thank you for checking kenliles. That is what I thought from the start - that IV changes for expirations beyond 1 month near ER are negligible (proven by my TSLA pre and post-ER ATM call IV levels). I agree that there will be some IV increase leading up to ER since typically the stock will be more volatile, but the IV spike/crush effect on option values are only relevant for weeklies and less so out to 1 month.

This is important for people thinking they could sell LEAPS before ER and then buy them back cheaper after based on IV drop (taking out stock movement of course). In other words, don't do that!

 

[kenliles]

Great! I will roll my leaps before er

Yep good time IMO, sometimes I'll do it hue very next morning if I think the underlying will rise fast (lack of pre run up), the IV effect will still be present the next day. Either way, this upcoming ER I highly recommend forward roll out of those J15s for all LEAP-rollers.


Also, pz1975 - thanks for your persistence to resolve. Was with you all the way on the disconnect and was I had no interests in just letting it go. Never think for a second there's any reason not to get these important issues clarified. It's critical all communication are contextual and verifiable if any of us plan to use them for our own decisions. Good job and thank you

- - - Updated - - -

Thank you for checking kenliles. That is what I thought from the start - that IV changes for expirations beyond 1 month near ER are negligible (proven by my TSLA pre and post-ER ATM call IV levels). I agree that there will be some IV increase leading up to ER since typically the stock will be more volatile, but the IV spike/crush effect on option values are only relevant for weeklies and less so out to 1 month.

This is important for people thinking they could sell LEAPS before ER and then buy them back cheaper after based on IV drop (taking out stock movement of course). In other words, don't do that!

Yep. Would be the run up and rundown in IV rather than the spike itself. And the underlying stock price pre-post ER should guide the decision. Agreed

 

[ckessel]

Either way, this upcoming ER I highly recommend forward roll out of those J15s for all LEAP-rollers.

Okay, I've been trying to follow this and got lost somewhere. If the IV doesn't move much for LEAPS, then I thought there wouldn't be value in rolling pre-ER? And if IV does move enough to matter, you'd want to do a delayed roll?

 

[AlMc]

PZ and Ken: Excellent discussion. I will have to read the whole thing 2-3x before fully understanding! :wink: Thanks