TSLA Trading Strategies

[Snapdragon III]

@MitchJi, to make it really simple, i would like to deleverage my TSLA position somewhat through selling my Jan 2018 LEAPs given i) the significant increase in share price, ii) the potential risk of delays/issues with model 3 production having a material impact on the share price at a time when i would not be in a position to hold out given the looming Jan 2018 option expiration date and iv) the current volatile political environment. However, i have held my Jan 2018 LEAPs for less than a year, and so what i am trying to do is to lock in my gains at today's price while allowing myself to receive capital gains treatment. I have explained above how this is possible and why the trade I have proposed would essentially put me in the same position as if I were to sell the Jan 2018 LEAPs after they reach one year.

As others have noted in the market action thread, TSLA has historically been extremely volatile; this strategy has the added benefit of allowing me to close the short side of the sale for a profit if the stock does drop meaningfully and allowing my Jan 2018 LEAPs to go naked if I decide that is the best decision. In any event, one likely outcome is that I will buy Jan 2019 LEAPs with the proceeds of the transaction to stay long but with additional time to ride the ups and down.

Hope this helps you understand my rationale.

surfside

EDIT to add after re-reading your question -- I'm not trying avoid paying taxes entirely (that should be fairly obvious -- gonna have to pay taxes regardless) -- just trying to pay long term capital gains instead of ordinary income; selling these calls will put me in the same position as selling my LEAPs today, but give the benefit of getting long term capital gains (when I close both positions after my long position has reached on year; any gains/losses between now and then on the calls i just sold will be offset by equivalent losses/gains on the calls i already hold).

I am also thinking of trying a similar strategy as some point. There is one huge danger to this strategy that you did not mention, but it is real. imagine this scenario... You sell your calls to hedge your original calls you have big gains on. You are hedged, and feeling good. Then the stock takes off! "This must be the short squeeze I've been waiting all these years for!" Watching the calls you still own explode in value in your account is killing you. After a couple miserable week of you loosing your mind, you break down and cover the calls you sold at a huge loss to get back in the game. Of coarse, soon after, the stock crashes like you were afraid of in the first place, and you are hosed! Don't think it couldn't happen!!

 

[ggr]

I'm not sure I'd glorify this as a strategy... but anyway. I'm currently in Australia, so I had to stay up way past my bedtime, and had plenty of alcohol on board, but I knew I didn't want to wait and hope I would wake on time for the end of the market. Thursday last week I bought some $345 calls, sold pretty much upon opening today for 441% profit. (Anyone who knows me will see that I broke my own rule about queueing an automatic sale of 1/2 contracts for double the price. I just felt good about this one.) I replaced them with roughly equal values of next week's 390's and Jan 2019 $200 DITM LEAPS. I got the LEAPS in the first small dip, and next week's in the second small dip. Going to bed happy with my day's trading, 40 minutes later (already up 1% and 9% respectively).

May the shorts be with us!

 

[Ocelot]

I have told how in 2013 , I sold off my shares before the rise. Not that I wanted to be out of Tesla , but on this board I kept reading of people buying the dips, selling the peaks..and we were kinda stuck between 28-33 at the time. I did not understand people had a 'core' position and a 'trading' position. Anyhow fast forward to 2017.
Early May I sell my Jan /2018 call options for a decent profit, but planned on rolling them up and out. I figured...I will buy them back on a dip. Frustrating, but smiling, and I think now, lesson learned.

 

[neroden]

Short selling or writing call options or writing put options always incur short term cap gains, no matter how long you hold those positions. It is because you receive cash upfront when you initiate those transactions.

In the US, there are two very important exceptions.

If you write a put and it gets executed (stock is put to you) it's treated as a discount to the purchase price of the stock and you don't pay taxes until you sell the stock -- possibly many years later, and possibly long-term capital gains.

If you write a covered call and it gets executed (your stock is called away), the amount received is treated as part of the amount received for selling the stock, and again can be long-term gain if you've held the stock long enough *and* the call was "qualified".

This is worth knowing if you follow strategies involving writing options and letting them execute.

Also important to know ifor certain strategies are the straddle rules (relating to any offsetting positions, e.g. stock + protective put) and the rather nasty rule on constructive ownership (section 1260, relevant if you have a long call and a short put on the same stock at the same strike). I avoid offsetting positions to stay away from the straddle rules, and I almost got bit bad by the constructive ownership rule before I knew it.

 

[Robertj]

DITM Leaps

I have purchased a few $150 Jan 19 and been watching the market price
There appears to be a large gap between buyers and sellers , eg $5
Currently $226 v $231
Any recommendation on how to trade this when buying ?
Or selling ?
Thanks for your assistance

 

[MitchJi]

DITM Leaps

I have purchased a few $150 Jan 19 and been watching the market price
There appears to be a large gap between buyers and sellers , eg $5
Currently $226 v $231
Any recommendation on how to trade this when buying ?
Or selling ?
Thanks for your assistance

@Papafox posted some information on how to buy and sell ditm leaps.

For normal options, not ditm, I put in a limit order starting at 80% of the difference between the bid/ask and if it doesn't sell gradually reduce my ask price down to about half way between the bid/ask price. I believe that it's much more likely to be purchased if I ask for something like $228.45 than $228.50, or $228.95 rather than $290.

 

[steve3]

My goal from my initial stock purchase a year ago was to leverage my $10k in savings and a new home equity line to accumulate a targeted number of common shares & then sit on a buy and hold strategy. Today, in appreciation of the cautionary macro background given form by Ken and Adam in the macro thread, I sold my J'19 350 & 400 calls and converted my funds to 62% stock and 38% DITM J'19 150 calls. It was nice to harvest the gains on the calls; I'm now learning to apply those gains in a bit more conservative way, happy to have reached half my target accumulation goal for core shares. I'll still realize nice gains with an ascending SP, just not quite as fast as before. In retirement, I'm finally content to choose not to swing for the fences on every plate appearance...just occasionally, waiting more patiently for my pitch.

 

[kenliles]

...waiting more patiently for my pitch.

My best investment successes have been using that approach. Although it's easy to get down from missing leverage gains, the opposite is also true- when dips occur you are much less likely to trade out of switch backs. This emotional trade mechanism is under appreciated for long term hold investments IMO.
The secret sauce is a tuning-
Alignment of your own comfort levels and
the goals and term of your investment and
the goals of the company/leadership and
With those of the market wide risks

When those are all tuned over the investment term - harmonies
Congrats on your successes! Well done

 

[jim1980]

Ok, I wanted to circle back to this discussion, as I finally heard back from my tax advisor regarding constructive sales.

Here were the two scenarios that I sent my tax advisor:



And here is the response I got from my tax advisor:




For reference, here is the language re: constructive sales from publication 550:



I think the part that really matters here is the fact that an option at either a different strike price (even if it is only one strike higher) is NOT the same or substantially identical.

In any event, hopefully this is helpful for folks. As we return to all time high territory, I am most concerned about my January 2018 LEAPs, as I could foresee issues that make result in the significant gains I have accrued evaporate pretty quickly, with little time to recover. If I didn't have such a big gain being treated as short term capital gains, I would just roll these into January 2019 LEAPs, but I want to avoid paying ordinary income if at all possible, and this strategy of selling short an option at the same strike right around the date I reach long term capital gains or the same LEAP one strike higher seems to make sense to me as a strategy. Curious for others' thoughts.

Now that I understand the tax treatment, it just come down to deciding if/when I should do it...

surfside

Hey @surfside,

Sorry to drag this post back up, but I'm facing a similar situation and wanting to be extra careful. After reading pretty extensively about the various tax implications of this setup, it appears to me that the 'straddle rules' (specifically Qualified Covered Calls) might also apply in this scenario. Would it be possible to run this by your tax adviser to see what he/she thinks?

The best way for me to explain these complex rules if for you to check out this calculator: Twenty-First Securities Corporation - Strategies For The Professional Investor (click the 'age to long-term,' lol)

Potentially, these rules would make it so that you couldn't sell the 360 calls in your second example above, but something further out of the money, like 400 strikes. This intuitively makes sense to me as it's keeping you exposed to more of the underlying risk.

Now, the caveat to all of this is that it might only apply if you own the shares (as opposed to LEAPs) as your long exposure, but it seems like the "spirit of the law" could make it applicable to being both long shares and LEAPs.

Btw, someone mentioned straddle rules a few posts above me here but didn't tie it directly to your situation.

Let me know if you're able to help

 

[Crowded Mind]

This is most definitely not advice, but the smartest (accidental) thing I ever did was switch jobs I was in my early 30's, allowing me to roll over my ~100k 401k into a self-directed IRA. That gave me the starting kernal to invest in TSLA. I now have strangely large IRA's, which further give me freedom to enter and exit trades without regard to tax consequences.

Take a loan against 401K and buy TSLA.

Someone had said take a 401K loan, I would not do this if you are leaving your job as you have to pay back the loan withing some period of time, like 6 months at most, after you leave your job. I would assume you wouldnt be able to roll it over until you pay back the loan either. My 401K has some tech funds with 4-5% Tesla holdings.

Edit: I would suggest rolling it over when you leave your job then convert it to Roth. That way when your Tesla stock goes to $2000/share, then you wont pay taxes on it when you retire.

If you switch jobs .. you can rollover your old 401K and manage your portfolio your self. Might not help now, but in future could help someone.

This happened to me as well and it has been a very profitable rollover!

Continuing a conversation from the market action thread.

I have been wondering about optimizing my 401k for awhile. I have accumulated significant assets there after a few years of maxing it out but I am becoming increasingly uncomfortable with index funds due to their penetration of fossil fuel and auto sector stocks. I would like to manage those assets myself, but leaving my job which I am happy with seems a bit aggressive, though has honestly been considered. I have been reading about 401k loans and it seems to be a decent option, but then any gains I have during the loan period are going to be taxed so that's probably no better than margin unless I go to holding cash in my 401k anyway, which I would probably never do since I have a 25+ year time frame.

I have also reached out to human resources to see if my company has any options for an in-service rollover but expect not.

Are there any options I may not have considered, or does anyone have further insight on the options I mentioned?

For reference, I attached my 401k fund options and allocations.

 

[elasalle]

Continuing a conversation from the market action thread.

I have been wondering about optimizing my 401k for awhile. I have accumulated significant assets there after a few years of maxing it out but I am becoming increasingly uncomfortable with index funds due to their penetration of fossil fuel and auto sector stocks. I would like to manage those assets myself, but leaving my job which I am happy with seems a bit aggressive, though has honestly been considered. I have been reading about 401k loans and it seems to be a decent option, but then any gains I have during the loan period are going to be taxed so that's probably no better than margin unless I go to holding cash in my 401k anyway, which I would probably never do since I have a 25+ year time frame.

I have also reached out to human resources to see if my company has any options for an in-service rollover but expect not.

Are there any options I may not have considered, or does anyone have further insight on the options I mentioned?

For reference, I attached my 401k fund options and allocations.

One option .. if you are also saving money other than 401K.
In 401K, leave your money in Money Market Fund or low risk/return bonds. So this becomes like your saving account (Note there is still a risk)
Open your personal account and manage your portfolio yourself and take greater risks. (Has tax implications)
.Basic idea here is you are saving in 401K ,and investing in personal

 

[Jonathan Hewitt]

Continuing a conversation from the market action thread.

I have been wondering about optimizing my 401k for awhile. I have accumulated significant assets there after a few years of maxing it out but I am becoming increasingly uncomfortable with index funds due to their penetration of fossil fuel and auto sector stocks. I would like to manage those assets myself, but leaving my job which I am happy with seems a bit aggressive, though has honestly been considered. I have been reading about 401k loans and it seems to be a decent option, but then any gains I have during the loan period are going to be taxed so that's probably no better than margin unless I go to holding cash in my 401k anyway, which I would probably never do since I have a 25+ year time frame.

I have also reached out to human resources to see if my company has any options for an in-service rollover but expect not.

Are there any options I may not have considered, or does anyone have further insight on the options I mentioned?

For reference, I attached my 401k fund options and allocations.

My 401K choices are very similar to yours. I don't mind the heavier index fund allocation because my thought process is if TSLA does well enough I will make very good money in my taxable accounts and my Roth IRAs and my 401k performance won't matter so much. If TSLA performance sucks hopefully the index funds in my 401K do well.

If you don't have much money outside your 401K you could also stop 401K contributions and put that money in a Traditional/Roth IRA instead though most employers have some sort of match so this is probably a bad idea. If you have a choice get a medical plan that allows HSAs. My HSA lets me invest in stocks so I own TSLA in an HSA as well.

 

[Crowded Mind]

My 401K choices are very similar to yours. I don't mind the heavier index fund allocation because my thought process is if TSLA does well enough I will make very good money in my taxable accounts and my Roth IRAs and my 401k performance won't matter so much. If TSLA performance sucks hopefully the index funds in my 401K do well.

If you don't have much money outside your 401K you could also stop 401K contributions and put that money in a Traditional/Roth IRA instead though most employers have some sort of match so this is probably a bad idea. If you have a choice get a medical plan that allows HSAs. My HSA lets me invest in stocks so I own TSLA in an HSA as well.

My taxed account value exceeds my 401(k) value by quite a bit, but I have been levering down my contributions early this year to fund more TSLA and plan to make up those contributions towards the end of the year to ensure I am fully maxing out in the case that I do eventually go to a new employer -- I would like to have as many tax sheltered dollars as possible. I am funding 90%+ of my expenses with a 0% APR credit card for 21 months that allows for this flexibility.

Jealous of your HSA. I max that as well, but as far as I can tell, I only have index fund options there as well. Am I able to switch to a different HSA account or am I locked in there as well? Would love to own TSLA there.

 

[Crowded Mind]

One option .. if you are also saving money other than 401K.
In 401K, leave your money in Money Market Fund or low risk/return bonds. So this becomes like your saving account (Note there is still a risk)
Open your personal account and manage your portfolio yourself and take greater risks. (Has tax implications)
.Basic idea here is you are saving in 401K ,and investing in personal

This is essentially what I am doing currently, but invested in more aggressive funds due to my time horizon. Which up until recently I have been fine with, but I am becoming increasingly concerned with index funds due to their exposure to investments that I wouldn't touch with a 10ft pole. (cough... Exxon, BP, GM, F).

 

[EinSV]

@CrowdedMind, not sure how big your employer is but if you are talking to HR you might consider lobbying them to include a self-directed option in the 401k. My previous employer had a Schwab-managed 401k that had a group of "approved" funds but you could also self direct part or all of your funds and buy stocks, other ETFs/mutual funds, etc. (you could not trade options IIRC).

I currently have a pretty lousy 401k (even fewer/worse options than yours) and like some of the others just use it for diversification -- 50% low cost bond ETF and 50% low cost international ETF (Vanguard Total Bond ETF and Vanguard Total Intl. ETF are the closest in your account). The 401k is a small part of my portfolio so I don't sweat it all that much but I share your annoyance at having such limited options.

 

[ggr]

@CrowdedMind, not sure how big your employer is but if you are talking to HR you might consider lobbying them to include a self-directed option in the 401k. My previous employer had a Schwab-managed 401k that had a group of "approved" funds but you could also self direct part or all of your funds and buy stocks, other ETFs/mutual funds, etc. (you could not trade options IIRC).

I currently have a pretty lousy 401k (even fewer/worse options than yours) and like some of the others just use it for diversification -- 50% low cost bond ETF and 50% low cost international ETF (Vanguard Total Bond ETF and Vanguard Total Intl. ETF are the closest in your account). The 401k is a small part of my portfolio so I don't sweat it all that much but I share your annoyance at having such limited options.

When I was a trustee of a $2B 401k, I voted against allowing self-direction. There are many studies out there that showed the average return for self-directed vs. Vanguard being about 150 basis points lower. Of course I was outvoted. Much of the difference comes from people who wouldn't otherwise trade stocks making the usual short-sighted or emotional decisions.

I then moved much of mine into TSLA... in 2012.

 

[EinSV]

When I was a trustee of a $2B 401k, I voted against allowing self-direction. There are many studies out there that showed the average return for self-directed vs. Vanguard being about 150 basis points lower. Of course I was outvoted. Much of the difference comes from people who wouldn't otherwise trade stocks making the usual short-sighted or emotional decisions.

I then moved much of mine into TSLA... in 2012.

Well, that's making lemonade out of lemons.

Interesting data though -- thank you for sharing.

 

[Crowded Mind]

@CrowdedMind, not sure how big your employer is but if you are talking to HR you might consider lobbying them to include a self-directed option in the 401k. My previous employer had a Schwab-managed 401k that had a group of "approved" funds but you could also self direct part or all of your funds and buy stocks, other ETFs/mutual funds, etc. (you could not trade options IIRC).

I currently have a pretty lousy 401k (even fewer/worse options than yours) and like some of the others just use it for diversification -- 50% low cost bond ETF and 50% low cost international ETF (Vanguard Total Bond ETF and Vanguard Total Intl. ETF are the closest in your account). The 401k is a small part of my portfolio so I don't sweat it all that much but I share your annoyance at having such limited options.

This was one of the questions I asked as well. I work for a large company, so I fear inflexibility is likely but can't hurt to ask.

 

[Crowded Mind]

When I was a trustee of a $2B 401k, I voted against allowing self-direction. There are many studies out there that showed the average return for self-directed vs. Vanguard being about 150 basis points lower. Of course I was outvoted. Much of the difference comes from people who wouldn't otherwise trade stocks making the usual short-sighted or emotional decisions.

I then moved much of mine into TSLA... in 2012.

Yes, have seen data supporting this as well. If I were managing a large company's 401k, I would likely vote for limited investing options as well. Sadly, the vast majority are not able to manage money well enough to justify self-directed.

 

[AlMc]

When I was a trustee of a $2B 401k, I voted against allowing self-direction. There are many studies out there that showed the average return for self-directed vs. Vanguard being about 150 basis points lower. Of course I was outvoted. Much of the difference comes from people who wouldn't otherwise trade stocks making the usual short-sighted or emotional decisions.

I then moved much of mine into TSLA... in 2012.

I was also trustee of the plan at my work (much smaller company and overall amount than yours) and I totally agree. Self direction would have been good for me but many of the people I worked with were ill equipped to manage theirs.