Tesla Reset 21 oct

 

21 oct

ok meow.. the least desirable action to happen if you use the buy deep in the money Leap and sell near dated upside calls for premium strategy.. also called the poor mans covered call... is for the stock to just take off thru your short call. and i dont mean just 10-20 bucks in the case of tesla.. like 75+ . 

Note how last week the stock was under 800 with delivery numbers fresh. i made the decision to roll from 765 to yesterdays 765 for huge premium with the expectation that would be a sell the news action from earnings. got that wrong obviously or maybe early but have to deal with expirations here and now so a 100 point sell off next week doesnt help.

the guideline i use is first see if i can roll the short calls up and out. the 765s to go to next weeks 770s would be a debit and roll flat to 765s again was midpoint about $2,75 credit when i looked.. remember its an 11 lot so about $3000 credit for the roll. if stock pulls back that week to week roll from 765 to 765 credit would improve, if you get a big selloff its an ideal time to roll up and out as premiums spike you may be able to roll for 10-25 points.. 

also keep in mind i have Jan2022 Leaps although profitable via stock appreciation are also decaying at a tiny increasing rate going forward cutting into that $3000 credit. so the decision is do i stick it out rolling week to week for assuming $3000 per (which is not chump change compared to my actual take home from my full time job) or can i make adjustments to "get back in the game" and get back to selling juicier premium.

I call this "doing a reset" . i seem to have to do it 2-3 times a year and im thinking does not come naturally to newbies who will likely just take a huge loss and move on. so here it is

Short version is to "buy to close" the 765 weekly short calls but instead of using up my cash cushion i instead "sell to close" enough Leaps to pay for the "loss" on the calls.. ie take the loss on the calls, take profits on the Leaps.. which Leaps is up to you but mine are Jan2022 -Jan2024 opex.. i mentioned that the Jan2022 leaps earlier. one way or another in the coming months i would have had to take some kind of closing action on those anyway so i picked those Leaps to take profits in .. your broker might be different but etrade "cancels" 3 leg trades where i try to close all 11 calls, sell 5 Leaps but with 2 different opexes .. so have to break them down into 3 separate trades.. 

close 4short calls, close 2 Leaps Jan2022 at 650strike, close 4 calls and close 2 Leaps Mar2022 650strike, and close 3 short calls and close Jan2022 700strike ... it doesnt have to be precise, you are losing some with the wider bid/asks , some end up slight credit, some slight loss. im just trying to avoid a huge cash outlay so a couple thousand "net loss" and all 3 transactions is same same for me.

so i closed 11 short calls but only sold 5 leaps therefore i have 6 leaps uncovered (no upside calls again) so with stock in 880s sold:

6 Oct29 905 short calls at $10.25 per -- 

just the quick math you can see i took in $6000+ after all that reset vs $3000ish on a roll 

Now im back in the game with short call near the money. account balance unchanged, cash balance essentially unchanged and able to sell puts etc

All this is unrelated to the buy write i had going as same time but intent was to let that expire/get called away for the "guaranteed" profit.

as i have conversations online with people about buy leaps/sell calls strategy the number 1 response or question or concern is what happens if stock takes off.. first off the short call level is up to you, i sell a bit closer to at the money than most people it feels like and there are those that sell a 2-3 delta for $100 bucks. there is a middle ground somewhere thats your comfort level.. whether thats a delta level or a dollar level.. start with 20 or so delta.. get a feel for how the stock moves, sometimes go higher delta or lower.. that move thru the short call type action does not happen often or out of the blue. tends to be from an event. .earnings, an announcement, deliveries etc . point being is if stock takes off there is no need to panic or lose sleep, you just made less than before. reset like i did if you have multiple leaps or close out the entire position and start over. get back to a position where you are bringing in premium