$TSLA trade idea 22 Jan 2022

 

22 Jan 2022

earnings are this week for Tesla TSLA .... here is your thesis. you have either stock (in 100 share increments) or Long Leaps at lower strike than fridays close at 943 AND your expectation that the stock after earnings will get higher between 1000-1100 next friday.

one of my go to trades is the Call Ratio, also called a Catch-Up Trade.

Buy the Jan28 1000 call at $26ish

Sell 2 of the Jan28 1055 calls at $13ish each

with limit order id set a .10 credit to try to get a fill.

you do not need more buying power. break this down into pieces if youre new to ratio spreads. 

you are buying the 1000/1055 spread and then selling an additional 1055 short call. its not by itself. if you have the stock then your broker pairs it to the stock and its a covered call.. if you have a long Leap your broker pairs that 1055 call to the leap and its a spread / diagonal spread.. so no added buying power is needed. if your Long Leap strike is higher than 943 you will need more buying power or your broker will not allow the trade. 

so again its the Jan28 1000/1055 call ratio , profit range starts at 1000, is max at 1055 ($5500) then decreases to 1100... anywhere at opex 1000-1100 is profit. because you have 2 of the 1055s short , they will have to decay away to start showing profits, so initially the trade will likely show a mark to market loss...hold tight.. just expect to have to hold until friday at opex to see the best gains.

if stock closes below 1000 at opex then this trade just expires, no harm no foul.. just that couple cents from entry.. you could go 1000/1050 for example and it would be about a $2 credit ($200). the point isnt to get a big credit at entry, its for the multi thousand-dollar payoff if you get the direction correct. entering for credit is just gravy.. therefore, you can also go 1000/1100 strikes and PAY to enter this ratio.. your call, but i want zero downside risk.. free trade. 

the only "loss" is if you undershoot the strikes and stock is above 1110 at opex.. but remember your long stock or Leaps have been gaining from 943 to above 1110 . so the ratio might technically be a loss but the "position" has gained.... there is a true breakeven where the loss from the ratio finally overtakes the gain from the stock but its 100's higher.. not really practical to worry about

the point here is to get that leverage to the upside.. to catch up from the losses from previous days.. the ratio profits, your underlying stock or leaps profit.

the part that i struggle with is comparing what could be from a ratio trade to what i might get with just outright short call sales. right now i could sell Jan28 1100 calls for $7+ credit. compare that to what i potentially could make on a ratio. the ratio would need to get to at least 1007 at opex to equal the short call sale... if its under 1000 i get nothing and i didnt get that $7 credit so i feel like i lost $7.. im usually a one-in-the-hand-vs-two-in-the-bush type of guy.

but if you magically get that 1055 pin youve made $5500.. historically ive waited too long to take profits on ratios trying to milk those last juicy profits if it was flirting with the midpoint for max gain as the short calls decay away and it end up surging / selling off into the close and i had to settle for a few hundred bucks to close the trade.. max profit at opex is $5500, if you can exit at $2500-$3500 you should probably cash out, pat yourself on the back,  and move on to the next week for a new trade.. or at least cash out a portion if you have multiple lots.. in my case id cash out then sell a higher strike short call for the following week for more credit since thats my routine.

earnings are wednesday after close. it would be better if you wait till the day of to enter the ratio spread using the current stock price at the time since it might be up or down from today and the 1000/1055 strikes might not be appropriate on wednesday. you get the idea

when to exit short calls

 

13 jan

today was both satisfying but not profitable. satisfying that i followed my mechanics, set my alerts, took the action i wanted to after alert hit and was able to exit some positions that matched my "rules" BUT...

the frustrating thing that maybe one day i will have it dialed in is intra day closing of trades.. example.. i always say that ideal times to sell upside short calls is on an up day. you get higher premium, can choose a higher strike , etc ... so on monday after waiting and 4 down days in a row there was a decent up move and got a good fill on weekly 1100 call at $10.05 i believe off memory. the next 2 days as stock goes higher i see huge volume at same strike, i see a few on twitter mention the huge volume and they to add insult to injury it gets mentioned by Pete Najarian on cnbc who you know has front run the fuck out of it before going on air. i want to say it was in the mid 20s yesterday.. not really a problem since i could have rolled it for 50 points higher i noted in one of my tweets

over the last few weeks ive been changing my mechanics to NOT milk short calls till fridays, i figured i ended up rolling to next week for less premium or not up in strikes as much because i waited that one more day. so today ive got an order in working.. pennies away from a fill to roll the 1100 to next week 1120 for $13.50 i had it at one point.. that credit was staying pretty constant as the stock was selling off, dropping into the 12s and then its starting to look like i might not need that preemptive roll since the stock was in the 1060s i believe at the time so instead i just closed the 1100. bought back for 6.45 for about 40% win. but now towards end of day it was even under $1... so im feeling i lost $600 by not rolling at the correct time..  hindsight being 20/20

same example.. the other short call i was working this week was a 1065 .. bought a May 1025 call tuesday.. nearly at high of day and then pulled back , my fallback if my timing is off is to sell a weekly call against to lower the cost basis. im not selling the long call for a loss just for the sake of closing the position for the day. that short call was the 1065 . premium was $23..decent.. at the money.  then same thing, stock moves higher.. net net the "trade" is at a loss with the short call losing more (till decay kicks in) than the long call is gaining.. so again im looking at rolling and end up today rolling the 1065 to next week 1080 for $11.05 credit.. again decent premium for a week AND 15points higher in strikes.. looks like that best price today was near $16 so again im thinking i lost about $500 in what coulda shoulda been. natural to think that maybe i didnt need to roll to next week after all and the 1065 could go out worthless tomorrow or bought back super cheap

that next week 1080 i rolled to fell in value 30+% so per my rule i bought it back also

the overall thought was take action today because tesla will rebound today or tomorrow and i can reenter both short call slots higher.. best case for $20+each at 1130 level or higher

im starting to think on those wednesday / thursdays when i have been rolling that i tend to do that too early in the day.. off the top of my head i cant think of a time when ive said to myself "im glad i did that this morning" its always been "i would have done alot better if i would have waited till the last hour"... like today.. would have been a near $3000 difference in fills. i remain confident i dont need to wait till friday like i used to but will try to wait longer in the day on those roll days... of course if tesla reversed today into closing im a fucking genius worthy of guru status

lastly.. all this hubbub is about 2 slots for short calls.. i still have 13 short calls at 1000/1140 strikes for jan28 after earnings that have about $40000 in time value remaining to decay.. best case stock is near 1140 before earnings so i can roll those 1140 as high as possible but still take in about $10per in credit in order to give as much upside as i can assuming an earnings beat in line with the delivery numbers just reported.

Comments for the New Year

 

1 jan 2022

ok, couple thoughts, nothing earthshattering. just a review of the last year off the top of my head. 

As i head into this new year "retired" at 54 from working, i look back and see i had my best year ever with the stock market. 99% being premium selling. im optimistic that now that i can devote the entire market day to whats going on i will be able to catch more opportunities i was unable to capitalize on because of actually working.. those intra day moves.

every year i tell myself to do more of what works and less of what doesnt. in 2009 after 10years on the job i was layed off during the financial crisis and didnt work for 3 years. just got all my Obama unemployment that i could and played stock market and then was able to return to homebuilding once the market turned. 

during those 3 years i was primarily selling credit spreads and admittedly not doing as well as i expected and in my personal life i had significant debt built up, taking advances on credit cards with the idea of paying them off with the profits going forward. got to the point where i was just making due and paying the bills. After returning to work i focused on work for the next few years with the occasional trade. also given the technology of the time it was still possible but not convenient to trade stocks during the day.. i bought an iphone 5 back in the day to be able to monitor prices.

 the difference between now and then after getting back into the market 3-4 years ago is that i stumbled onto the youtube videos from the TastyTrade team. starting watching 1-2 a day talking about probabilities, standard deviations, rates of decay difference between an in the money vs out of the money options, optimum entry and exit points, differences in trading between high and low IV... after absorbing all that info i looked back at those 3  years of trading after the layoff and wondered how i managed to not lose more. was clueless

my trading turned around just like that. i dont follow their mechanics 100% but it forms the basis for alot of my decision making. so i want to say i am a much better trader now vs then. i do entries and exits now i would not have considered back then. Thus i am confident going forward that 2022 will be profitable, just have the house note and 13K on one truck left as my legit debt.. Plus about $125k in 401K that will get rolled into my etrade IRA in a few weeks.

along the lines of do what has worked and stop doing what doesnt work. looking back, Put selling was the standout straightforward winner. as the year passed by i became higher and higher all in on TSLA and going off memory i was 30 for 31 profitable put sales on TSLA.. with the one loss just being a technicality of $100ish. my entries where pretty much under 20 delta and also looking back i could have gone a bit more aggressive on that delta.

some of my internet trader friends have iron condors dialed in but im under 50% wins on those.. even when i leg into it via selling credit spread, and days later selling the other side.. one side always seems to get tested causing me to defend the trade for weeks or months. its such an aggravation to roll over and over for pennies often to delay a loss trying to thread the needle at opex time . so despite the headline ease of the trade i will resolve to not do them.. tactically you can argue that they do take up some buying power that could be applied to a higher probability profitable trade . so theres that too

the short put selling has been the percentage winner but the shear monetary winner via how is it impacting the portfolio balance has been the diagonal spreads. buying 6months out to Jan2024 long calls as a replacement for the stock and selling short term (weekly/2weeks out) calls against for income. straight up just like a covered call. my personal goal has varied where i want to collect between $5000-$10000 a week in credit depending on how many long calls i have. a $10 credit per is a good starting point. i have noticed this year i am spoiled and have to check myself.. i catch myself mentally saying "that trade would only make $4000" this week. i have to put that in context of how much would i make for a month on the job and or that x52 weeks.. is $4000 bad for a week? big problems to have. So the diagonal spreads will continue

i huge part of premium selling unless you get whipsaw price movement is actually just waiting.. waiting on that premium decay. so its nearly a daily challenge to not have to do something. sell something, buy something.

although i have 10-15 stocks on my watchlist like i said im 99% in TSLA. i want to say that the advantage is i can put on multiple trades with high probabilities.. such as if i have short calls at 1000. i could add credit put spreads below that.. only one of these trades will be a potential max loss.

Surprisingly i see that when i entered long positions on big sell offs on those other stocks on my watchlist or at least stocks im someone familiar with, my win percentage is poor. ive reduced my losses considerably by entering via diagonals but all in all entering long via buying is a no go.. for me a Put sale or credit put spreads month or 2 out has been more successful. which is not a surprise since the whole Tastytrade thesis is that option selling is the way to go , not option buying.. not always but it lines up to what ive been doing.

Mechanically looking back my short call strike selections could have been a tad higher (higher delta). although when the stock has taken off , my short strike selection really didn't matter.. the stock (TSLA) moved 100's in a few weeks. but i will keep that in the back of my head. there is that balance between are you bringing in enough premium for just your general goals / bill paying and to offset the decay in your long calls

my "gut check" rule has served me well. "if the trade doesn't feel right in first 5 seconds i should pass" and my gut overrules any metrics or TA.

so just some random thought, not a to do list of resolutions but a refocus on what has served me well. the high probability entries, taking profits in a mechanical method and rolling based on daily changes in IV and theta i think has maximized the credit. 

Alec Baldwin in Glen Garry Glen Ross has that Alway Be Closing scene.. ive stolen that and made it Always Bring in Credit - ABC

if i continue to maintain focus it should be a very boring year but profitable