Change to Tesla Position

 

15 sep

friends, this is a bit longer than multiple tweets so... 

Started the day with long 15 leaps ranging from Jan 2022 out to Jun2023, from 650 strike up to 750 strike. to go with those are 13lot short calls 780 Oct 08 strike, one 765 Oct08 and one weekly 755. 

Although im comfortable with my long thesis my account balance after adding leap 15 is low enough i cant do much else right now outside of some spreads... Put selling is my top go to trade and i prefer to do the put selling on something im already long. ie Tesla. , point being not enough cash in account to do that.

A smaller part of todays thought process is that if market does turn lower (what that really means for me is Tesla since im super overweight on that stock) , that i dont have anything to put to work. big down days are ideal to add a Leap, do a risk reversal (sell put, buy call) , or just outright Put sales.. i could put a couple weeks together of added short call premium but that doesnt help me now.

An additional item to consider is taxes.. of those 15 Leaps, three of them were purchased in april about when stock was 702 according to my notes. they are the Jan2022 710 strikes.. you might see where im going... me along with many expected tesla to continue an upward move all year and thus come opex time (jan2022) those Leaps are in the money and profitable.. such as stock is at 900-1000. what you are fighting all year is time decay against you just like the time decay works for you on the short calls. so you need that leap to gain in value just enough to offset the time decay.. long story short , at some point im going to have to do something with my Jan2022 Leaps. converting into stock has never been something ive wanted so take that off the table. if i had that much cash to begin with i would just be doing stock buy writes. As of today those Jan 710 leaps still have $6000 of time decay left (against me). Although since purchase my short call premium has been in excess of the Leap time decay im working against my own leap the closer to Jan opex approaches

so it was either best case take profits in Jan or roll out another year or two, maybe have to throw some more cash into it for a roll. Bottom line the Leap is a mark to market loss right now. i can use those losses against my gains for taxes. ive had another pretty good year with tesla so need something to help offset some gains.

so combine all that together... the lack of flexibility to do any other significant trades (short put selling / adding a Leap on a huge down move, etc) and being able to get a tax benefit. Heres what i did:

-the weekly 755 i sold yesterday i bought back today for about $50 loss (that frees up one uncovered Leap)

-the Oct08 765 short call, bought that back at about 30% gain from entry (frees up another leap)

So that leaves the 13lot 780 short calls intact Oct08 opex

-then i sold 2 of the jan2022 710 calls at about $10100 ish each

I did buy writes recently, both were profitable at eventual exit.. so for remainder of week bought 100 shares common and sold 740 short call against at $15ish.. net net if stock is above 740 friday the stock is called away essentially at 755ish for near $400 for sitting on hands. 

having that cash on hand if needed on a down move i can buy Leaps for 2023 or do short put selling. doing buy writes is obviously simpler especially if youre not worried about having shares called away and is easier to manage but the money maker is having multiple short calls paying me. 

seems like we are overdue for a pullback, either market or tesla specific so i need to be more flexible but still have exposure. next month or two will be doing something similar to the remainder of my Jan2022 leaps.

$TSLA roll down and UP he said??

 

9july -- ok friends, too much to tweet so put it on here. been months but here we go, put on your helmet.

some of my twitter friends have noted that i had previously Jul30 710 short calls that i also rolled to the 700s for credit. today i rolled those 700 short calls to the Jul23 672.50s... move up to an earlier opex is a first for me. heres the thought process...

i have 11 Jan2022/2023 Leaps on tesla at various strikes, most are out of the money, having purchased when stock was higher. Selling short dated calls against those for premium is easy if you stay at the same strike price as those Leaps. No additional buying power needed, if you sell a short call at a lower strike then some buying power is needed.

few months ago the stock was under 600 so at that level in order to sell short dated calls against my leaps i needed alot of buying power or i needed to stay as close to the strikes of the Leaps...say 700 for discussion.. so selling 600s short calls could be done but could not do 1 for 1 against the leaps... could not sell all 11. only 5-6. when stock recovered closer to 700 i could sell 1-2 more. then it dawned on me.. .instead of selling weekly short calls with the remaining slots , to go out further in time and higher strike. so go 5-6 weeks out and sell 700s or so. thus being back to near same strike as long leap and not needing more buying power.. 5-6 weeks were needed to get decent premium. weekly premium for 700 strikes was $1-2 per... not really worth the effort.

in hindsight my rush to accumulate the leaps caused me to use up the buying power that could have been used to sell Puts or for short calls if stock drops like ive described.. should have not bought that 11th Leap.. regardless here we are and stock has recovered to 650+ and im looking at my short call positioning. with 30min to go before opex today i had

   6 Jul 650 short calls and 5 Jul 30 700 short calls (21 DTE)

got me thinking that i wish i had all eleven short calls for next week to get the maximum decay, then roll to Jul23, then roll to Jun30... i was not getting any participation of those 5 short calls for next week or Jul23 week.. i was losing out on decay and a roll for credit for 2 weeks. yes the 700s would decay as well. i was only at the Jul30 opex because 2 months ago i didnt have buying power, not really by choice.. 

i could have rolled the jul30 700s to next weeks 650s to match my 6lot but that would have again taken up more buying power that right now id rather have for flexibility. so i looked at 2 weeks out the Jul23 week (includes earnings) and adjusted the strikes on etrade until i came up with a slight credit... that was the Jul23 672.50 strike (so move up a week and down 27.50 points) for .25 credit. meaning that if stock is under 672 at opex i capture all the premium ( $19ish i believe it was)... but i capture it a week earlier than if i would not have rolled down.. this allows me now to sell another new 5lot batch for the Jul30s after the Jul23s come off the board.. bottom line i gained another weeks worth of opportunity to put on a 5lot of short calls.. would be kick ass if at that time the stock was in a position where i would want to resell those same 700 strike calls. 

make sense? 

LEAPS / Lenny Dykstra / $TSLA - how it started

 

14march

been awhile but wanted to post some thoughts about how it all started. ive received a few new followers on twitter with some questions to my trading method with TSLA. i have to admit that although i follow less than 100 people on twitter it might be just 1 or 2 that buy Leaps / sell calls / diagonal spreads like i do

so heres how it started. remember Lenny Dykstra, ex MLB player.. he did a short stretch with Jim Cramers website in the mid 2000's and had a column. he had a unique method, pick a stock that was unfairly sold off, buy ten deep in the money calls a few months out(near 90delta), thus controlling 1000shares, and selling after a $1 move . getting you a $1000 profit. not looking for home runs , just constant and repetitive singles. 

buying Leaps at that time was almost unheard of in the pre-twitter world. if the stock continued to move down he would buy another block of ten Leaps and average down. the downside to this method is number one you need to be able to have the cash for a ten lot purchase. which i did not, which makes it really stock specific. regardless i became intrigued with the buy a deep in the money leap to participate in a bullish move, both from a cash available standpoint and leverage. as in you could buy 2-4 Leaps for same price as 100 shares of stock

Now Lenny crashed and burned with some legal problems and a quick read of his twitter stream it seems like he is not active in the market

So that brings us to TSLA. at roughly 700 a share now, again my bank account is not big enough to swing around 100-1000 size share trades and be somewhat diversified, so again im participating using Jan2022 Leaps, currently have 5 again at various strikes. 

Im not a full time trader and still work like alot of other slaves so besides stock appreciation i ALSO want to generate premium from my positions. if i had the stock id be selling covered calls. cant do that unless you have 100 share increments. but if you have Leaps you can sell shorter dated calls against those leaps just like covered calls. your broker considers it a spread trade so no additional margin or buying power is needed. buying leaps and selling shorter dated calls is also called "poor mans covered calls" , indeed, thats exactly what im trying to do.

but i want to ramble on about something ive seen a couple of TSLA mega bulls say and do recently about exercising their Leaps into stock come opex time and use me an example. so a popular thought by the megateslabull is to never sell stock, pay no taxes, use margin to buy more Leaps.

refer back to what i said earlier, i use Leaps for the leverage vs buying stock. simple example if you were just starting a TSLA position today:

stock near 700 ($70000 for 100 shares), the Jan2023 500strike call is going for about $343 ($34300) per contract.. so simple math for the same $70000 for stock you could buy two 500strike calls. and now you could sell two short calls against your position vs just one if you bought the shares. lets say the April2021 800 call for $25ish ($2500) . obviously bringing in $5000 in premium credit vs just $2500 as a covered call. and you have 20months to keep selling premium. now remember this example for later

so the megateslabull come opex time will convert the Leap previously bought months /years prior to stock. now use my situation as an example. blind squirrel sometimes finds a nut happened to me and i bought a jan2022 300 strike call at $143 last year. currently worth $415 ($41500). there is some time value in there but right here right now at least a triple. FOR THE SAKE OF THIS EXAMPLE LETS PRETEND 415 IS THE CLOSING PRICE AND EXPIRES NEXT WEEK. 

i have 2 options for expiration. i can close the position in some fashion (close/roll) and have $27200 in capital gains and $41500 cash added to account OR do what megateslabull is doing and exercising the call and converting to stock. that means in my case i would have to pay the strike price or $300 ($30000) and now i own 100 shares with a cost basis of the $30000 plus the premium of the Leap at purchase time, $143, $14300 = $443 cost basis on shares worth near 700.  converting the Leap to stock is not taxable and my account value does not change. is this necessarily the best move for ME though? i still have a "position" of 100 shares like i did the Leap which controlled 100 shares, i can still only sell a one lot short call against, my cash balance is $30000 lower in account, but i save the capital gains on $27200 which just for easy math lets say $5000 for long term cap gains tax. Summary - $30000 less cash, only 100share position allowing a one lot short call sale going forward, but not pay $5000 in long term cap gain tax

here is the other option that i believe might make more sense for ME .. again for pretend that option expires next week... so instead of converting to stock, i take profits on the 300Leap so $41500 cash hits my account and using that $30000 i would have needed to convert the Leap to stock i instead BUY 2 of the Jan2023 500 strike call at $343 each (so about $69000ish) . now i have control of 200 shares via Leaps again vs 100 shares of stock and can sell two lot of short calls against. remember those April 800 calls x2 brings in near $5000. that pays the long term cap gains tax.

remember my strategy is not to accumulate shares, but to maximize the few dollars i do control for both stock price appreciation AND premium via shorter dated call selling. you could argue that accumulating LEAPS should be more of the priority because it allows you to sell more shorter dated calls against. My thinking might be different if i had multiple millions in the account im sure.

Im running Leaps on TSLA, LEN Lennar, NFLX Netflix , AAPL Apple and the thought goes thru my head often if i should be squirreling away cash in order to convert come 2022 and 2023 opex but my math always comes back to rolling into more Leaps. altering the grand strategy just to not pay taxes limits my ability to bring in more premium. i started keeping a more detailed journal the last 2 years and the biggest part of my gains are coming from the premium im bringing in on various positions. i will never be that furu that buys that 2dollar call times 100 and now its worth 50 and then take a screenshot of how much im up and on the side talk about starting a service. cant figure why someone would want the bullshit of a service if they are killing it in the market. or are they?

just some things to consider. your situation might be different leading you to take the other side of what im doing. free country