Author Topic: Options heretics thread - by request  (Read 2091 times)

bthewalls

  • Stubble
  • **
  • Posts: 230
  • Location: ireland/northern ireland
  • gods own prototype....
Re: Options heretics thread - by request
« Reply #50 on: June 26, 2020, 02:45:53 PM »
@Financial.Velociraptor,
Ive been trying to work out how to do this on DEGIRO for a long time and no further forward. Seem to have limits on what I can choose.

Ever considering showing this on a youtube?

Will need to digest this thread.....very good and thanks

baz

Baz,

I don't follow.  What is DEGIRO?

Degiro a trading platform Like an app

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2731
Re: Options heretics thread - by request
« Reply #51 on: June 29, 2020, 09:47:39 AM »
@Financial.Velociraptor - Knowing what you know now, how would you approach TSLA?

I don't know the company's full story, but roughly speaking they are exclusively an electric car maker with long battery range.  A new factory in China suggests they'll make inroads to the Chinese market, while also being closer to a key ingredient in batteries (rare earths in China).  Tesla fans aren't looking at P/E when they buy the stock.

Tesla is priced for exponential growth, which strikes me as a good thing to bet against (unless it's COVID!).  China has not respected intellectual property (IP) in the past, so Tesla's battery plans could leak to Chinese car makers.  Ford plans on making an all-electric truck that could prove much more popular than Tesla's.  Any one event is unlikely, but Tesla perfectly dodging them all seems unlikely, too.

Buying 11.5 month PUT options on Tesla with $1000 strike costs about $250/sh, or $25,000/contract.  If Tesla falls -22% that PUT only breaks even!  Similarly for 2 years out costing $336/sh, or $33,600/contract, which requires Tesla fall -31% in two years to break even.  I like the idea of stock options, but not the prices.

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1563
  • Age: 47
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: Options heretics thread - by request
« Reply #52 on: June 29, 2020, 10:49:46 AM »
@Financial.Velociraptor - Knowing what you know now, how would you approach TSLA?

I don't know the company's full story, but roughly speaking they are exclusively an electric car maker with long battery range.  A new factory in China suggests they'll make inroads to the Chinese market, while also being closer to a key ingredient in batteries (rare earths in China).  Tesla fans aren't looking at P/E when they buy the stock.

Tesla is priced for exponential growth, which strikes me as a good thing to bet against (unless it's COVID!).  China has not respected intellectual property (IP) in the past, so Tesla's battery plans could leak to Chinese car makers.  Ford plans on making an all-electric truck that could prove much more popular than Tesla's.  Any one event is unlikely, but Tesla perfectly dodging them all seems unlikely, too.

Buying 11.5 month PUT options on Tesla with $1000 strike costs about $250/sh, or $25,000/contract.  If Tesla falls -22% that PUT only breaks even!  Similarly for 2 years out costing $336/sh, or $33,600/contract, which requires Tesla fall -31% in two years to break even.  I like the idea of stock options, but not the prices.

It isn't a good idea to bet against a stock with a cult following.  Especially at those prices!

ChpBstrd

  • Handlebar Stache
  • *****
  • Posts: 2113
Re: Options heretics thread - by request
« Reply #53 on: June 29, 2020, 12:11:11 PM »
I wasn't asked, but here're my thoughts anyway :). You write puts on companies/funds you want to own long-term, but only at a discount, and you bet against companies that have problems you don't think are reflected in the price. IDK if Tesla fits either bill for me.

TSLA is a company a lot of people want to own long-term, but its price is 100% speculation, so it is difficult to establish a price that would be a discount. How much does cheap FOMO cost? At what point would lowered expectations be a bargain? If the goal is to buy hype low and sell hype high, at what level is hype low, and relative to what else?

If I did anything with TSLA, I might do an in-the-money bear spread. TSLA's high volatility means the pricing of options across strikes is compressed. I.e. the 1000 call or put is not priced much differently than the 1005 call or put, and it is this way up and down the chain. This means that spreads are relatively cheap. I'd go the bear route to hedge my market exposure elsewhere. The 1095/1100 call spread with 32 days left on it could be had for a credit of about $138 with a maximum $500-138=$362 at risk. TSLA would have to rally $99.38 (almost 10%) in 32d for this trade to break even. Yes, this outcome happens all the time with TSLA but the 50% upside seems fair to me, particularly if I'm partially offsetting the risk of an overall market fall affecting other investments.

If you want to get really fancy, offset the risk of this bear call spread with credit received from a bull put spread (i.e. do a "condor"). The 895/900 bull put spread could be had for a credit of about 177 with $500-177=323 at risk. TSLA would have to fall >10% for this spread to lose money. Put the credits together and the most you can lose is 500-138-177=185, or 185/500=37% of the money at risk (500 at risk instead of 1000 because TSLA cannot both go up 10% and down 10% on the expiration date) and there's a good chance you would earn $315, or 63% in 32 days.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2731
Re: Options heretics thread - by request
« Reply #54 on: June 30, 2020, 01:41:42 AM »
(Having several more experienced option traders helping is fine by me!)

I have dual views of Tesla... could go up +50% or down -50%, so maybe a bull spread this time.
https://www.investopedia.com/terms/b/bullspread.asp

Tesla (TSLA) closed at $1009.35 on Monday (June 29).  This pair of July 17 calls are fresh (last min Mon):
$1010 strike, $62.10 premium
$1030 strike, $54.00 premium

If TSLA falls or goes nowhere, my plan is a -100% loss of the difference ($8.10 x 100 shares = $810).  If TSLA equals it's worst historical performance (5 yr, +31%), the trade profits +42%.  And if Tesla continues like any of the recent data shows (+5% Monday, +20% last month), the stock hits $1030 and closes the spread, paying +147% profit.  COVID-19 adds to the risk.

So I think I'd want to: (1) buy a $1010 call; and (2) sell a $1030 call.  I'm guessing I can do that more easily at Interactive Brokers (both as one operation) than Vanguard.  Vanguard might not allow a "covered call" when I have an option, not the stock.

Is there a way to tie the two together?  Meaning if someone exercises the $1030 call, I want to automatically exercise my $1010 call to pay for it.

ChpBstrd

  • Handlebar Stache
  • *****
  • Posts: 2113
Re: Options heretics thread - by request
« Reply #55 on: June 30, 2020, 08:24:41 AM »
(Having several more experienced option traders helping is fine by me!)

I have dual views of Tesla... could go up +50% or down -50%, so maybe a bull spread this time.
https://www.investopedia.com/terms/b/bullspread.asp

Tesla (TSLA) closed at $1009.35 on Monday (June 29).  This pair of July 17 calls are fresh (last min Mon):
$1010 strike, $62.10 premium
$1030 strike, $54.00 premium

If TSLA falls or goes nowhere, my plan is a -100% loss of the difference ($8.10 x 100 shares = $810).  If TSLA equals it's worst historical performance (5 yr, +31%), the trade profits +42%.  And if Tesla continues like any of the recent data shows (+5% Monday, +20% last month), the stock hits $1030 and closes the spread, paying +147% profit.  COVID-19 adds to the risk.

So I think I'd want to: (1) buy a $1010 call; and (2) sell a $1030 call.  I'm guessing I can do that more easily at Interactive Brokers (both as one operation) than Vanguard.  Vanguard might not allow a "covered call" when I have an option, not the stock.

Is there a way to tie the two together?  Meaning if someone exercises the $1030 call, I want to automatically exercise my $1010 call to pay for it.

I'm not familiar with Vanguard, but I think on most platforms a spread is entered as one trade. You might want to use their website instead of their mobile app, particularly if you want to set up a contingency order. Also, some platforms have a simple mobile app and a complex mobile app with more features like options strategies.

If you don't have the right buttons, check the options trading level at which you are authorized. Level 1 means you can only buy options and maybe do covered calls. Spreads are a higher level of complexity. It can take a couple of days to obtain the required permissions.



MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2731
Re: Options heretics thread - by request
« Reply #56 on: June 30, 2020, 10:05:10 AM »
"I'd like to share a revelation that I've had during my time here"  - Agent Smith, The Matrix

A call option can be viewed as owning stock for a cheaper price.  For example:
(HOLD) pays $1090 for TSLA now, and holds it 1 year
(OPTION) pays $604 for a deep in the money call at $495/sh

Let's say OPTION takes a -100% loss because TSLA drops to $495/share... OPTION lost $604.
But HOLD owned $1090 of stock, now worth $495... they lost $595.  Both lost about $600... it's not a "-100% loss", but about the same loss to the option holder or stock holder.

A year ago TSLA's stock price was $233.  If TSLA sunk back to it's 52 week low, OPTION still lost $604... but HOLD lost $857.  So while there's still a question of what happens when options are set to expire, at least now I see how options can be a cheaper way to own stock.

https://www.investopedia.com/articles/optioninvestor/06/options4advantages.asp

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2731
Re: Options heretics thread - by request
« Reply #57 on: June 30, 2020, 10:12:43 AM »
...
If TSLA falls or goes nowhere, my plan is a -100% loss of the difference ($8.10 x 100 shares = $810).  If TSLA equals it's worst historical performance (5 yr, +31%), the trade profits +42%.  And if Tesla continues like any of the recent data shows (+5% Monday, +20% last month), the stock hits $1030 and closes the spread, paying +147% profit.  COVID-19 adds to the risk.

So I think I'd want to: (1) buy a $1010 call; and (2) sell a $1030 call.  I'm guessing I can do that more easily at Interactive Brokers (both as one operation) than Vanguard.  Vanguard might not allow a "covered call" when I have an option, not the stock.

Is there a way to tie the two together?  Meaning if someone exercises the $1030 call, I want to automatically exercise my $1010 call to pay for it.
I'm not familiar with Vanguard, but I think on most platforms a spread is entered as one trade. You might want to use their website instead of their mobile app, particularly if you want to set up a contingency order. Also, some platforms have a simple mobile app and a complex mobile app with more features like options strategies.

If you don't have the right buttons, check the options trading level at which you are authorized. Level 1 means you can only buy options and maybe do covered calls. Spreads are a higher level of complexity. It can take a couple of days to obtain the required permissions.
At Vanguard I did not request the higher level initially, so maybe I should do that to see if their interface changes.  I believe Interactive Brokers has put far more effort into their trading interface.

(As to the paper trade I mentioned, it would have been +147% profitable since TSLA went up 6% today, passing up $1030/sh.  Maybe next time).

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1563
  • Age: 47
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: Options heretics thread - by request
« Reply #58 on: June 30, 2020, 03:17:54 PM »
A 1010/1030 BCS puts $2,000 in capital at risk.

I'm not aware of an "automatically exercise [long], if [short] assigned" feature at any broker.  I'd lay odds if you are decent programmer, you could get IB's "Trader Work Station" to automate that though.  I use IB.  IB will automatically start liquidating positions if you have a margin violation (they don't do margin calls). From experience, the algorithm, is coded to liquidate your positions in the least tax efficient manner possible.  PROTIP: don't have a margin violation.


But if you get your short leg assigned, by definition the long leg is still "in the money".  So you are hedged and your margin requirement is [small].  Theoretically, you want to set up a combo order if assigned to buy back the short shares while selling the long call.  This theoretically recovers some of the remaining time value and yields a bonus profit.  Might actually even work on TSLA where liquidity is high.  I've found when spreads get assigned early, I can't get the market maker to give up the time value that should rightfully be mine with a combo order.  At any rate, early assignment usually means the TV remaining was already [low].  I've just made it a policy to log in and exercise my long call.  There is no commission at IB that way so even if I could extract some time value the commissions would cut into it.

KBecks

  • Handlebar Stache
  • *****
  • Posts: 2278
Re: Options heretics thread - by request
« Reply #59 on: June 30, 2020, 06:28:10 PM »
Vanguard does not do multi leg trades. You can look at IB or Tastytrade if you want that. I have been happy enough swimming in the kiddie pool there.

ChpBstrd

  • Handlebar Stache
  • *****
  • Posts: 2113
Re: Options heretics thread - by request
« Reply #60 on: June 30, 2020, 09:07:54 PM »
Thinkorswim apps from TD Ameritrade are another pro-level choice. The desktop app is enthusiast level - expect to invest 100 hours figuring out half of what it does. It's as close to a Bloomberg terminal you can get for free on the internet with a paper trading account.

The mobile app is a lot simpler and offers graphical payout representations of options trades with up to four legs. There's also a web-based version if you're paranoid of installing apps.

https://www.tdameritrade.com/tools-and-platforms/thinkorswim.page

Optionalpha.com is a fun options learning site where the content creator does demos of thinkorswim to illustrate strategies.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2731
Re: Options heretics thread - by request
« Reply #61 on: July 01, 2020, 12:55:44 AM »
A 1010/1030 BCS puts $2,000 in capital at risk.
Time for me to learn - I think I have $810 at risk.  I buy the $1010 call for $6,210 and then sell a $1030 call which pays me $5,400.  If Tesla drops sharply, I keep $5,400 but lose $6,210 for a net loss of $810.  In this case Tesla went up to $1080, and let's say that $1030 call is exercised by someone else.  I think my broker would automatically charge my account ($1,080 x 100 = $108,000 minus $103,000) $5,000... but I could exercise my option ($1080 x 100 = $108,000 minus $101,000) and get a $7,000 credit.  So I can lose $810 or I can profit $2,000, as I see it.  (I'm sure in practice everyone would hold their options instead)

I'm not aware of an "automatically exercise [long], if [short] assigned" feature at any broker.  I'd lay odds if you are decent programmer, you could get IB's "Trader Work Station" to automate that though.  I use IB.  IB will automatically start liquidating positions if you have a margin violation (they don't do margin calls). From experience, the algorithm, is coded to liquidate your positions in the least tax efficient manner possible.  PROTIP: don't have a margin violation.
I have an IB account and programming experience.  I don't know how much time investment is needed for me to learn trading both ETFs and options on IB's Trader Workstation.  Any favorite tutorials, be they text or video?

But if you get your short leg assigned, by definition the long leg is still "in the money".  So you are hedged and your margin requirement is [small].  Theoretically, you want to set up a combo order if assigned to buy back the short shares while selling the long call.  This theoretically recovers some of the remaining time value and yields a bonus profit.  Might actually even work on TSLA where liquidity is high.  I've found when spreads get assigned early, I can't get the market maker to give up the time value that should rightfully be mine with a combo order.  At any rate, early assignment usually means the TV remaining was already [low].  I've just made it a policy to log in and exercise my long call.  There is no commission at IB that way so even if I could extract some time value the commissions would cut into it.
Sounds like I have a "time of exercise" risk, where assignment happens while I'm unable to exercise my call option.  A volatile stock could then drop, leaving me with a profit that eats into my profit/premium.  But you're saying that can be mitigated by closing both options early.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2731
Re: Options heretics thread - by request
« Reply #62 on: July 01, 2020, 01:01:57 AM »
KBecks - Thanks, appreciate the insight.  Sounds like I don't need to take action at Vanguard.

ChpBstrd - I signed up for an HSA with HSA Bank, which places the investments at TD Ameritrade.  So I have access to TD Ameritrade tools, but they wouldn't be useful for placing trades.  Although... turning my HSA into play money and leaving everything else alone isn't the worst risk management idea...


Anyone else familiar with IB's Trader Workstation, I'd like to hear about time investment and how you learned to use it.  I've seen one video talking about spreads, where at one strike you click the "bid" and another you click the "ask" to create a Combination Order.

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1563
  • Age: 47
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: Options heretics thread - by request
« Reply #63 on: July 01, 2020, 12:15:04 PM »
A 1010/1030 BCS puts $2,000 in capital at risk.
Time for me to learn - I think I have $810 at risk.

You are right.  I had a brain fart.  You cannot lose more than your net debit.

bthewalls

  • Stubble
  • **
  • Posts: 230
  • Location: ireland/northern ireland
  • gods own prototype....
Re: Options heretics thread - by request
« Reply #64 on: July 01, 2020, 03:09:47 PM »
I might experiment with this on small scale to learn, minimal loss.

anyone recommend best trading platform in UK? Or can options be done through a trading platform?

baz

oldladystache

  • Pencil Stache
  • ****
  • Posts: 717
  • Age: 75
  • Location: coastal southern california
Re: Options heretics thread - by request
« Reply #65 on: July 01, 2020, 04:11:33 PM »
Suppose I have 500 shares of VT - current price 75.30, and I will want to sell them because I will need the money in a month or two.

Normally I would place a limit sell order at about 77 and wait. If it sells before I need the money, great. If not, I sell it at the market.

Would I more often be better off selling covered calls? And if so, how much better would it be?

KBecks

  • Handlebar Stache
  • *****
  • Posts: 2278
Re: Options heretics thread - by request
« Reply #66 on: July 01, 2020, 05:38:12 PM »
Here is an options chain for VT:
https://www.nasdaq.com/market-activity/funds-and-etfs/vt/option-chain

I put in an 8/21/20 expiration for funsies


« Last Edit: July 01, 2020, 05:40:07 PM by KBecks »

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2731
Re: Options heretics thread - by request
« Reply #67 on: July 02, 2020, 12:24:04 AM »
@bthewalls - Interactive Brokers has offices around the world, and a few people in this thread mentioned it for trading options.  You can also trade ETFs for $0/trade, so it might provide international investors access to lower expense ratios, even without using options.

@oldladystache - Option contracts are 100 shares (almost always), so you need to have $7,500 worth of VT to create 1 covered call contract.  If you had $22,500 that's 3 contracts (3 x 100 x $75/sh = $22,500).  Most Vanguard clients haven't signed up for options trading, so you'd need to answer questions online about your rough financial situation (income, NW, investments) and experience (in ETFs, bonds, options).

---
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.

beltim

  • Magnum Stache
  • ******
  • Posts: 2964
Re: Options heretics thread - by request
« Reply #68 on: July 02, 2020, 12:52:28 AM »
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.

While I don't disagree that restaurant profits will take a hit, do you think that will actually be reflected in the stock price in the next two weeks?

KBecks

  • Handlebar Stache
  • *****
  • Posts: 2278
Re: Options heretics thread - by request
« Reply #69 on: July 02, 2020, 05:42:06 AM »
I have been writing (sell to open) puts and covered calls lately on stocks that I already own and like. I think when I write a put *and* write a covered call, it's called a straddle.  The stocks I'm doing this with are ones I know fairly well and don't mind owning shares of.  I own several high revenue SAAS/tech stocks, ZM, CRWD, NET, WORK, FSLY, LVGO. I also write options (but don't get paid much) on DIS and SFIX.  Some of these are rising in share price where writing options (I only do cash-covered puts) gets a little spendy, but I hold part of my port in cash.

Note that there is no way I would play with options on TSLA. Too spendy and I don't want to touch 100 share lots of TSLA.

« Last Edit: July 02, 2020, 05:44:42 AM by KBecks »

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2731
Re: Options heretics thread - by request
« Reply #70 on: July 02, 2020, 11:26:04 AM »
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.
While I don't disagree that restaurant profits will take a hit, do you think that will actually be reflected in the stock price in the next two weeks?
If states impose restrictions on restaurants (eating and mask wearing, pick one!), their revenue drops to zero and markets price that in.  DIN has dropped -4% so far today while the overall market is up +1%.  Another example is June, where DIN hit a peak value of $63/sh.  It has dropped -38% from that peak (in under a month).  If it drops -13% my put options break even.  It's definitely risky, but overall I'm happy with the bet whichever way it turns out (payoff vs loss, chance of success given what I knew in advance).


KBecks - Are you aware of "TSLA7" mini options?  The stock price is 1/10th of TSLA, and options are 10 shares per contract... so you wind up with prices 100x lower (1/10th from stock, 1/10th from smaller contracts).
« Last Edit: July 02, 2020, 11:27:52 AM by MustacheAndaHalf »

bthewalls

  • Stubble
  • **
  • Posts: 230
  • Location: ireland/northern ireland
  • gods own prototype....
Re: Options heretics thread - by request
« Reply #71 on: July 02, 2020, 03:12:21 PM »
@bthewalls - Interactive Brokers has offices around the world, and a few people in this thread mentioned it for trading options.  You can also trade ETFs for $0/trade, so it might provide international investors access to lower expense ratios, even without using option
---
I don't think people are particularly interested in which options I'm buying, so instead I'm tracking that in the thread named "An experiment".  I bought PUT options on DIN stock that expire July 17, because I predict restaurant profits are about to take a sharp hit from Covid-19 restrictions and scared customers.

 Cool...Iíll look into it

KBecks

  • Handlebar Stache
  • *****
  • Posts: 2278
Re: Options heretics thread - by request
« Reply #72 on: July 02, 2020, 06:00:09 PM »
I'm not interested in TSLA. However, I was able to realize some premiums on this expiration Thursday. Set up a little bit for next week.