Tesla, the investment

[Hank]

Biggs?

You take that back!

(Also, the right answer is Wedge Antilles.)

[Nysoz]

Nysoz
Covered calls can be used for either goosing returns or protecting some gains. It’s much less risk.
-all of your calls will be short term taxable
-calls can be exercised prior to expiration. No idea how they get allocated, but it happens.
Expiration on the money usually expire. In the money, roll it if you don’t want the tax hit from selling the stock. Some use this as an enhancement to goose returns. The problem is the tax hit. I’m sure you will figure it out. You simply limit your upside and lock in the premium.

So I'm looking at the options chain for tsla 1 month out. I'm a tsla long so I want to own the stock anyways.

Say I have my 100 shares at currently $750. If I want to a sell covered call 1 month out at a strike price of 1000 (33% increase from now), it says I'll get estimated $1595 from it.

If it stays sideways for 1 month, I get that $1595 for selling the option
If it goes down, I still own my shares but I get that $1595, lowering my cost basis essentially. then I can sell another call option next month
If it goes up to 1000 in a month, the call gets exercised and sell my shares at the price of $1000 (netting that 33% short term gains). the downside is I'm forced to sell the shares I want to own and if it goes way past this, it limits my upside potential.

instead of exercising the call, I can potentially roll it out/up by buying my call option back, and selling another call option 1 month out for an even higher price? that way I can keep my appreciated shares

am I understanding that correctly?

[StarTrekDoc]

Yep. hence covered calls are to work. Guaranteed upside with but capped. Just no regrets if surges to $1500, okay?

[Zaphod]

Yeah. Also remember that the time value portion that is represented by a value called "theta" in the option chain will decrease dramatically and even if it gets near your strike price the option can still be much less than where you sold it. You also dont have to hold until it expires, a win is a win and if you get 25% of it, fine.

When it was in the 900+ range and the IV was in the 250's, literally higher than the volatility index and I think an all time high for a stock, I probably would have sold something in the 6-700 ranges. Even if nothing changed, the coming volatility compression (which happened thu/fri) will let most of the price out of those options.

[StarTrekDoc]

The issue is if I'm making the commit of a speculation stock purchase on a growth stock like this, I'm not going to be happy with 25% subsidy/upside with large downside risk still. Tesla has had 1 year of profits -- HUGE upside, but one loss of containment of coronavirus will end this gloriously.

[Nysoz]

Yeah, supposedly gf Shanghai will reopen Monday with the help of the govt there.

I’m suspecting the stock will bounce back and forth for a bit for now. I’m expecting some decent news at battery day. Cheaper batteries compared to the rest of the industry, increasing production, possibly new technology. I like the idea of re/upcycling old car batteries into power walls/power packs for their energy storage business.

in addition to this, I think model y profit margin is going to be big. Shares a lot of parts with the model 3, less wiring, big stamped press consolidating 70 parts into 1, selling on average 10% more. That may get revealed q1 or q2.

[hightower]

So just reviving this thread to see what people are thinking now with the relatively fast change in stock price and valuation. When it dipped below $200 I invested as much as I felt comfortable in a single stock in my roth and taxable accounts with majority still in index funds.

It's gone up a little too fast for me, but I'm planning on holding the stock I have long term while putting new capital into index funds.

I bought $5k worth back when it was $188/share. I chickened out after a few months of watching it bounce around dramatically (well nothing like it is doing now) and sold it at like $220/share. If had had held on until this past week and sold it that morning it hit over 900/share, I'd have 24k to brag about. Oh well. I'm not buying anymore Tesla stock anytime soon. I do feel a lot of this is due to fan boys driving it up irrationally. There were a bunch of reports last week about how much it's being traded on RobinHood by first time investors. With that being said, I do think long term they will be a successful company and I believe in their products. I have 2 Tesla Powerwalls already (I want more!) and I have a Model Y on pre-order. But, for their stock, I think I'm going to just stick to owning it indirectly through my index funds.

[Tim]

So I'm looking at the options chain for tsla 1 month out. I'm a tsla long so I want to own the stock anyways.

Say I have my 100 shares at currently $750. If I want to a sell covered call 1 month out at a strike price of 1000 (33% increase from now), it says I'll get estimated $1595 from it.

If it stays sideways for 1 month, I get that $1595 for selling the option $1595 income irregardless of everything else
If it goes down, I still own my shares but I get that $1595, lowering my cost basis essentially. then I can sell another call option next month. No cost basis adjustment
If it goes up to 1000 in a month, the call gets exercised and sell my shares at the price of $1000 (netting that 33% short term gains). the downside is I'm forced to sell the shares I want to own and if it goes way past this, it limits my upside potential. What ever your purchase and sale yield

instead of exercising the call, I can potentially roll it out/up by buying my call option back, and selling another call option 1 month out for an even higher price? that way I can keep my appreciated shares Buy the option at a much higher price to close your option position (LOSS). Sell another covered call if your wish additional income.

am I understanding that correctly?

No, once you sell a covered call, the purchaser has the option of exercising, not the seller. You can buy the same call, mostly at a higher price to offset your exposure and close your option position prior to expiration. Stock is taken only is the open call you sold is exercised. Keep in mind, they will be gone for even 25 cents. Those pennies get sucked up.
Stock is independent and only goes is the option you sold is called. Fundamentally, you are playing options separately only using the stock as pledged security.
Fidelity has options trading evaluation functions that show the probability and expected returns if you choose to start rolling them. Some people strategically use this to attempt to make money on the options on a consistent basis. You still have 100% of downside risk.
Most suitable for a stock that you expect to be stable.
For example: ATT(T) is a dividend growth stock with some risk but you don't expect a ton of price appreciation. The dividend itself is the 5-6% range.
Price drops 5%, you buy and sell a covered call. The intent is the price will rise back from the 5% temporary market loss, you get the dividend if you hold it a year and roll calls for 2-3% to collect additional income. That technique works for holding a stock for just the dividend at 5-6% and simply exiting when the price exceeds the trading range. Typically a dividend investor can shoot for about 10-12% per year. Again, risk of owning the stock is all on you, including the possibility of a dividend cut. But, they have raised dividends for 50 years and in the event of just a market fall and the dividends remain, you are looking at an effective dividend rate of 8-10% just holding it until recovery. No diversification though.
That strategy is widely used. It produces a modest return of 9% or so if it works. The philosophy works with a stable portfolio of 20-50 dividend growth stocks. Takes alot of work, but you won't get the upside of the broad market indexes.

[Lordosis]

I bought $5k worth back when it was $188/share. I chickened out after a few months of watching it bounce around dramatically (well nothing like it is doing now) and sold it at like $220/share. If had had held on until this past week and sold it that morning it hit over 900/share, I'd have 24k to brag about. Oh well. I'm not buying anymore Tesla stock anytime soon. I do feel a lot of this is due to fan boys driving it up irrationally. There were a bunch of reports last week about how much it's being traded on RobinHood by first time investors. With that being said, I do think long term they will be a successful company and I believe in their products. I have 2 Tesla Powerwalls already (I want more!) and I have a Model Y on pre-order. But, for their stock, I think I'm going to just stick to owning it indirectly through my index funds.

Do you use the power walls in conjunction with solar panels or just as a backup for power outages?

[Zaphod]

No, once you sell a covered call, the purchaser has the option of exercising, not the seller. You can buy the same call, mostly at a higher price to offset your exposure and close your option position prior to expiration. Stock is taken only is the open call you sold is exercised. Keep in mind, they will be gone for even 25 cents. Those pennies get sucked up.
Stock is independent and only goes is the option you sold is called. Fundamentally, you are playing options separately only using the stock as pledged security.
Fidelity has options trading evaluation functions that show the probability and expected returns if you choose to start rolling them. Some people strategically use this to attempt to make money on the options on a consistent basis. You still have 100% of downside risk.
Most suitable for a stock that you expect to be stable.
For example: ATT(T) is a dividend growth stock with some risk but you don't expect a ton of price appreciation. The dividend itself is the 5-6% range.
Price drops 5%, you buy and sell a covered call. The intent is the price will rise back from the 5% temporary market loss, you get the dividend if you hold it a year and roll calls for 2-3% to collect additional income. That technique works for holding a stock for just the dividend at 5-6% and simply exiting when the price exceeds the trading range. Typically a dividend investor can shoot for about 10-12% per year. Again, risk of owning the stock is all on you, including the possibility of a dividend cut. But, they have raised dividends for 50 years and in the event of just a market fall and the dividends remain, you are looking at an effective dividend rate of 8-10% just holding it until recovery. No diversification though.
That strategy is widely used. It produces a modest return of 9% or so if it works. The philosophy works with a stable portfolio of 20-50 dividend growth stocks. Takes alot of work, but you won't get the upside of the broad market indexes.

This is what a collar is for, of course, given the difference in skew between puts and calls you'll have to be fine with being more out of the money on the put side, which is usually ok anyways as you're fine with some downside volatility.

[Nysoz]

I do feel a lot of this is due to fan boys driving it up irrationally. There were a bunch of reports last week about how much it's being traded on RobinHood by first time investors.

I’m sure some first time investors have gotten into the stock as well as millennials/fan boys that want to invest in green/cool companies. The most recent parabolic growth was way too many shares for that though I think. The trading volume was like 40-50M shares with bigger batches. People are suggesting this is institutional funds buying in and their fomo now that Tesla is actually executing.

its current valuation is still pretty rich, but it’s hard to value it with all the potential growth opportunities in the future with the lead they have.

[Tim]

This is what a collar is for, of course, given the difference in skew between puts and calls you'll have to be fine with being more out of the money on the put side, which is usually ok anyways as you're fine with some downside volatility.

I was suggesting how covered calls are typically used in low risk situations. The account type you use will also have restrictions. IRA and 401k’s will not allow margin. IRA’s will typically allow covered calls and buying a put with a position in your account. Why? Minimal risk.
Covered calls is income in exchange for potential upside limit.
Put is the right to sell to limit down side risk.
Basic. It is very difficult consistently make money on options strategies alone. Keep in mind, options have much thinner markets and the bid/ask spread can be significant. Much smaller price. It’s really a different market based on the stock price.

https://money.usnews.com/investing/investing-101/articles/2018-09-17/how-to-trade-options-for-income-in-your-ira

[hightower]

Do you use the power walls in conjunction with solar panels or just as a backup for power outages?

Yes, we had them installed with a 12kw solar array. When the sun is shining we're able to operate fully off grid (plenty of power overnight from the batteries and plenty of solar power to recharge the powerwalls, power the house, and send power to the grid during the day). Multiple cloudy days, like we're seeing this time of year, we're still very much grid dependent unfortunately, so the powerwalls act more as a back up on those days. I keep 20% of the battery on reserve for power outages, which is enough to keep the essentials running for probably 4-6 hours in the event of an outage.
It's a great system though. I highly recommend them to anyone interested in solar plus battery back up. This year there's still a 26% fed tax credit for installing this year Next year it goes down drastically and it phases out completely over the next few years.

[Nysoz]

I was suggesting how covered calls are typically used in low risk situations. The account type you use will also have restrictions. IRA and 401k’s will not allow margin. IRA’s will typically allow covered calls and buying a put with a position in your account. Why? Minimal risk.
Covered calls is income in exchange for potential upside limit.
Put is the right to sell to limit down side risk.
Basic. It is very difficult consistently make money on options strategies alone. Keep in mind, options have much thinner markets and the bid/ask spread can be significant. Much smaller price. It’s really a different market based on the stock price.

https://money.usnews.com/investing/investing-101/articles/2018-09-17/how-to-trade-options-for-income-in-your-ira

Another thing I was reading about is a wheel.

sell covered calls for the premium. If it jumps above the strike price, the option gets exercised and sells at your strike price. Of course if it expires worthless you keep the premium and your stock.

now if your covered call gets exercised and you have a bunch of money sitting around (from the shares you were forced to sell), then now you can sell a cash covered put. If the stock stays above your strike price you collect the premium and keep your pile of cash to sell another cash covered put. If it goes below your strike price, then you have to buy those shares at the strike price.

if the cash covered puts ever gets exercised then you have the shares again so you can sell covered calls again and you’re back at the start of the wheel

is that basically correct?

[Lordosis]

Yes, we had them installed with a 12kw solar array. When the sun is shining we're able to operate fully off grid (plenty of power overnight from the batteries and plenty of solar power to recharge the powerwalls, power the house, and send power to the grid during the day). Multiple cloudy days, like we're seeing this time of year, we're still very much grid dependent unfortunately, so the powerwalls act more as a back up on those days. I keep 20% of the battery on reserve for power outages, which is enough to keep the essentials running for probably 4-6 hours in the event of an outage.
It's a great system though. I highly recommend them to anyone interested in solar plus battery back up. This year there's still a 26% fed tax credit for installing this year Next year it goes down drastically and it phases out completely over the next few years.

Not too much solar up here. If only we could generate energy from snow.