Thursday, February 23, 2017

A Tesla Bearish Option Spread and an Update on $UVXY

I was a bit reckless with my option trades today, and surprisingly, I didn't get burned.  I may actually make some money on it. It will probably come back to haunt me.

I sold a call spread on Tesla ($TSLA) with a one day expiration.  The stock came out with earnings last night, and although the stock initially went up, it faded quickly and was down by 10 am or so, when I put this on. 

The stock had dropped from $280 last night down to $260, so I sold a put spread:

Sold the $262.50 for $2.24 for expiration tomorrow.
Bought the $272.50 for $0.55 for the same date. 

If the stock stays below I get the entire spread.  Short duration, but there was still a fair amount of implied volatility, so a decent return. 

Stock dropped to $256 by the close, so I could have taken it off for a solid win, but will hold for a bit tomorrow.  If it stays near that price I will let it expire worthless. 

An update on $UVXY.  If you haven't tried this strategy, one thing that can happen when you sell a call or put is that they can be exercised early.  That happened to me today, the $19 call I sold was bought back, locking in my losses.  Bad. However, $UVXY continued going up, so the exercise stopped me from taking larger losses.  Good!

The $21 call trade I sold isn't looking great either.  The stock closed near $22, and the option expires tomorrow.  I need a solid fade to make any money, and I'm not confident about it. 

That's the risk of doing this.  A few bad trades can really blow up your account.

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