Read on Twitter
1/ A few thoughts on options. Note - needless to say, I am just an anonymous Twitter account, not an investment advisor :) These are just some personal observations - not intended to be specific investment advice for anyone.
2/ Learning how options work is like traveling through a maze. You can consult a map, but until you get into the maze, you really don’t understand it. You have to actually take a few wrong turns, reach the dead-ends, and learn the way through for yourself. I’m still learning.
3/ Generally I avoid complicated options positions. Just simple long calls or short puts are the way to go. I tried call spreads for a while. Then I realized the upper leg just caps your upside, and you are putting the same amount of capital at risk anyway.
4/ As with any investment, I believe you MUST have a strong view on the direction of the underlying security. I’m not a fan of gambling. I view options as a way to leverage returns to an investment thesis, with capped downside.
5/ With Tesla, it’s clear that company has a superior product (faster, safer, cheaper to maintain, cooler features, zero emissions), the team is executing (massive production growth), people love the product (consumer reports, TSLA twitter, massive demand). A *GOOD* investment.
6/ Short term options are a fool’s game. Everyone says you can’t time the market, and it’s true. It’s impossible. Stop trying to do the impossible. Stick to long term securities so you can benefit from directional movements vs. being dependent on precision timing (very risky)
7/ Long Term Equity Appreciation Securities (LEAPS) are, in my view, the way to go, if you are bullish on a stock. They accelerate your gains a LOT. ALL my gains have come from LEAPS. Of course, the *can* go to zero. Thankfully, with Tesla, this has not happened.
8/ Buy LEAPS when the stock has traded sideways for a while. This reduces volatility which reduces the price of the options. That way when the stock corrects toward your target price, you will generate greater returns.
9/ Big difference between trading in a tax deferred account (Roth or Traditional IRA in the U.S.) vs. a non-tax deferred account (standard brokerage account)
10/ In a non-tax deferred accounts, if you sell the options, you pay cap gains. Hence, exercise the option contract into the underlying stock, using margin if needed. As you exercise the options contracts, you create collateral for margin. Neat trick learned from @bruceburnworth.
11/ In tax-deferred accounts, cap gains don't matter. Can just sell the options & buy stock, or new options, when expiry approaches. Hence, if you are really bullish, you can go for higher strikes in tax deferred accounts. Higher strikes are riskier, but offer more upside.
12/ This year I might explore writing covered calls against my long call and stock positions. I’ve been skeptical but if the risk can be managed, I can see how it might be effective.
13/ Overall, I blv we are in an unprecedented time for equities, particularly high quality disruptive tech equities such as $TSLA. Interest rates are at incredible low levels, making even apparently huge P/E multiples look cheap from a growth-adjusted earnings yield-perspective.
14/ At the same time, the pace of innovation has increased rapidly. And, clearly, Tesla leads the pack in vision and execution. As such there has been a massive acceleration in valuations for legitimate visionary innovators such as Tesla.
15/ My expectation for 2021 is that $TSLA may reach $1,500-2000 ($1.5-2T market cap). I am invested accordingly, long 2022-23 LEAPS with a range of strike prices. Obviously, I could be wrong. Probably not though.
16/ Huge thanks to $TSLA Twitter for many of these learnings. Particularly @emmetpeppers, @bruceburnworth, @frankpeelen, @garyblack00, & others.
cc: @bburnworth
