[12 Jan Trades] Tesla LEAPS & Modified Wheel Strategy

The US market welcomed the Consumer Price Index (CPI) figure at 7%, released one hour before the market opened on 12 Jan 22, as it met the expectations of economists. The market opened in green and I bought 2 Tesla LEAPS (SP: $2,475, Expiration Date 16 Sept 22) at $2,250 and $2,300 to average down on the price I paid for Tesla LEAPS bought earlier. I believe that Tesla may be able to rebound upwards from now after 2 days of moderate gains.

Check Technical Analysis (TA) of Tesla here:

I also closed my Covered Call positions or risk suffering a greater loss if the share price continues to go up. The below table is my profit/ loss table while the details of the covered call contracts can be found in this article.

I also bought back my Bank of America (BAC) Covered Call options as it is likely to be called away on the expiration date (7 Jan 22), the current share price of close to $49 is higher than the strike price of the contract, which is $45. In doing so, I suffered a loss of $295. Though I had a loss of $295, I also had an unrealized gain of $395. My previous PUT options contract that I sold on BAC had a strike price of $45 and was exercised.

A Modified Wheel Strategy
With the BAC shares back with me, I could have sold another monthly/ weekly covered call options contract to earn some premium. That is how typically the Wheel Strategy works, you keep selling covered call or cash-secured puts until the contract gets assigned and you switch to the other option contract. E.g. if a PUT contract is not exercised, you continue to sell PUT for the next contract. The same goes for a CALL contract, you keep selling the same contract until it is assigned and then, you switch to selling PUT contract.

However, what I did was to sell away the shares and secure those unrealized profits and with the capital gain, I sold a PUT contract instead. There are a few reasons for doing so:

  1. I secured the profits and instead of letting them vapourise if the share price fell suddenly (see scenario 2 described below).
  2. The ATM PUT premium is higher than the ATM CALL premium, i.e. the premium if I choose to sell covered call instead will be lower than the premium I receive if I sell a PUT contract at the same strike price.
  3. The OTM PUT premium is much higher than the OTM CALL premium because at a higher Strike Price, the PUT seller will command a higher premium as tje contract is more likely to get assigned whereas a CALL seller will receive a lower premium as it is less likely to get assigned. As I am bullish on BAC’s share price in coming weeks, I sold a OTM at SP $52 to get a 6.73% in terms of premium received.

There are 2 scenarios that may happen when the contract expires.

Scenario 1: At expiry, the share price is higher than the strike price.
In this scenario, if I am selling a PUT contract, I will not need to be obliged to buy anything and instead, I have the capital to buy other stuff, maybe a high conviction stock is trading at an attractive price by then. If I am selling a CALL contract, I will be selling away my shares at the strike price and again I have the capital to either continue the wheel or go buy something else.

Scenario 2: At expiry, the share price is lower than the strike price.
In this scenario, if I am selling a PUT contract, I will have to buy the shares at the agreed strike price and have an unrealized loss. If I am selling a covered call contract, I will still keep my shares but my initial unrealized gains become lesser as the share price has dropped.

In conclusion, there are no distinctive advantages or disadvantages between continuing the wheel by selling covered calls or doing the modified wheel by selling away the shares and opening up a new PUT contract instead, based on the scenarios that could happen upon expiry. Thus, the advantages of doing the modified wheel lie in securing the gain and getting a higher premium for both ATM and OTM options contracts, which is a good consideration if the options seller is bullish on the share price.

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2 thoughts on “[12 Jan Trades] Tesla LEAPS & Modified Wheel Strategy

  1. I feel you should move to a margin account instead of cash account to better manage your trade. With margin, you may not need to liquidate trades (which could have recovered over time) to free up liquidity. Using margin responsibly is like using credit card & paying in full each time when the statement is due. You have all the benefits with 0 charge. Seek out local brokers as US brokers require level 4 for naked options.


    1. Hi Raymond, thanks for your good advice! I personally am not too comfortable to invest/ trade on “borrowed” money. Also, there is a risk of getting margin call if the stock price continues to fall. I’ll stick to using my own cash for trading for now but that is definitely something that has crossed my mind 🙂


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