I bought Tesla CALL options when Tesla was trading around USD460+, anticipating that the stock would rally to USD500 by year end, but the Santa Claus rally did not happen and the stock then started to correct after the FOMC meeting.
My CALL options started to lose money and I tried to roll 21 Feb 25 expiration to 20 June 25 expiration, changing the strike price from USD660 to USD960. However, Tesla has again failed to recover and I did not want to wait longer as the contracts were losing value every day.
Trade Info
Details of my Tesla CALL positions before the repair trade:
Expiration Date: 20 Jun 25,
Strike price: USD960
5 contracts @ USD1,455 per contract
Market value was USD455 per contract,
Unrealised loss = USD1,000 x 5 = USD5,000
If Tesla continues to drop or stays sideways, these OTM CALL options will expire worthless, i.e. Max loss = USD7,276 (total capital)
How I repair this broken trade before all the contracts expire worthless?
I use whatever is left in the contract as the collateral for max loss in my new BULL PUT Spread contracts.
Trade details:
Strategy: BULL PUT Spread
Strike price: 760/790
Expiration date: 19 Dec 25
No of contracts: 10 contracts
Receive advance credit of USD2800 per contract, so total advance credit received = USD28,000
Max loss for contract (assume new contracts) = (USD3000 – USD2800) x 10 = USD200 x 10 = USD2,000 (14 x trade if start afresh)
Capital received from closing broken Tesla CALL = USD455 x 5 = USD2,275
Max Loss for my new positions= USD7,276 (invested capital for CALL options) + USD2,000 – USD2,275 (redeemed capital from CALL options) = USD7,000
Max Gain = USD28,000 – USD7,276 + USD2,275 = USD22,999
Breakeven premium: USD22.99 credit per contract
Pros of Repair Strategy:
1. Longer Expiration date (June 25 -> Dec 25) = more time for Tesla stock to recover
2. Lower Strike Price of USD790/ USD760 compared to USD960
3. Earn interest on my advance USD28k credit in my IBKR account
Cons:
1. If Tesla were to turn around and recover in the near future, the growth margins would increase at a slower rate, as compared to the previous CALL options.
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