Retiring in 6 months (off TSLA options); Plan Review; 08/24 Update - NVDA All-In

[roguewarrior0]

I am planning to retire in July 2021 @ 47. Let me call out the elephant in the room. Yes, I have been ridiculously lucky with my market timing and have 90% of Portfolio in a single stock. This was lucky and it may go to badly in next 6 months, but ultimate I have attempted to hedge my luck by selling Covered Calls and using the Call Premium to pay off debt. Assuming TSLA stays north of $550 at Call expiration ($825 currently), (this gives me over 30% margin of safety), I will have a portfolio of $9.7m at retirement and unwinding of TSLA via Covered Calls. For the purposes of this discussion I am going to assume my TSLA shares will get Called away @ 550 and 500.

My goal now is to unwind my individual stock exposure to 3 Fund portfolio and go time tested plan and re-balance semi-annually. I expect to live off of $250k/year.


Emergency funds: 3 months ($60k) in money market (VMFXX)

Debt: none
Tax Filing Status: Married with 2 dependent children (17,16)
Tax Rate: 35% Federal, state: n/a
State of Residence: Texas
Age: 46

Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 15% of stocks

Current portfolio: $8.5m
Target portfolio @ retirement: ~$9.7m
Goal: Retire and not return to Corporate world
Retirement Withdrawals: $250k/yr
Other Assets: Own free/clear 3 homes ($1m value)
Other Assets: 2 of the homes above generate a total $3500/month in Rental income
Other Costs outside of $250k/yr:

• 2021 2020 tax bill $300k

• 2022 New Car $80k

• 2022 2021 tax bill $300k

• 2023 2022 tax bill $300k

• 2024 New Car $25k

Current Portfolio

Taxable -
Pre-Retirement ($3m) 35.3% of Portfolio
$4.533m 5,595sh Tesla (TSLA)
$2.23m Long 40 Calls @ $280 9/16/22 Tesla (TSLA)
-$1.94m Short 45 Calls @ $500 9/16/22 Tesla (TSLA)
-$1.89m Short 50 Calls @ $550 6/17/22 Tesla (TSLA)

$80k Google (GOOG)

$11k Total Bond Admiral (VBTLX)
$12k Total Int Stock Admiral (VTIAX)
$12k Total Stock Admiral (VTSAX)

401k (96k) - 1% of Portfolio
$96k (1.29%) Vanguard 2040 Target (VFORX) (expense 0.05%)
Contributions: Max out
Company match: Yes, up to $8,750

Roth IRA at Vanguard = 0.1% of Portfolio
$12k Vanguard Total Intl (VTIAX) (0.11%)

Rollover IRA at Vanguard ($333k) - 4% of Portfolio
$328k Tesla (TSLA)
$5k Total Bond Admiral (VBTLX)


IRA at Vanguard (3.98m) - 46.8% of Portfolio
$5.21m (15.4%) 6,435sh Tesla (TSLA)
$278k (15%) Long 5 Calls @ $280 9/16/22 Tesla (TSLA)
-$216k (3%) Short 5 Calls @ $500 9/16/22 Tesla (TSLA)
-$1.75 (4%) Short 59 Calls @ $550 6/17/22 Tesla (TSLA)
$264k (0.2%) Total Bond Admiral (VBTLX)
$12k (0.2%) Total Int Stock Admiral (VTIAX)
$12k (0.2%) Total Stock Admiral (VTSAX)


Wife's IRA Rollover ($1.17m) - 13.5% of Portfolio
$1.168m 1,440sh Tesla (TSLA)
$56k Long 1 Calls @ $280 9/16/22 Tesla (TSLA)
-$416k Short 14 Calls @ $550 6/18/21 Tesla (TSLA)

$41k Nividia (NVDA)

$276k Vanguard Total Bond (VBTLX)
$40k Vanguard Total Stock (VTSAX)
$18k Total Int Stock Admiral (VTIAX)


Wife's Roth IRA - ($7k) - 0.1% of Portfolio
$7k Vanguard Total Bond (VBTLX)


Anticipated Portfolio at Retirement 7/2021

Taxable (unchanged)
Pre-Retirement ($3m) 35.3% of Portfolio
$4.533m 5,595sh Tesla (TSLA)
$2.23m Long 40 Calls @ $280 9/16/22 Tesla (TSLA)
-$1.94m Short 45 Calls @ $500 9/16/22 Tesla (TSLA)
-$1.89m Short 50 Calls @ $550 6/17/22 Tesla (TSLA)

$80k Google (GOOG)

$11k Total Bond Admiral (VBTLX)
$12k Total Int Stock Admiral (VTIAX)
$12k Total Stock Admiral (VTSAX)

Retirement Accounts 64.7% of Portfolio
$2.25m Total Bond Admiral (VBTLX)
$1.35m Total Int Stock Admiral (VTIAX)
$2.4m Total Stock Admiral (VTSAX)

Target Asset Allocation
60% Equity (Stock & Total Stock Fund)
15% Total Intl Stock Fund
25% Total Bond Fund

The Tesla Covered Calls will prevent me to moving them to Index Funds until at earliest 6/2022 in my taxable brokerages.


Questions;
1) I realize 60/15/25 is really aggressive, but given the 45+ year retirement horizon I need a more aggressive plan. Also given 3% wd rate, it looks "safeish". ERN site seems to support that would work indefinitely, but still concerned. I would really appreciate feedback here?

2) With the tax implications of TSLA stock sale in my taxable brokerage, would it be better to continue delaying TSLA sale via rolling options (riskier) or bite the tax bullet (my current plan) and move into Index funds in my brokerage (primarily Total Stock in brokerage)?

3) Annual 250k usage, I plan on keeping the $250k that I use in MM (VMFXX) and replenishing that amount annually to MM (VMFXX). Is there a better vehicle to store funds for annual living expenses?

4) With $1m in upcoming liabilities ($900k tax, $100k car), would these monies best be served to be set aside in MM as well? My current plan is to have them invested in AA model I laid out (60/15/25).

5) Rebalancing - Do folks typically re-balance strictly based on calendar (for me January and July) or do you also potentially re-balance based on allocation changes? Example, Bond fund grows suddenly to represent 35% rather than 25% of overall portfolio and thus triggering a re-balance?

[jarjarM]

Congrats on your successful "gamble"! Your SWR, 3%, is fairly reasonable for most and it sounds like you will have flexibility with it. Your biggest risk is really how to deleverage from such concentrated position in TSLA and the tax implication (at least you're not in CA ). I would bite the bullet and moving a good portion of it to index fund in the next 12 months (especially if your W2 income is lower starting this year).

[jarjarM]

BTW, if you change the title to something like "retired off TSLA options, plan review and question", you'll get a lot more traffic here

[roguewarrior0]

lol...good call out. I realize what I did wasn't in keeping in Boglehead spirit, but I am learning. Updated title per your advice.

Any advice on my other questions?

[aristotelian]

Not much to say but wow. Too bad you did the TSLA in the traditional IRA's instead of Roth, but taxes are a good problem to have I guess.

[TheTimeLord]

Congrats.

[dziuniek]

All my play money is always losers, guess I gotta chase the trend more.

[J295]

Early retired 8 years ago at 53 doing it the old-fashioned tortoise way .... and just want to give you a huge shout out… This is so cool !!!

I just skimmed your thread, knowing I was really just good for a shout out of congrats.

I do have one question though, and apologizing if it’s covered above, but asking now: Is your current financial success locked in/insured in such a way that regardless of what happens with the Tesla stock and options you will still be able to move forward with full retirement six months from now?

[EfficientInvestor]

A couple questions/thoughts:

1. Why don't you close out of the TSLA positions in the retirement accounts immediately?
2. Have you held the taxable TSLA holdings longer than 1 year? If so, won't you be paying the same long term capital gains rates on the gains whether you close the positions in 2021 or 2022? If that is the case and you'll pay the same tax either way, why don't you go ahead and close out all of those and take the concentrated risk off the table?
3. If you feel compelled to continue to hold, have you considered buying some puts and turning your covered calls into collars so you can better lock in a worst case scenario?

[TropikThunder]

A couple questions/thoughts:

1. Why don't you close out of the TSLA positions in the retirement accounts immediately?
2. Have you held the taxable TSLA holdings longer than 1 year? If so, won't you be paying the same long term capital gains rates on the gains whether you close the positions in 2021 or 2022? If that is the case and you'll pay the same tax either way, why don't you go ahead and close out all of those and take the concentrated risk off the table?
3. If you feel compelled to continue to hold, have you considered buying some puts and turning your covered calls into collars so you can better lock in a worst case scenario?

+1. Seriously, how much quality of life difference could there be between $8.5M and $9.7M? It's not like Musk is the most stable genius in the world ...

Current portfolio: $8.5m
Target portfolio @ retirement: ~$9.7m

[Samosa22]

Commenting to "bookmark" the post so occasionally I can enjoy the gain porn.

[CardinalRule]

A couple questions/thoughts:

1. Why don't you close out of the TSLA positions in the retirement accounts immediately?
2. Have you held the taxable TSLA holdings longer than 1 year? If so, won't you be paying the same long term capital gains rates on the gains whether you close the positions in 2021 or 2022? If that is the case and you'll pay the same tax either way, why don't you go ahead and close out all of those and take the concentrated risk off the table?
3. If you feel compelled to continue to hold, have you considered buying some puts and turning your covered calls into collars so you can better lock in a worst case scenario?

Completely agree on the collar. And why hold onto options that are so deep in the money? At a minimum, roll into an at-the-money call and withdraw your capital.

[megabad]

1) I realize 60/15/25 is really aggressive, but given the 45+ year retirement horizon I need a more aggressive plan. Also given 3% wd rate, it looks "safeish". ERN site seems to support that would work indefinitely, but still concerned. I would really appreciate feedback here?

I would feel ok at that allocation with $10 million but this is really a personal question about your own risk tolerance.

2) With the tax implications of TSLA stock sale in my taxable brokerage, would it be better to continue delaying TSLA sale via rolling options (riskier) or bite the tax bullet (my current plan) and move into Index funds in my brokerage (primarily Total Stock in brokerage)?

Hard to say what I would do without knowing the tax liability. If we are just talking LTCG taxes, than I would likely start exiting positions immediately. Are you just hoping to drop down from 23.8% to 15% or is there more to it? As others mentioned, I can’t see much reason to not close out the IRA positions soon. This would reduce overall exposure even if you hold on to a few of the taxable holdings for a while.

3) Annual 250k usage, I plan on keeping the $250k that I use in MM (VMFXX) and replenishing that amount annually to MM (VMFXX). Is there a better vehicle to store funds for annual living expenses?

Not sure I understand? Is this an emergency fund? If so, than a money market fund is fine for that I would say.

4) With $1m in upcoming liabilities ($900k tax, $100k car), would these monies best be served to be set aside in MM as well? My current plan is to have them invested in AA model I laid out (60/15/25).

Yeah I think it is probably easier to just think of that as already lost money and focus on creating your asset allocation separately. I would have it in money market I think.

5) Rebalancing - Do folks typically re-balance strictly based on calendar (for me January and July) or do you also potentially re-balance based on allocation changes? Example, Bond fund grows suddenly to represent 35% rather than 25% of overall portfolio and thus triggering a re-balance?

I use bands, but either way works I think. I think someone posted a study once that showed rebalancing more often makes little difference in long term risk adjusted performance.

[roguewarrior0]

Thanks to all the great replies and questions. Let me address them below.

I do have one question though, and apologizing if it’s covered above, but asking now: Is your current financial success locked in/insured in such a way that regardless of what happens with the Tesla stock and options you will still be able to move forward with full retirement six months from now?

I feel super solid that it locked in as expect TSLA to stay above $550 between now and then. If TSLA dropped back to say $300's, I would likely have to reconsider.

A couple questions/thoughts:

1. Why don't you close out of the TSLA positions in the retirement accounts immediately?
2. Have you held the taxable TSLA holdings longer than 1 year? If so, won't you be paying the same long term capital gains rates on the gains whether you close the positions in 2021 or 2022? If that is the case and you'll pay the same tax either way, why don't you go ahead and close out all of those and take the concentrated risk off the table?
3. If you feel compelled to continue to hold, have you considered buying some puts and turning your covered calls into collars so you can better lock in a worst case scenario?

1. Honestly, I just didn't think of it. Thanks for the suggestion, I just always had in my mind that I was going to let the Calls expire and TSLA get called away. But you are right, there isn't a tax implication so why not. I did some quick math and if I do it now my IRA's will be $5.2m, if I wait until 6/2021 it will be $5.45m. So $250k difference for piece of mind vs 6mts or risk that TSLA stays above $550.

2. No, I have only held TSLA for a short time. It will not reach 1 year until 2022. Part of the reason I am choosing to hold.

3. I do NOT know anything about Collars. So buying some Puts against my Covered Call would be totally new to me. I will do some research on this immediately. Again thanks for the suggestion.

+1. Seriously, how much quality of life difference could there be between $8.5M and $9.7M? It's not like Musk is the most stable genius in the world ...

Current portfolio: $8.5m
Target portfolio @ retirement: ~$9.7m

$1.2m will make a pretty big difference. Majority of that change will come out of Taxable account. Since I will only be 47, I will need my taxable to last me until 60 before I start withdrawing from Retirement. Also, $1.2m represents $36k/year in spending @ 3% rate. Again my biggest fear is running out of money and having to try to resurrect my career after stepping out for years.

3) Annual 250k usage, I plan on keeping the $250k that I use in MM (VMFXX) and replenishing that amount annually to MM (VMFXX). Is there a better vehicle to store funds for annual living expenses?

Not sure I understand? Is this an emergency fund? If so, than a money market fund is fine for that I would say.

At the start of my retirement (7/1), I will deposit $250k cash in MM (VMFXX) in addition to the existing $60k there now. During the year, I will withdraw from this account to pay for expenses. Each subsequent year @ 7/1 during re-balancing, I will deposit 250k into that same MM to support the following year's expenses.

Does that answer the questions?

[jarjarM]

You should look into Roth conversion ladder as a way to start getting money out of the IRA (or you going to hard hit by RMD).

https://www.madfientist.com/how-to-acce ... nds-early/

[pseudoiterative]

Congratulations on your complex but profitable TSLA position!

To get a better understanding of your portfolio's sensitivity to TSLA share price I've attempted to compute the value (of the TSLA component) as a function of hypothetical TSLA share price:



I've naively valued the long and short call options by intrinsic value only, there's no component for time and volatility. So this is not accurate but hopefully good enough to communicate the rough picture.

From the picture it is pretty clear that your position has very limited upside if TSLA's share price goes up, and potentially a lot of downside if TSLA's share price drops below $500 / share.

Given TSLA's share price in the trailing 52 weeks has been in the range of [$70, $900], if this were my portfolio I'd be a concerned about the odds of TSLA share price heading back down into the $70 end of that range. What odds to you give share price of falling back to $100 / share? 1 in 10? 1 in 100?

Another way to frame a decision is to focus on two competing goals of (i) retiring in July 2021 and (ii) retiring with enough assets to sustain $250k/yr withdrawals from a portfolio with 3% real return. TSLA share price is a factor completely outside your control. Suppose it were to drop to $100 / share before you could exit position. Which goal is more important? Retiring this year or retiring with enough assets to sustain $250k / yr? If former goal is more important, given your retirement expenses are largely in control of your family, is there a lesser withdrawal rate that would still be acceptable if you could guarantee a fixed retirement date in 2021 independent of whatever the TSLA share price does?

If latter goal of being able to sustain $250k / yr withdrawal is more important, suppose TSLA share price goes to $100. How many more years of corporate life would you need to work to regain that $7.5m pre-tax drop in net worth?

[Samosa22]

...
2. No, I have only held TSLA for a short time. It will not reach 1 year until 2022. Part of the reason I am choosing to hold.
...

Congrats on your financial success. Just curious, your statement implies you started investing in TSLA earlier this year (41 days ago at the most). I thought majority of Tsla's stock price appreciation happened in 2020. What $ was your initial investment in TSLA?
Or does your above statement only apply to taxable account?

[pseudoiterative]

5) Rebalancing - Do folks typically re-balance strictly based on calendar (for me January and July) or do you also potentially re-balance based on allocation changes? Example, Bond fund grows suddenly to represent 35% rather than 25% of overall portfolio and thus triggering a re-balance?

It is a sound idea to rebalance portfolio triggered by allocation drifting far away from your target allocation. Or even if you don't have a target allocation, it is probably a reasonably sound idea to rebalance portfolio when the composition of your portfolio has changed wildly due to asset price fluctuations. Given any reasonable portfolio target allocation (apart from "90% TSLA") you would rebalance now after 8x price appreciation (or whatever it has been exactly) of the asset that now accounts for 90% of portfolio.

For example, suppose when you entered TSLA position your chosen target allocation was: 40% TSLA, 40% other stock, 20% bond. Classic 40/20/20 . Now it is 90% TSLA 10% other stuff. So there's a massive tracking error between your target allocation and your actual, that should prompt a rebalance.

[megabad]

3) Annual 250k usage, I plan on keeping the $250k that I use in MM (VMFXX) and replenishing that amount annually to MM (VMFXX). Is there a better vehicle to store funds for annual living expenses?

Not sure I understand? Is this an emergency fund? If so, than a money market fund is fine for that I would say.

At the start of my retirement (7/1), I will deposit $250k cash in MM (VMFXX) in addition to the existing $60k there now. During the year, I will withdraw from this account to pay for expenses. Each subsequent year @ 7/1 during re-balancing, I will deposit 250k into that same MM to support the following year's expenses.

Does that answer the questions?

Not a big deal I guess but why? This seems artificially complicated. Why not just think of your portfolio as one and just take the 250k out of your overall portfolio as needed? Otherwise you are likely to be skewing your allocation across the year (not hugely but still seems unnecessary).

[Hiker8]

Congrats on your success, but I’m a little confused about your tax situation. When did you buy TSLA in your taxable account? You stated above that you are worried about holding until 2022 in order to lock in LTCG, correct? The price of TSLA has been essentially flat since start of year. Perhaps check your purchase date? You may not have a large tax hit.

Speaking of taxes, what are the large tax liabilities of approximately $1m derived from?

[megabad]

Speaking of taxes, what are the large tax liabilities of approximately $1m derived from?

OP clarified that they are short term gains. TSLA has quadrupled in value in the short term. Depending on the option, that could be multiplied again. It would be relatively easy to hit $1 million in tax liability at ordinary rates in this case.

[Hiker8]

I get that, but if the OP must hold until 2022 in order to lock in those gains doesn’t that imply a fairly recent purchase? The stock price was only 10% less than it is now on the first trading day of the calendar year. Any purchase made after Jan 7th and the OP would have unrealized losses. Apologize for being difficult, just trying to understand.

[megabad]

I get that, but if the OP must hold until 2022 in order to lock in those gains doesn’t that imply a fairly recent purchase? The stock price was only 10% less than it is now on the first trading day of the calendar year. Any purchase made after Jan 7th and the OP would have unrealized losses. Apologize for being difficult, just trying to understand.

I could have read it wrong but I read it to mean that OP exercised options this year already and has a bunch of short term realized gains. OP still has a bunch of TSLA and other calls and was asking whether it would be wise to roll options until he gets out of this year. Two separate issues.

[roguewarrior0]

Sorry let me clarify, when I said this year, I meant within the last 12 months. I purchased TSLA and Long TSLA Call Options within the last 12 months (primarily June - September 2020). Additionally, I sold or rolled Calls as recently as January 2021. The tax liabilities for the capital gains are based on these dates. Currently, my short term capital gains is just over $2.1m in taxable account. I will totally free & clear to use LTCG in mid-late 2022 across all of holdings in my taxable brokerage.

On the other question:

3) Annual 250k usage, I plan on keeping the $250k that I use in MM (VMFXX) and replenishing that amount annually to MM (VMFXX). Is there a better vehicle to store funds for annual living expenses?

Not sure I understand? Is this an emergency fund? If so, than a money market fund is fine for that I would say.

At the start of my retirement (7/1), I will deposit $250k cash in MM (VMFXX) in addition to the existing $60k there now. During the year, I will withdraw from this account to pay for expenses. Each subsequent year @ 7/1 during re-balancing, I will deposit 250k into that same MM to support the following year's expenses.

Does that answer the questions?

Not a big deal I guess but why? This seems artificially complicated. Why not just think of your portfolio as one and just take the 250k out of your overall portfolio as needed? Otherwise you are likely to be skewing your allocation across the year (not hugely but still seems unnecessary).

I was specifically excluding it from my portfolio because in case of a sudden drop I didn't want to be in a position to liquidate any of the holdings on the low. If I replenish 1x year at a scheduled re-balancing, I would at least get to defer that risk of selling low to fund annual expenses.

How are others managing taking out money out of their portfolio's during retirement?

[F150HD]

Commenting to "bookmark" the post so occasionally I can enjoy the gain porn.

lol ....well, no one will ever post a "I lost 9.7 mil" thread.

[000]

For one thing I don't think I'd wait for long term capital gains to hit before diversifying at least somewhat.

[megabad]

Commenting to "bookmark" the post so occasionally I can enjoy the gain porn.

lol ....well, no one will ever post a "I lost 9.7 mil" thread.

You’d be surprised. There have been some pretty spectacular loss threads. One that I remember started around late 2007...obviously that got interesting a short while later.

PS. Remember you can always click Subscribe on the topic to be alerted of new posts in this thread.

[Hiker8]

Sorry let me clarify, when I said this year, I meant within the last 12 months. I purchased TSLA and Long TSLA Call Options within the last 12 months (primarily June - September 2020). Additionally, I sold or rolled Calls as recently as January 2021. The tax liabilities for the capital gains are based on these dates. Currently, my short term capital gains is just over $2.1m in taxable account. I will totally free & clear to use LTCG in mid-late 2022 across all of holdings in my taxable brokerage.

On the other question:

3) Annual 250k usage, I plan on keeping the $250k that I use in MM (VMFXX) and replenishing that amount annually to MM (VMFXX). Is there a better vehicle to store funds for annual living expenses?

Not sure I understand? Is this an emergency fund? If so, than a money market fund is fine for that I would say.

At the start of my retirement (7/1), I will deposit $250k cash in MM (VMFXX) in addition to the existing $60k there now. During the year, I will withdraw from this account to pay for expenses. Each subsequent year @ 7/1 during re-balancing, I will deposit 250k into that same MM to support the following year's expenses.

Does that answer the questions?

Not a big deal I guess but why? This seems artificially complicated. Why not just think of your portfolio as one and just take the 250k out of your overall portfolio as needed? Otherwise you are likely to be skewing your allocation across the year (not hugely but still seems unnecessary).

I was specifically excluding it from my portfolio because in case of a sudden drop I didn't want to be in a position to liquidate any of the holdings on the low. If I replenish 1x year at a scheduled re-balancing, I would at least get to defer that risk of selling low to fund annual expenses.

How are others managing taking out money out of their portfolio's during retirement?

Thanks for clarifying the ST vs LT gains. I’ll let others with more option experience provide their input. Personally, I’d sell the options and deal with the taxes. However, if your adequately hedged you may be fine to hold with limited risk. Best of luck!

[LeftCoastIV]

From a behavioral perspective, do you think you'll be able to transition from high-risk investing to boring 3-fund Bogleheads? I'm thinking you may need an outlet in the form of a play-money allocation.

[bgf]

you've done exceedingly well and should run to your broker like a masked man with a chainsaw is chasing you. i know that you think your covered calls are 'reasonably safe' but that is far more risk than you have any NEED to bear. i would close out all positions immediately that you do not intend to hold through retirement. tax consequences are completely irrelevant. you made bank, you pay the taxman. you, right now, with no need for more risk or gains can retire for the rest of your life. any legitimate threat to that, even if deemed 'reasonable', is too much. cut and run. live your retired life in peace.

[F150HD]

You’d be surprised. There have been some pretty spectacular loss threads. One that I remember started around late 2007...obviously that got interesting a short while later.

PS. Remember you can always click Subscribe on the topic to be alerted of new posts in this thread.

Am already aware of all of that. Mammouth loss threads (9.7million+) are not common (unless I missed all of them) and as has been stated 1000s of times on this board - folks usually talk about their 'winners' and not their 'losers'.

Moving on as to not derail this thread. Thanks.

[dziuniek]

A couple questions/thoughts:

1. Why don't you close out of the TSLA positions in the retirement accounts immediately?
2. Have you held the taxable TSLA holdings longer than 1 year? If so, won't you be paying the same long term capital gains rates on the gains whether you close the positions in 2021 or 2022? If that is the case and you'll pay the same tax either way, why don't you go ahead and close out all of those and take the concentrated risk off the table?
3. If you feel compelled to continue to hold, have you considered buying some puts and turning your covered calls into collars so you can better lock in a worst case scenario?

+1. Seriously, how much quality of life difference could there be between $8.5M and $9.7M? It's not like Musk is the most stable genius in the world ...

Current portfolio: $8.5m
Target portfolio @ retirement: ~$9.7m

He's the 2nd most stable-st genius

[random_walker_77]

Keep in mind that Long term vs Short term gains don't matter in your tax-deferred accounts. In the interests of diversification and capital preservation, I'd strongly urge closing out the TSLA positions in your IRAs. No sense in losing a life-changing amount of money.

For the net $3M in taxable, why not sell and close out the options? In fact, why not close out most of that TSLA position entirely? The difference between ST and LT here is, what, about $300K. Don't worry about losing the money to taxes. Loss-aversion works both ways, and Murphy's law says that if you try to save the $300K in taxes, you're going to lose much more than that from holding TSLA. Or at least that's what happens to me every time I let the <tax> tail wag the dog.

[newguy123]

Just wondering, when you decided to yolo into Tesla, what was your goal ? Was it to get rich or just for fun?

[Samosa22]

OP; which options you plan to buy next? Asking for a friend.

[roguewarrior0]

Thanks for the great replies. I am doing some math and will reply back with answers and details on Saturday.

[roguewarrior0]

First of all to everyone who suggested closing out my TSLA positions in Retirement Accounts.

• That is brilliant....totally something I wasn't considering. My plan was to let it go until they naturally got called away in June 2021. Essentially I would free up ~$5m to move Total Int'l Index and Total Bond Index.

• I ran the numbers and I can close the TSLA position in retirement for essentially 3.2% cost. Also with 4 1/2 months until end of June, assuming 8% return, that would mean an 60/15/25 would yield about 2.67% so just about cover TSLA exit with a heck of lot less risk.

On the other recommendation on closing out my TSLA positions in my Taxable accounts.

I appreciate the advice but I just can't wrap my head around selling out of my TSLA position in taxable accounts. 2 key reasons.

• Value of account Now vs 2022 = $3.1m vs 3.9m. This is $800k (20%) in basic growth in 18 months.

• After calculating the taxes here is what the after tax values would be Now vs 2022 = 2.7m vs 3.6m. This is $900k for a 32% difference. Despite more gains, the 20% LTCG rate is too hard to ignore. Boglehead are also about minimizing taxes.

My Calls are set for June/Sept of 2022 at $550/$500. With TSLA @ $815/sh now. 550/815 = 67%. Put another way, I have better than 67% chance to make 900k by doing nothing other than staying the course. This is different from my IRA (3%) vs (32%).

Worst case I can always pull the parachute as its dropping. If I close the position anywhere near $550ish, I am still golden.

Just wondering, when you decided to yolo into Tesla, what was your goal ? Was it to get rich or just for fun?

My goal was to make some short term cash via Covered Call 5 weeks going into June 2020 Earnings, 4000sh @ $315/sh. At the time, the Calls would have yielded 20% return. As luck would have it, the Earnings was disappointing so the TSLA dropped 5% after earnings. Since I got to keep the Call Premium, I decided to double down and then bought $280 TSLA Calls to gain leverage on TSLA.

I never dreamed it would take off the way it did. So I kept adding to position and then sold more Calls and converted the Call Premium to more shares. I kept rolling the Calls and again used Call Premium to buy more shares. That was my fly wheel. Now it time to get off the bus.

By the way I am a big believer in the company. I got my Tesla Y in May 2020 and it is amazing. Tesla Y actually costs less than Lexus RX350 which is just nuts.

From a behavioral perspective, do you think you'll be able to transition from high-risk investing to boring 3-fund Bogleheads? I'm thinking you may need an outlet in the form of a play-money allocation.

That one is truly interesting. My wife asked me the same. First I know this was super risky that I got lucky. I will also admit I got my teeth kicked in 2000 & 2008. It was worse then because I was on margin and had multiple margin calls in those days. This time I didn't do margin. I will ABSOLUTELY step away...no need for a 3-peat. I've been reading all the various Boglehead books (actually via Audible) to learn and not repeat my mistakes. I started with Bogleheads: Introduction to the 3 Fund Portfolio. So I am easing my way there. By this time next week, thanks to the forum, I will have my retirement side (65%) moved to 3 Fund portfolio and don't plan on looking back.

OP; which options you plan to buy next? Asking for a friend.

lol....per above. I am getting out individual stock business.

[jatwell]

I would be interested in the math around options to protect your taxable amount vs the taxes you would pay if you cashed in right now.

Why not run the math on a few scenarios?

When you're talking this much $, you need to have a plan for whatever happens and exact exit points/strategies if things go south.

If Tesla did go to $100, would you be wiped out? Figure out the collar someone mentioned up thread?

Options would be "buying insurance" against this downturn happening but they come with a cost. If that cost is less than taxes on cashing out now, easy decision.

I would definitely "buy the insurance" in this case though. You really need to fully understand the available ways to limit your downside.

I find this aspect really interesting and don't fully understand it. If I was in your position though, I would either figure it out immediately or pay someone to fully explain it to me ASAP.

If I could pay $500k to guarantee I never lose more than 10% of the $5M until LTCG rate is available vs $900k in extra taxes to cash out now, easy decision most likely.

What if Tesla goes to $100 before LTCG rates hit? That $900k in taxes you "saved" cost you $MMs.

No way I'd take that risk of I had a way to protect against it for a cost. You need to quantify that cost.

You can put real numbers around these scenarios, I definitely would immediately to figure out your absolute worst case.

Your worst case should be cashing out now ($900k difference in taxes if share price stays the same).

Seems like you have way more downside with your plan of waiting without any insurance.

[pbjmachine]

My goal was to make some short term cash via Covered Call 5 weeks going into June 2020 Earnings, 4000sh @ $315/sh. At the time, the Calls would have yielded 20% return. As luck would have it, the Earnings was disappointing so the TSLA dropped 5% after earnings. Since I got to keep the Call Premium, I decided to double down and then bought $280 TSLA Calls to gain leverage on TSLA.

I never dreamed it would take off the way it did. So I kept adding to position and then sold more Calls and converted the Call Premium to more shares. I kept rolling the Calls and again used Call Premium to buy more shares. That was my fly wheel. Now it time to get off the bus.

Would you mind explaining the flywheel you speak of a bit more with numbers and more details? Would just love to learn more about the strategy you used.

Were you using premium to buy calls or actual shares? How far out were the covered calls you would write? With the share price rising, if you were rolling into new higher strike price covered call wasn’t that eating into the premium and thus your capital for more shares? Again would just love to learn more here.

On your long calls position, how far out were you typically going for and what not?

Thanks and congrats!

[roguewarrior0]

Thanks everyone. I appreciate the great advice. Here are the takeaways for me.

• I will close out my TSLA positions in Retirement Accounts and move those to the 3 Fund Portfolio

• Read about the Roth IRA ladder for the IRA conversion. Super brilliant idea to reduce taxes going forward

• Looking into Puts/Collars for my TSLA positions in taxable. Preliminary review, I likely will accept the risk and stay with position until 2022, but will continue to learn.

Around how I used Options to get to my current point, I will open up a separate thread to get into in under Investing - Theory Forum. Please keep in mind I subscribe to the Boglehead 3 Fund Portfolio as the best idea, but happy to discuss my flawed premise. I will attach a link here once, I complete that post.

[000]

To my understanding, if one buys a put on a stock held less than a year in taxable, that resets the short term capital gain clock.

[roguewarrior0]

Thanks everyone for the input. I definitely learned from the collective and have done the following. I have closed 40% of my TSLA positions (all in Retirement accounts). I have not changed my TSLA in my taxable accounts.

My goal now is to unwind my individual stock exposure to 3 Fund portfolio and go time tested plan and re-balance semi-annually. I expect to live off of $250k/year.

My AA is now 60%/15%/25% -
25% - Total Bond (2.17m)
15% - Total Int’l ($1.36m)
12% - Total Stk (936k)
48% - Stock Primarily TSLA

With the TSLA, I will unwind in 6/2022 or if TSLA drops below $600, whichever comes first. I just can't take the hit on taxes.

Thanks again, I will check again then.

[hoofaman]

Thanks everyone for the input. I definitely learned from the collective and have done the following. I have closed 40% of my TSLA positions (all in Retirement accounts). I have not changed my TSLA in my taxable accounts.

My goal now is to unwind my individual stock exposure to 3 Fund portfolio and go time tested plan and re-balance semi-annually. I expect to live off of $250k/year.

My AA is now 60%/15%/25% -
25% - Total Bond (2.17m)
15% - Total Int’l ($1.36m)
12% - Total Stk (936k)
48% - Stock Primarily TSLA

With the TSLA, I will unwind in 6/2022 or if TSLA drops below $600, whichever comes first. I just can't take the hit on taxes.

Thanks again, I will check again then.

If your no longer bullish on Tesla and you just want to wait for the 1 year holding period, why not just wrap your long calls in the taxable account with option collars to lock in your gains?

https://www.investopedia.com/terms/c/collar.asp

[roguewarrior0]

I am still bullish on TSLA, but did want to reduce my exposure especially with me looking to retire in such a short time. I looked into a Collar for the Covered Call positions. Since my Covered Calls are already Deep in the Money, the additional Puts don't really gain me that much. Buying the PUT's for all of my remaining Covered Calls would cost ~$1m, which would more than negate my profits. Also, I don't have $1m in cash now, so I would have to go into margin, which is a non-starter for me.

With the average strike of my Covered Calls @ $525 and TSLA currently trading @ $780, that gives me $250 or 30% cushion for the next 18 months. I am comfortable with that. Assuming everything works to plan, my Taxable Account will then be worth $3.9m.

Unwinding my CC's or buying the Puts now will cost me at least $1m now. TSLA is a stock I believe will be worth more than the $780 it is now let alone $550. So I will stay the course until they get called away.

Once they get called away, I will be 3 Fund portfolio exclusively in retirement.

[random_walker_77]

With the TSLA, I will unwind in 6/2022 or if TSLA drops below $600, whichever comes first. I just can't take the hit on taxes.

Practically speaking, how are you deciding to back out at $600? Are you going to have an order to automatically sell if it drops to $600? On a volatile day, it could briefly touch that point and pop back up. Are you going to sell only if it drops below $600 and stays there? A price movement that large could easily drop all the past $500. Or just wait until expiration no matter what?

Today's range was $620 - $709, now back up to $690. It's one thing if you're taking the long bet because you think putting this money at risk is worth the gamble for larger returns. But if it's because of taxes, it could end up being a case of cutting off your nose to spite your face!

I guess the other way to play this, if you're very bullish, is to close out the derivatives and take a long position. It eliminates the leverage but gives you a more linear returns curve. Or purchase out-of-the-money calls, if you want to place a bet on a sharp price increase

[market timer]

With the TSLA, I will unwind in 6/2022 or if TSLA drops below $600, whichever comes first. I just can't take the hit on taxes.

With Tesla at $581, have you unwound the position? The covered call just got quite a bit riskier after the 30+% drop.

[roguewarrior0]

I have unwound all of my TSLA that is in my retirement accounts as there were no tax implications. On the taxable side, I still have the same position and am still planning to ride it out. Below is from the original post around my holdings

Taxable (unchanged)
Pre-Retirement ($3m) 35.3% of Portfolio
$4.533m 5,595sh Tesla (TSLA)
$2.23m Long 40 Calls @ $280 9/16/22 Tesla (TSLA)
-$1.94m Short 45 Calls @ $500 9/16/22 Tesla (TSLA)
-$1.89m Short 50 Calls @ $550 6/17/22 Tesla (TSLA)

TSLA = $571/sh
TSLA $550 6/17/22 call = $188

So to unwind my position would net out @ $383 share/price. My original cost basis was around $315. I would rather ride this out. I purchased TSLA as I believe it has long term viability. It ran to moon and is starting to come down again. However, I am still content to hold it 2022 before I convert this portion to the 3 Fund portfolio.

[CardinalRule]

With the TSLA, I will unwind in 6/2022 or if TSLA drops below $600, whichever comes first. I just can't take the hit on taxes.

With Tesla at $581, have you unwound the position? The covered call just got quite a bit riskier after the 30+% drop.

That cushion has definitely diminished.

[Peaceful]

I have unwound all of my TSLA that is in my retirement accounts as there were no tax implications. On the taxable side, I still have the same position and am still planning to ride it out. Below is from the original post around my holdings

Taxable (unchanged)
Pre-Retirement ($3m) 35.3% of Portfolio
$4.533m 5,595sh Tesla (TSLA)
$2.23m Long 40 Calls @ $280 9/16/22 Tesla (TSLA)
-$1.94m Short 45 Calls @ $500 9/16/22 Tesla (TSLA)
-$1.89m Short 50 Calls @ $550 6/17/22 Tesla (TSLA)

TSLA = $571/sh
TSLA $550 6/17/22 call = $188

So to unwind my position would net out @ $383 share/price. My original cost basis was around $315. I would rather ride this out. I purchased TSLA as I believe it has long term viability. It ran to moon and is starting to come down again. However, I am still content to hold it 2022 before I convert this portion to the 3 Fund portfolio.

If you choose to continue to speculate with the TSLA options rather than close them out, it might be better off not to view them as part of your "retirement portfolio" at all. It seems to me "retirement" implies you're not actively trading with a substantial portion of your assets. So, you should have the "retirement portfolio" and the "active trading" portfolio. If you would be fine "retiring" on the "retirement portfolio" plus whatever you would net should the "active trading" portfolio might be worth in the worst-case scenario (not what you think the worst case scenario is, but the mathematical worst case scenario) then it's fine.

[market timer]

I have unwound all of my TSLA that is in my retirement accounts as there were no tax implications. On the taxable side, I still have the same position and am still planning to ride it out. Below is from the original post around my holdings

Taxable (unchanged)
Pre-Retirement ($3m) 35.3% of Portfolio
$4.533m 5,595sh Tesla (TSLA)
$2.23m Long 40 Calls @ $280 9/16/22 Tesla (TSLA)
-$1.94m Short 45 Calls @ $500 9/16/22 Tesla (TSLA)
-$1.89m Short 50 Calls @ $550 6/17/22 Tesla (TSLA)

TSLA = $571/sh
TSLA $550 6/17/22 call = $188

So to unwind my position would net out @ $383 share/price. My original cost basis was around $315. I would rather ride this out. I purchased TSLA as I believe it has long term viability. It ran to moon and is starting to come down again. However, I am still content to hold it 2022 before I convert this portion to the 3 Fund portfolio.

Should be a very interesting ride. I see TSLA just touched $550. It is a long way from now until June/Sep 2022. Good to hear that the retirement accounts have now been diversified.