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Applying options strategy 'the wheel' to TSLA

Discussion in 'TSLA Investor Discussions' started by adiggs, Apr 16, 2020.

  1. LN1_Casey

    LN1_Casey Draco dormiens nunquam titillandus

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    Eh, I may regret this in the future, but I sold the put-purchased shares at $802. As my cost basis with the put premium, and the call premium rounded down the total cost to about $765, it's still profitable (unless the interest slaughtered me). Just a bit disappointing.

    I sold mostly because I really, really don't want to keep paying margin interest. I'd rather sell another long term put, which, since my margin cleared up with the sale, I sold a $500 strike March 21 put for a neat $400. Pocket change, but since I have the other Jan 22 put still active, my margin limits has diminished enough to not be able to get a closer strike. I may cover it if there is a run up of Tesla. It's free real estate. ;)
     
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  2. UltradoomY

    UltradoomY Member

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    Sleeping well is a cost that can't be measured - so that plus a profit is always good.
    Probably a good exercise to calculate how much interest you actually paid for the duration vs. exposure and total margin tie up for the future to help you sleep better then with a little more out there.
     
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  3. LN1_Casey

    LN1_Casey Draco dormiens nunquam titillandus

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    I tried running an experiment with that last month. Unfortunately, my schemes were foiled by TSLA being TSLA, and my neat week hold/sell of 10 shares was not so neat in the end. The cleanest calculation I could figure from Jan's statement is, for $8.1k, I am charged $2.14 a day. So, for my initial margin of put-purchased shares, it was $24 a day, roughly. Pricey tomatoes! The life of a small time account.

    I don't know where on TDA it can give me current month interest, so I'll have to wait until Feb's statement comes out. So this whole two week experience may have actually pushed my profitable trades into the red. I did cover some margin through the calls and a long term put I sold, but still within a large amount.
     
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  4. ReddyLeaf

    ReddyLeaf Active Member

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    Tesla really needs to do a 2:1 split so that options aren’t so costly and to get the SP closer to $420.:D
     
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  5. adiggs

    adiggs Active Member

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    First off - many pages of posts have gone by and I haven't been contributing. This is a beneficial result of the 2 week expirations I am now using (not much to say for a week, and then contributions for a week while I'm updating from the old to the new positions). It's also a result of me arriving at day 5 of retirement and being distracted.

    As long as I'm counting the days of retirement, I figure I'm not really (mentally) retired. And I'm frankly not - there's this semi-conscious piece of my brain I don't exert direct control over that just knows this open ended vacation really isn't (open ended that is), and I'll need to be back at work on that project I left behind, any day now.

    I figure I'll get over that :)


    It's in the nature of strangles for one side to do well, while the other isn't.

    First is an update on that 760 covered call who's saga I've been documenting. That original 760 call rolled up to 770, then 775, then 805, and then 820 (the current strike). All of the initial positions were 1 week expirations - the last one was a 2 week roll with a Feb 19 expiration. This call is now OTM! First time since roughly 5 minutes after I sold it (exaggeration - it just seems like that). This call has been as deep as $100 or so ITM, and mostly in the $50-80 ITM range. But rolling up and out to buy time and a better strike has bought me enough time that it currently looks like it'll finish OTM. Its taken most of 2 months, but its getting there. With net credits / cash flow all along the way.

    The tricky bit on this option, is that all of the net credits have been accumulating in the premium of the current position. The current call was opened for a $78 premium. That's what was needed to offset the loss on the previous position (about a $75 premium when I rolled). That $78 option has decayed down to $13 premium. I could close now for an 80% (ish) gain on this latest position, but that would give back about 1/2 of all of the net credits I've collected along the way (I think it's been about $26 over this 2 months)

    So I'm going to continue watching and do nothing. The principle I'm applying (so I don't need to monitor credits really closely on every position) is that once a position has been rolled due to being ITM, then whatever I roll into I will hold all the way down to about a $1 premium remaining to make sure I realize all those net credits as profit. More to come on this one (in about a week I expect).

    The net today is an 855/820 strangle expiring Feb 19 - no change over the last couple of weeks, with both legs looking for time to pass.


    The second strangle I started up to test with - it started as an 820/875 and is now an 820/835. I rolled the 875 down to 835 today, keeping the Feb 19 expiration, and increased the open option premium by about $6. My thinking is that with only $2 remaining to decay over this final week to expiration, I wanted more premium to decay. This is an example of the 1 side doing well while the other leg generates a small amount of cash flow and otherwise marking time. The 820p is watching time go by while the 875c leg has banked $20 ($23 to open, $3 to close), leaving a new $8 position to replace it.


    My big position for Feb 19 expiration comes into today as an 855/900 strangle. I rolled the 900 call leg down to 840 for a net $6 credit ($8 instead of $2 left to decay for Feb 19), leaving me in an 855/840 strangle. I'd love for the shares to come up so that both legs are in line for an ITM finish; I'd roll them when time value is minimal and expect to get into my target leg on both sides, for a large net credit if that were to happen.

    As of today I'm watching that 855 put leg for when to roll. Today it still has $6 in time value, so I've decided to allow more time to decay. If I were to roll today to March 5th then I could roll to the March 5th 830 strike put for a $1.80 credit. Rolling straight out to the same strike would be a $17 premium. Due to my focus on risk reduction and income, I'd take the 830 strike and small net credit as the safer position if the shares were to continue down.

    The last time I identified one of these earlier roll opportunities and wrote about it I could have gotten a $10 better strike. Waiting when I have a good roll available now might not be a good idea (we shall see).
     
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  6. adiggs

    adiggs Active Member

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    My bigger picture view of TSLA today is that I expect roughly sideways trading until we get significant news. That could be economy level news. Mostly I expect it will need something significant around TSLA.

    The big share moving news I can forecast right now:
    - big FSD patch with significant improvement for beta testers
    - big FSD patch with distribution to a broad audience of Tesla car drivers
    - Q1 p/d report (early April)
    - Q1 earnings report (late April)

    There will be lots of other news along the way - it's the nature of Tesla / TSLA. Something may be significant as well, but these are what I see as reasonably likely and possibly significant.

    Therefore my guess-of-the-moment is we will continue with the sideways trading for another 1-2 month, where sideways (in my mind), is something like $750 - $850. Selling strangles as I am, I like sideways :) I've got no change in my 2030 timeframe view - 5 to 10x from here, so owning and holding with some risk of an early sale sounds great to me.


    Another way of thinking about my view on the current share price is that we've been at this level long enough that everybody that wants to own shares, now owns about as many as they want to own. For the shares to move up significantly from here, we need something to happen that causes significant new buyers to show up. And that's where the significant news will come in.


    Not advice or anything - just how I see things right now. An important component of why I write stuff like this down is to crystallize these thoughts for my own benefit as well as to provide me with something to look back at, compare to, and learn from.
     
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  7. SN_8

    SN_8 Member

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    Good list. I'd add 1) a new crazy high ARK price target, and 2) a Biden clean energy plan that benefits Tesla even more than expected.
     
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  8. wnorris

    wnorris Member

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    #2128 wnorris, Feb 13, 2021
    Last edited: Feb 13, 2021
    I hope you are right on the long term appreciation of 5x. :)

    @adiggs - have you thought about trading under an LLC as a way to reduce your tax burden now that you are retired? It would be a nice way of offsetting some of your expenses as well.

    I am planning to move back to the US (Raleigh) either this or next summer and possibly retire. This will be a good deal earlier than I originally planned and it feels a little strange to think about it. To give myself a little more purpose and structure I have started to consider transferring shares into an LLC account and pay myself a salary or portion of the profits as a way to fund retirement. This would be a way for me to pay for my families health care while also giving me a better way to contribute to retirement accounts. Note I have real estate and will be putting some funds into high yield plays for lower risk/consistent returns as well so I would not be entirely reliant upon selling options.

    Curious if anyone here is selling options as a core trading strategy in an LLC? @bxr140 - you seem to be doing this professionally. Before I go to a lawyer and tax professional I thought I would ask the group.
     
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  9. adiggs

    adiggs Active Member

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    heh - not even once have i thought about that :)

    A brief search got me here:
    Setting Up An LLC For Investing: Why And Where To Start

    My summary being - an LLC is a good way to pool your money with others (family members being a common instance) with a written agreement about how the investing happens, how contributions are made, sharing in the results - that sort of thing.

    I didn't see much in the way of a tax savings angle - maybe if proceeds are retained inside of the LLC, they don't get taxed until stuff gets withdrawn? I don't think that is right thought.


    One thing I've read a little bit about is a Charitable Trust. In my case, I think the charitable remainder unitrust will work best, but I've got a lot to learn before I pursue this.
    https://www.policygenius.com/trusts/how-to-start-a-charitable-trust/

    The primary thing that I want to learn, beyond the mechanics of setting one up (I'll hire somebody with expertise) is whether I can make the decisions about what and how the trust invests, preferably with an option to hire a trustee later on to replace me as the decision maker. I'm kind of a control freak about our investments :)

    I don't know a lot, but I do know that these won't work for assets that you want to leave to the next generation. This will be for assets that you want to leave to a non-profit when you pass. That's easy for my wife and I - we're leaving it all to non-profits when we pass.


    There are some other thread(s) here in the investor forum about these sorts of topics. I'll continue further discussion (if any) over to one of those.
     
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  10. wnorris

    wnorris Member

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    Yes, a Charitable Trust looks very enticing and may be an avenue I pursue in the future as well.

    If anyone is interested in learning more about setting up a trading business the below links are where I got the idea.

    Investopedia: Benefits for traders who incorporate - A nice high level overview of options and benefits

    Home Based Trader - Accounting resource for traders with a lot of the information in the Investopedia link.

    Webinar Download from IBKR - "How to setup a trading business" **Warning** this is a download link to a PPT for a 2017 webinar hosted by Interactive Brokers.

    Overall, a number of options exist for those looking to shift into options on a full time basis. There is definitely a lot more review that I need to do at this point, but the long term benefits are appealing. Hopefully this is helpful to anyone who may be interested in learning more.
     
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  11. bxr140

    bxr140 Active Member

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    Not full time trading, though ultimately that's the plan. Most of my big money trades are in my IRA--my individual brokerage accounts just get racked into my 1040 and like all the other schmucks here, I just pay The Stupid Tax.

    There are for sure benefits to incorporating as an individual trader, and if/when I stop ‘real work’ I will incorporate, but they’re really not there for a casual/retail trader who is just trying to beat The Man at the tax game.
     
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  12. dkemme

    dkemme Supporting Member

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    Full time trading is my retirement plan. Although I hope to retire in 6 1/2 y, after reading about half of this thread and watching most of Option Alpha's videos, I might need to work a bit longer to learn options...
     
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  13. JustMe

    JustMe Member

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    Try some real world practice on much cheaper stocks. Nothing like having real money on the line to help you appreciate how options prices can change day to day.

    Silly me - I started with Tesla options and immediately lost a few thousand dollars. But I’m making regular income nowadays.

    Good luck
     
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  14. adiggs

    adiggs Active Member

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    With the share drop this morning, I decided to close out the 840 leg of this strangle. That leaves me with only the 855 put expiring this Friday.

    I would ordinarily be replacing this with a March 5th covered call leg but am also sitting out for another day or 2 while we wait to find out about the mystery Berkshire investment. My feeling is that whether it's likely or not, the risk that it happens and pushes the shares up significantly is too high and worth waiting a day or 3 to find out. If the shares do go up significantly, then I can open a new covered call later in the week with that higher price as my starting point.
     
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  15. Discoducky

    Discoducky Happy owner of a P100D X and a brand new 2021 M3!

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    I went on another STO put spree today as the stonk fell. Grabbed several strikes from 790 to 770 with expiry this Friday and next. Going to do more tomorrow if this continues.

    Also, my outs from last week were assigned at 840 and 830 but can't wait to see the stonk surpass that soon enough.

    I'm thinking I'll be back to calls in March.
     
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  16. LN1_Casey

    LN1_Casey Draco dormiens nunquam titillandus

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    Yeah, with the fall this morning I was le sad that my margin is used up by a monthly put. Weeklies are just so much more engaging.
     
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  17. adiggs

    adiggs Active Member

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    The drop in the share price this morning pushed the time value on that 855 put to ~0 and I decided to roll. I'm pretty sure I caught the worst / lowest price of the day for the roll. In this case, I also elected to use some of the premium from the calls I wrote to fund a small net debit, to be able to roll to a lower strike. The net debit lowers my results for the Mar 5 window while still keeping the cash flow in a range that is better than I need it to be. Therefore spending some of the extra cash on a better put leg appeals to me.

    I rolled from this Friday 855 put to March 5 830 puts and paid just under $10 debit. I think I'd have rolled to 850 for a small net credit had I decided to stick to the net credit rule, but I feel a lot better being $20/25 closer to the share price.


    I would have probably had a better roll choice available if I'd waited for the end of the day and maybe tomorrow / next day, but I also didn't want to watch the shares keep going down. My earlier comment (yesterday or the day before?) about having a good roll option has, again, proven to be the right time to roll :).

    On the plus side, though the roll timing didn't provide all that great of a choice, by rolling when I did the position is already ahead on day 1 by 20%. It seems like this duality is arising constantly with these strangles - one leg is doing well while the other is doing poorly; poor timing on a roll is good timing for the initial direction on the option premium. And vice versa. I like this duality - it doesn't eliminate timing in my decisions, but it does simplify the role of timing in my decisions.

    After this roll, my big position for March 5th is an 830/845 strangle.


    I've got a couple of lingering small positions that I continue to use to explore these strangles that evolve each week. The 820 call that I've been tracking is still OTM and I'm continuing to let it age. That's the option that's been rolled repeatedly to keep it alive, and it sorta kinda looks like this week will be its resolution.

    Given that it finishes OTM, then I'll be creating a new .20 to .30 delta call to replace it with. And if it is inline to finish ITM, then I might let this one go. I feel like I've learned most of what I was hoping to learn, and I'd like to shift the share value / cash balance in that account towards cash a bit more.
     
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  18. adiggs

    adiggs Active Member

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    Hinted at in my previous post - something I'm starting to spend more time thinking about is the balance between share value and cash in my accounts. How do I get my calls and puts close to balanced week to week to make my decisions as non-directional as possible?

    For risk mitigation and income purposes, my current thinking is that I'd like my accounts to be roughly 50/50 share value / cash. I think that'll evolve to be closer to 40/60, with the 40/40 used to sell options, and the remaining 20% cash ready to spend on stuff.

    The main account is more like 70/30 though, so I'll be holding any new cash that arrives as cash (and using that to sell puts). I'm considering doing some selling (in the form of assignment on high delta covered calls) to lower the share count / value and build up the cash.


    The first reason for the 50/50 balance is that it provides strong mitigation to TSLA share price moves. At 50/50 any move up in the shares is a 1/2 move up in the account value. And a move down is a 1/2 move down. I.e. - a 5% share price move will see a 2.5% account move. This is the risk mitigation component and is my priority - I'll be well able to handle a 50% drop in the share price as the shares will be 1/2 as valuable, but not the cash.

    The second reason is that at a 50/50 value split, the number of calls and puts in the strangle will be nearly or exactly balanced. That will enable me to make decisions that are reasonably insensitive to what direction the shares will go in after the decision is executed. I like being insensitive to direction (because as I've proven again, I'm pretty good at picking the worst peaks and valleys for trading decisions).
     
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  19. bxr140

    bxr140 Active Member

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    Its worth noting that a short strangle/straddle gets progressively worse as price moves away from the balance point--the negative impact of the leg closer to the money will accelerate and the positive impact from the leg farther from the money will decelerate. (The opposite, of course, is true for long straddles/strangles). So, when doing maintenance on an ideally ∆ natural position, its better/safer to roll sooner rather than later, sacrificing profit (by rolling out/away) for protection. If price reverses you just roll back in and eat the B/A spreads.

    You can trade long straddles/strangles and be price insensitive, with the benefit of opening up more upside while limiting downside (relative to a short strangle). That's a much more logical play at low volatility than selling a straddle/strangle, as inevitably increasing IV will limit loss on the "bad" leg. It also makes the price breakout maintenance pretty straightforward--just pull the rip cord on the bad leg and let the good leg run. For mid-volatility realms, you can layer on shorter term, conservative straddles/strangles to offset cost/Vega/theta of the long legs, including non 1:1 ratios.

    Here's a random example of a long 800 straddle + 2x short strangles (or, if you like, a long double diagonal + 1 short strangle). That's a monthly on the shorts and 3 months on the long (the shorts can be weeklies or whatever and of course the longs can be LEAPs or whatever). The general idea is to bide time on the long legs by paying them down with the short legs; maintenance is basically the same as what you're doing. Ideally you're closing out the "bad" legs on price breakouts, giving your long call or put freedom to run.

    upload_2021-2-17_16-57-40.png
     
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  20. Lycanthrope

    Lycanthrope S3XY old dude

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    Well, I got 2x p842.50 assigned last week, then a margin-call that force-sold 61 shares to cover this week's p$845, the will almost certainly assign. I sold the odd 39 shares to have enough cash to cover.

    The last two weeks, I've been selling cc's on a Wednesday too, being relatively safe - last week 12x $852.50's, this week 10x $805 & 3x $825 - relatively small premiums, but counteracted by the volumes, so bringing in $8k per week, which isn't to be sneezed at? If they exercise, great, I prefer selling puts, given the choice

    I still have 17x March 19 cc780's, which were DITM a month back, but are now back in play. Again, I'm OK with them exercising it the SP hovers around the $800 range

    So plenty of money to be made even with IV a bit squished and the SP going down/nowhere
     
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