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Applying options strategy 'the wheel' to TSLA

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

  1. dl003

    dl003 Active Member

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    I also would rather deal with covered puts than covered calls because you can roll the puts down a finite number of time before it becomes OTM. Theoretically, the stock price can run up indefinitely and you'll never be able to catch up although it's rare.
     
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  2. st_lopes

    st_lopes Member

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    Had to close some 850p 03/05 yesterday due to margin reqs. Crystallizing that loss wiped out some (1/3) of my YTD premium winnings.

    Today’s continued bounce back was welcomed and gave me a chance to sell some 875p 04/16 (696 break even) which will make up for some of that loss if they expire OTM. I liked the break even and the fact that P&D would be out by then.

    Looking forward to tomorrow... CC rolling day! I’ll also be looking for opportunities to sell a few more puts, likely in to April, to claw back some of yesterday’s loss. Essentially rolling the 850p, just doing it in separate transactions.
     
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  3. bxr140

    bxr140 Active Member

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    The good news is there's no difference in sold put CGT vs an equivalent ITM CC--any gains/losses on the underlying are offset by gains/losses on the call. If the call was sold OTM then goes ITM and is executed, one does indeed pay CGT on the shares...but in that case one is making additional profit over an equivalent sold put so its still a net positive.

    And of course, one will pay CGT on the put shares once they are sold off (assuming they're sold at a gain)...so it all ends up net zero.

    More good news is that there's no actual difference in strategy when rolling an OTM sold put vs a ITM covered call.

    Agree that puts can offer higher premiums than equivalent calls, but its important to actually understand the actual numbers before jumping in. For a random example, right now a March 19 $700 put has a value [extrinsic, obviously] of $30.65 and a bid of 29.95, and would probably sell at $30.20 or so. A March 19 $700 call has an extrinsic value of $34.60 and a B/A spread of $1.25, so the worst case extrinsic value of $33.35 and a likely extrinsic value when selling of closer to $34. I can't speak for everyone here, but personally, I prefer the extra $300+ from selling the call than the put. ;)

    This is a common perception, but there's actually not a statistically relevant percentage of Monday rallies. Mondays are up more often than not with TSLA for sure, but its not like 75% of the time or anything. I did a quick study upthread (or maybe somewhere else here?) but over time, especially when 2020 is not considered, its a bit better than a coin flip that TSLA will be up on Monday.
     
  4. bxr140

    bxr140 Active Member

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    Unfortunately, this is explicitly not true. There's no material difference in rolling equivalent strike sold puts vs covered calls.
     
  5. Chenkers

    Chenkers Member

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    #2185 Chenkers, Feb 24, 2021
    Last edited: Feb 24, 2021
    We are not talking about small capital gains here. The CGT I would have to pay on some of these CC in Australia would be a serious sum of money, requiring me to liquidate more of my positions than I would like in order to pay the tax. I have different comfort levels that I'm prepared to use when choosing strikes for Puts and Calls and for me that means that I will generally favour Puts for the reasons I've outlined.
     
  6. samppa

    samppa Member

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    I'm still waiting to transfer my shares to interactive brokers.
    Here's a question: if I sell a put that's covered by margin on my shares, and it gets exercised, can I sell that lot of shares separately?
    Or will the sale be FiFo?
    Is there a way to have different lots of shares on IB? I'm just starting out with TWS and it's a bit overwhelming..
     
  7. bxr140

    bxr140 Active Member

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    Unless AU racks up CGT different for shares than contracts, the good news is that the only way you're paying more tax is if you actually earn more profit. I guess I don't want to speak for everyone, but in my experience most folks prefer to have the problem of "more gains = more taxes", regardless if they're earning $10k vs $12k or $10M vs $12M a year.

    And given that its just 'new' profit, there's no liquidation element to it, so no problem there.

    For sure, I can get behind subjective "comfort" type approaches to trading. I'd just encourage folks to take the time to really understand the intent of those subjective strategies lest they actually prove to be objectively antithetical.
     
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  8. juanmedina

    juanmedina Active Member

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    IV is going up, at 75 right now and a 550p is paying $7.
     
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  9. st_lopes

    st_lopes Member

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    Closed my 850c for pennies. Now have no active covered call positions. Will likely initiate new cc’s tomorrow.

    Also sold another 875p 04/16, though may need to close that tomorrow if price action puts me back in a margin call. Let’s see what impact Elon’s tweet, leaked email, and stimulus bill vote may have on stabilizing things.
     
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  10. ReddyLeaf

    ReddyLeaf Active Member

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    Here too. Closed my 802.50c near the end of the day for $0.22. I had it set at $0.20 but even that wouldn’t hit, so I eventually relented. SP at 680, a full 120 OTM and one day left. I swear I saw one sell at $0.17 while my $0.20 Sell order was valid. Crazy. I probably should have left it alone to expire Friday, but I wanted it closed so I could remove the possibility of having to cover at a higher price, thereby freeing up capital to buy a few shares at 680. I’ll probably wait for a higher SP, maybe Monday, before trying to sell more calls. I just don’t want to risk losing shares below $800 and the premiums are so low right now that the risk isn’t worth the small profit to me.
     
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  11. Xepa777

    Xepa777 Member

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    Sorry if this is not really "wheel" material but figured this is the closets place to ask this question.

    I'm thinking of selling a put on TSLA for March 2023 at a $1200 strike. When you factor in premium it's like $600-ish, and by March 2023 we'll have Berlin and Austin ramped already with Cybertruck sales (and hopefully meaningful FSD progress).

    Thinking of using my margin power for this, which is normally otherwise untouched. Other than a clear disaster scenario, as Tesla bulls this is a pretty sound strategy right?
     
  12. UltradoomY

    UltradoomY Member

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    Just looked and if you have the available money to put on the side (or margin) for that long - it is a good bullish strategy - last trade was @ $676 (maybe yours?)
    I don't want to lock up equity that long but definitely would if I had the portfolio scale to do so.
     
  13. adiggs

    adiggs Active Member

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    First off - I consider this to have become more of a selling options thread than a wheel specific thread (despite the thread name). In practice very few of us are actively rotating back and forth, but at least for me - I do use the wheel as one of the fallbacks to the option sales.


    But your real question - I see pluses and minuses. I have done something similar - I sold the Sep '21 put for $250 back in August when the shares were more like $3-400. I figured that going above $600 over that year was easy mode and by going ITM on the sale I collected extra premium up front.

    I was then able to close it early in January, keeping 2/3rds of the premium I originally collected.

    In my case that was fully cash secured (VERY capital intensive) and that actually became the problem - all of that cash tied up. For March 2023, even if you're not cash secured, that margin will still be occupied. I don't known the margin dynamics, but with any of these long dates option sales, I have quickly come to hate the way they make a chunk of the account go static.


    For your situation - do you have that clear of a view into your financial needs for that cash and margin for a little more than 2 years from now? That is a long time. Of course when the shares go to 1800 next year you'll be brilliant and get to close early while keeping most of the premium :)
     
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  14. bxr140

    bxr140 Active Member

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    Not really. As noted upthread, a sold option is not an ideal directional position. ∆ becomes progressively less favorable the higher underlying goes, and volatility spikes will work against you, which can especially be an issue early on before the value of the sold put has time to mature. And...if price spikes up in like a year you're going to feel like a fool when you've only realized a fraction of your premium.

    Also as recently discussed, margin not withstanding, you're better off going with an equivalent covered call. You'll collect an extra ~$1k in premium over the DITM put, and if price isn't at or above $1200 at expiration, you're sitting on long term tax treatment of the shares. And, if you decide you want to bail out of the -C in a year but keep the shares, you're still sitting on long term tax treatment.

    IMHO, if you're bullish, buy LEAPs. If you're worried about volatility dropping, hedge by selling shorter expiry calls against those leaps. If you're worried about a market reversal, buy a protective put.

    Also as noted upthread, the more diversified your portfolio/positions, the less of an issue the sub-optimal nature of this position becomes. Its a terrible idea if you plan on going all-in on it. Its not a big deal if you're only selling one put in an account with many $M's.
     
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  15. ReddyLeaf

    ReddyLeaf Active Member

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    #2195 ReddyLeaf, Feb 26, 2021
    Last edited: Feb 26, 2021
    I will second this sentiment. I sold a Jun21 800p (CSP) for $132 awhile back, liking the premium and easily expecting that >$668 SP was a slam dunk. This week that put was over $180, and all that money is tied up until the SP rises to better numbers. I missed buying the $630 dip. I refuse to buy back right now for such a loss (plus the premium went into buying more shares, so I’d have to sell at a loss to buy back at a loss).:mad: So, choose wisely, especially when it comes to selling long dated options on margin. Isn’t that like double leverage trouble?
     
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  16. durkie

    durkie Member

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    Specifying which lot is sold is something that you do after the trade. IB has a wonky Java app called "IB Tax Optimizer" that has to be downloaded every time you want to use it because it only lets you do it for trades happening in the last 24, maybe 48, hours.

    It's not a big deal if you don't do it in time...you just have to call up IB at any point and tell them which specific lot to sell. I think I've done this days to weeks after the trade in question without a problem.
     
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  17. juanmedina

    juanmedina Active Member

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    This was not a fun week for me, I almost got margin call. I am going to scale back on the number of positions. I got no positions open for next week hoping for a nice IV spike since the afternoon was kind of quiet.
     
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  18. setipoo

    setipoo Breaker of Chains and Mother of Dragons

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    Newbie question: I sold a CC 05Mar21 820 @4.67 on Feb 23

    It is now 0.92 and there are 5 more days to go.

    Is it better to do buyback than wait for expiry? Waiting 5 days for 92 cents seem like a waste since it's already up 80%. I mean, what do nice folks here generally do in this situation? Wait it out or move on to the next trade? I am just curious what you pros do.

    (I am aware that i have to find 0.92 + my minimum premium on the next trade, me being greedy for loose change.)

    Thanks in advance and have a great weekend!
     
  19. bkp_duke

    bkp_duke Active Member

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    PREFACE: not advice, my own view on how I approach these.

    The answer is . . . it depends.

    So, rolling that call right now is probably not the best simply because the stock has been down-trending, so you are going to roll to a call that has a good chance of going up (most likely) if the stock price appreciates. So that is a vote in favor of just letting the current call expire worthless and collecting all of the premium.

    There are, however, some people that don't like to chance what a call may do over the coming days and will Buy to Close when the call is in the 75-80% profit range (where you are now). This books the profit of the premium and closes the position, so there is no chance of the call being called away. The downside here is that because you are not rolling the call, you must have enough cash in your account to Buy to Close the position. You are also, of course, giving up that remaining premium.


    My 0.02 - if the stock is trending like it is, and I have a $785 CC expiring on 03/05, I am just going to let it either get to 90-95% on the premium, and I will Buy to Close, or just let it expire because I view the odds of that large a share price increase to call away the shares as very low. I will then wait for an up-trend to sell another covered call.
     
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  20. ReddyLeaf

    ReddyLeaf Active Member

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    Newbie to newbie, personally I would let it expire this week. Unless we have a miraculous turnaround, which isn’t looking very likely right now, the SP will struggle to get over $800. For next week/month, rolling/selling CCs at such a low strike and premium doesn’t make any sense.

    Last week, I did sell some the $802.50 strike, premium was $3.55 at the time, but I still stupidly closed around $0.22-28. I had used the premiums to purchase stock and sell puts (on different stock) earlier during the drop (of course missing the best drops). The sold puts on other stocks were ITM and going against me, so I needed to use most of the CC premium to cover/roll the puts farther down the road. Thus, I didn’t have enough cash to cover a TSLA price rise, so got scared. I definitely didn’t want to lose my TSLA because of a poorly timed put sale on my “learning” stock.

    It was a tough learning week because everything was going against me. I kept buying small amounts of TSLA as the price drop continued, to the point where free cash in all of my accounts was literally below the price of one TSLA share. After rolling and closing some of those puts, I’m in much better shape for next week, but one account is still below $500 free cash. All I can do in that account is HODL or sell lower-risk far OTM CCs for pennies. I cannot afford to be wrong, or I lose the shares. So, long summary: If I had those -c820 of yours, I would hold and hope that they expire worthless.
     
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