Applying options strategy 'the wheel' to TSLA

[Chenkers]

I think there were many people far under water with -Ps the last weeks, please continue to share how you managed your positions!

I've been rolling 8 sold Puts for a few weeks now. I've generally been rolling out a couple of weeks and down as much as possible at zero cost. They're currently all at 19th March expiry with strikes between 785 and 820. I'm pretty comfortable with it since I had a similiar experience earlier in the year on the call side. I'd much rather be selling puts and calls together but it's nice to be able to recover from the unexpected and keep earning premiums.

I've had to manage portfolio margin along the way. Buying cheap puts has minimal impact on my margin calculation and I've found selling calls to be more effective. I'm currently maintaining at least 8 sold calls at a time and this is helping keep the margin healthy and some buying power intact.

 

[JustMe]

Guys - I never buy calls because I suck at timing the market, but I had a strong feeling that TSLA was going to bounce back from the $500’s - so I took a chance.

I used some of my my covered call earnings when the stock tanked and bought 11 April 1 $725 calls for about $15 each, leaving me with nine dollars in cash in my account. They’re sitting at 33.50 now. I sold 5 at 22-35, recouping the investment. I plan to sell the remaining 6 next week, hopefully in the >50.00 range if the recovery continues. Best case scenario - enough for a new Model Y.

I’m normally on the other side of this trade selling covered calls. This time the clock is running against me and the wild price swings in these options every day are jarring.

It gives me the heebie geebies!

 

[gabeincal]

Just checking in, it's been a while.

I'm setting up my trading account for regular trading of 2 positions (selling calls and puts).

I've set it up this morning and have plans to keep rolling the losing leg. Positions in the account:

800 x TSLA
-8 x Apr 16 900c
-8 x Apr 16 900p
+9 x Jan '21 1300c
$150k cash
(Margin maintenance excess is at $104k)

My plan is to keep selling equal number of calls and puts with the same expiry date (a short strangle?) and roll the leg(s) that's at risk. Have been holding about -6 puts so far through this major TSLA dip and had no effect on my account, so I think so far it proved to be somewhat safe. Rolling these will likely generate 5 digit $ income every month for my family.

Looking for any feedback or warnings about this.

 

[UltradoomY]

Just checking in, it's been a while.

I'm setting up my trading account for regular trading of 2 positions (selling calls and puts).

I've set it up this morning and have plans to keep rolling the losing leg. Positions in the account:

800 x TSLA
-8 x Apr 16 900c
-8 x Apr 16 900p
+9 x Jan '21 1300c
$150k cash
(Margin maintenance excess is at $104k)

My plan is to keep selling equal number of calls and puts with the same expiry date (a short strangle?) and roll the leg(s) that's at risk. Have been holding about -6 puts so far through this major TSLA dip and had no effect on my account, so I think so far it proved to be somewhat safe. Rolling these will likely generate 5 digit $ income every month for my family.

Looking for any feedback or warnings about this.

The only thing I would be slightly worried about is the early assign from the P side - I would imagine the premium offsets it though.

 

[setipoo]

-8 x Apr 16 900c
-8 x Apr 16 900p

My plan is to keep selling equal number of calls and puts with the same expiry date (a short strangle?) and roll the leg(s) that's at risk.

Newbie question... I am curious about the advantage of -c900 and -p900, plus the work to roll a leg afterwards.

Compared to, say, setting up in one trade -c900 -p690 (if i am assuming 690-900 is closing range).

I ***think*** the same strikes will generate a significantly higher credit, and it's cheaper to just roll a leg later???

What am i missing? Thanks in advance!

 

[bxr140]

Guys - I never buy calls because I suck at timing the market...

I’m normally on the other side of this trade selling covered calls. This time the clock is running against me and the wild price swings in these options every day are jarring.

I think this is a good case study to re-align some misconceptions about buying calls, and awesome that it can be a situation where someone has ~doubled their money in a few weeks as opposed to a kicking the dog kind of thing. Diving into these concepts:

1. I suck at timing the market: This one is echoed quite a bit in this thread and, as you've found, one doesn't really need a complicated algorithm to identify probable direction. At its core directional trading is actually quite straightforward, and if we're really honest with the core of this apple, few if any people out there making the "I suck at timing the market" statement that have actually made a concerted effort to actually try.

The other big part of "I sell options because I suck at directional trading" is a false perception that its all about theta decay. In fact, as is evidence by folks in this thread, much if not most of those profits folks are realizing from sold contracts are actually coming from directional movement. So...if someone is actually making money selling options, they're actually already doing a pretty decent job of "timing the market". And of course, the big rub on this is that ∆ becomes progressively less favorable for profit on a sold contract, versus progressively more favorable for a bought contract...

Further impacting the false perception that selling options is all about theta, a good portion of the non-directional profit folks are taking are from decreasing volatility. (Not to mention that pretty much any profit taking in an increasing volatility environment will be from ∆)

The bottom line for anyone playing the "can't time the market" card is 1) Most folks aren't haven't actually tried to "time" the market" and 2) Most folks are making most of their profit by "good timing" on directional underlying movement.

2. The clock is running against me: It is generally bad practice to buy close expiration contracts because they are a) massively impacted by volatility changes and b) more unfavorably impacted by theta decay. Close expirations can work for VERY short position durations (like day trading) but a general rule of thumb is to not buy options any closer than 3 months expiration, and you are right to think about closing them out sooner rather than later Generally theta will burn off ~10% of the value of those bought options over the course of ~1 month.

3. The wild price swings are jarring: Its good to remember that ~1 bought contract is ~equivalent to ~1 sold contract. The diverging greeks [between sold and bought contracts] of course means that's only true within a small window, but its close enough for the thought experiment. So, your 11 OTM +C's calls are going to move more or less as fast as had you sold 11 OTM -P's. As you might imagine, and as others have shared, if you were holding 11 -P's (or CCs) over this pullback your account balance would have suffered a pretty jarring drawdown.

 

[adiggs]

Just checking in, it's been a while.

I'm setting up my trading account for regular trading of 2 positions (selling calls and puts).

I've set it up this morning and have plans to keep rolling the losing leg. Positions in the account:

800 x TSLA
-8 x Apr 16 900c
-8 x Apr 16 900p
+9 x Jan '21 1300c
$150k cash
(Margin maintenance excess is at $104k)

My plan is to keep selling equal number of calls and puts with the same expiry date (a short strangle?) and roll the leg(s) that's at risk. Have been holding about -6 puts so far through this major TSLA dip and had no effect on my account, so I think so far it proved to be somewhat safe. Rolling these will likely generate 5 digit $ income every month for my family.

Looking for any feedback or warnings about this.

I'm in the setup phase of a new and roughly half sized account. For me this is a rollover IRA as I bring former work retirement accounts under my direct control.

The initial entry is 400 shares at $676 and
-4 x Mar 19 705 calls
-5 x Mar 19 650 puts

The 650 puts reached ~75% profit today and have been rolled to
-5 x Mar 19 700 puts

I chose to keep the expiration the same, mostly because I'd like to roll the calls and puts together and the calls aren't ready. But this situation is closer to a coin flip (the Mar 19 vs. the Apr 2 expiration) for me - 1 full week to expiration could also get rolled out by 2 weeks. If I were rolling that position tomorrow then it would almost certainly be the 2 week roll. As it is I picked up a $14 net credit and turned $6 worth of premium left to earn this week into $20 worth of premium to earn over the balance of the week.

This also leaves me in a 700/705 strangle expiring this week.


I don't have the margin available (IRA) but this is otherwise what I'm doing - I hope it works as well for me

I think that the primary observation I have for others is that in an IRA that doesn't have withdrawals going (my situation) then this 50/50 cash/shares balance is almost certainly a lower return choice than just holding shares. I've got 8 years to go until I have full access to this money and managing it as if its an income source today, and given my own investment thesis, just owning shares will almost certainly outperform. I am primarily managing this resource in this fashion as I think this will do well enough and mostly I want to be generating feedback today with the balanced puts and calls; the other accounts are share heavy and the feedback isn't as good because of that.


My target is slightly more cash value to share value, and to be selling slightly more puts than calls. When there are enough more puts than calls then I'll be looking for assignment on 1 or more put contracts to get back close to even numbers.

As this is new money going to work I have started the account out with my target ratios and get direct and immediate feedback from an account with a balance between shares and cash.

 

[st_lopes]

I’m starting to develop an appreciation for avoiding small premium sold calls (thanks @adiggs).

My 750s have held up in premium a lot more than I would have liked and for much of the day were underwater. Decay took hold late in the PM, but again not as much as I would have liked. I ultimately rolled them to 770c 03/19 for an $8.85 credit (0.21 delta at time of sale), clipping 17% of the previously sold premium (sold premium was only $1.8). Theta on those two positions was near the same, so definitely felt like a trade in the right direction.

I'm still holding on to some 730c 03/12 as I wasn't intending to re-initiate those in to next week. They have decayed nicely, confirming my bias towards selling higher premium calls going forward. I intend to sell some share lots to convert them to leaps over the next couple weeks, hence not rolling the 730s.

Closed the 730 with 0.02 left, 99.98% premium gain. Did not re-initiate since I intended to sell that lot of shares to convert to 3x LEAPs. Made that conversion this morning.

I plan to keep adding to the LEAPs pile until I hit a target delta exposure on those contracts (likely hit it around 20x LEAPs). Currently strikes are all 850 March 2023, but that may move around as I add more to the pile.

To summarize my current approach:

1) Sell 0.2-0.3 delta calls - add shares with proceeds;
2) Continue holding 850p 04/16;
3) Depending on price action and maintenance excess - I will be gradually adding LEAPs from the cash balance in margin account;
4) On roll/close of the 850p - will aim to round off to 20x LEAPs [yes this means I believe we reach these levels again in April];
5) Will look to sell balanced strangles as of that point and use sold premium for opportunistic buys;

 

[juanmedina]

Just checking in, it's been a while.

I'm setting up my trading account for regular trading of 2 positions (selling calls and puts).

I've set it up this morning and have plans to keep rolling the losing leg. Positions in the account:

800 x TSLA
-8 x Apr 16 900c
-8 x Apr 16 900p
+9 x Jan '21 1300c
$150k cash
(Margin maintenance excess is at $104k)

My plan is to keep selling equal number of calls and puts with the same expiry date (a short strangle?) and roll the leg(s) that's at risk. Have been holding about -6 puts so far through this major TSLA dip and had no effect on my account, so I think so far it proved to be somewhat safe. Rolling these will likely generate 5 digit $ income every month for my family.

Looking for any feedback or warnings about this.

Is your margin requirement for Tesla 40%? Do you hold anything else other than Tesla in that account? someone said that E-trade changed my margin requirement for Tesla to 50% because I only hold 700 shares of Tesla and nothing else.

 

[JustMe]

I think this is a good case study to re-align some misconceptions about buying calls, and awesome that it can be a situation where someone has ~doubled their money in a few weeks as opposed to a kicking the dog kind of thing. Diving into these concepts:

1. I suck at timing the market: This one is echoed quite a bit in this thread and, as you've found, one doesn't really need a complicated algorithm to identify probable direction. At its core directional trading is actually quite straightforward, and if we're really honest with the core of this apple, few if any people out there making the "I suck at timing the market" statement that have actually made a concerted effort to actually try.

The other big part of "I sell options because I suck at directional trading" is a false perception that its all about theta decay. In fact, as is evidence by folks in this thread, much if not most of those profits folks are realizing from sold contracts are actually coming from directional movement. So...if someone is actually making money selling options, they're actually already doing a pretty decent job of "timing the market". And of course, the big rub on this is that ∆ becomes progressively less favorable for profit on a sold contract, versus progressively more favorable for a bought contract...

Further impacting the false perception that selling options is all about theta, a good portion of the non-directional profit folks are taking are from decreasing volatility. (Not to mention that pretty much any profit taking in an increasing volatility environment will be from ∆)

The bottom line for anyone playing the "can't time the market" card is 1) Most folks aren't haven't actually tried to "time" the market" and 2) Most folks are making most of their profit by "good timing" on directional underlying movement.

2. The clock is running against me: It is generally bad practice to buy close expiration contracts because they are a) massively impacted by volatility changes and b) more unfavorably impacted by theta decay. Close expirations can work for VERY short position durations (like day trading) but a general rule of thumb is to not buy options any closer than 3 months expiration, and you are right to think about closing them out sooner rather than later Generally theta will burn off ~10% of the value of those bought options over the course of ~1 month.

3. The wild price swings are jarring: Its good to remember that ~1 bought contract is ~equivalent to ~1 sold contract. The diverging greeks [between sold and bought contracts] of course means that's only true within a small window, but its close enough for the thought experiment. So, your 11 OTM +C's calls are going to move more or less as fast as had you sold 11 OTM -P's. As you might imagine, and as others have shared, if you were holding 11 -P's (or CCs) over this pullback your account balance would have suffered a pretty jarring drawdown.

Thank you for your thoughtful post! Very helpful.

 

[dkemme]

Just checking in, it's been a while.

I'm setting up my trading account for regular trading of 2 positions (selling calls and puts).

I've set it up this morning and have plans to keep rolling the losing leg. Positions in the account:

800 x TSLA
-8 x Apr 16 900c
-8 x Apr 16 900p
+9 x Jan '21 1300c
$150k cash
(Margin maintenance excess is at $104k)

My plan is to keep selling equal number of calls and puts with the same expiry date (a short strangle?) and roll the leg(s) that's at risk. Have been holding about -6 puts so far through this major TSLA dip and had no effect on my account, so I think so far it proved to be somewhat safe. Rolling these will likely generate 5 digit $ income every month for my family.

Looking for any feedback or warnings about this.

Options Alpha suggests adjusting the leg not at risk...

 

[bxr140]

Newbie question... I am curious about the advantage of -c900 and -p900, plus the work to roll a leg afterwards.

Compared to, say, setting up in one trade -c900 -p690 (if i am assuming 690-900 is closing range).

I ***think*** the same strikes will generate a significantly higher credit, and it's cheaper to just roll a leg later???

What am i missing? Thanks in advance!

There's really little value to a DITM -P. Its really just a shitty version of a high ∆ +C position, and only makes sense in the highest of volatility environments. The major issue is that the extrinsic value 'bubble' peaks ATM--that is, the farther you go from the money (in either direction, ITM or OTM) the extrinsic value drops off. This can be ok for a DOTM -P where you give yourself a wide safety margin, and even an slightly ITM -P where there's still a good amount of extrinsic value to burn off, but with a DITM -P the extrinsic value and corollary theta become all but irrelevant and by far your position's primary method of generating profit is from upward underlying movement. In other words, a DITM -P is explicitly a directional position that relies on its high ∆.

As noted its a shitty high ∆ position, because as underlying moves in your favor the DITM -P's ∆ decreases, progressively decreasing the rate at which the position generates profit. Not a huge deal for small underlying movement (single digit %’s) but progressively worse as price keeps going up.

Volatility also really starts to nuke potential profit as well when you start DOTM, as both the IV and Vega bubbles peak ATM. What that means is that even with NO fundamental change in volatility (which in reality would likely be unfavorable to you if price starts to shoot up), as underlying starts to come toward your DOTM strike IV and Vega will climb up their respective bubbles and in doings so naturally drive up the extrinsic value of the contract...which of course is unfavorable to you. Again, less of a deal with small underlying movement, then progressively worse.

Don't get sucked into thinking the mega credit on a DITM sold contract is a good thing. Other than what you realize as profit through directional movement of the underlying you have to give most of that credit back when you close the contract.

Anyway, IMHO far more sensible than a 900 -P would be to sell a DOTM - P for the same amount ofextrinsic value. You collect the ~same profit on time decay but you all but take the directional element out of the position. Or sell the 690 -P as you've identified and at least rake in a ton of extrinsic value. Then if you're also looking to capitalize on underlying directional movement, build a long position [that, as noted upthread many times, can include short legs].


I guess this all goes back to the notion of it being a fundamental requirement to understand how a position is actually going to generate profit before entering a position (which of course, is why you're asking the question--that's a good thing!). Bottom line, a DITM -P doesn't generally generate profit in a very efficient way.

 

[Towly420]

I've been rolling 8 sold Puts for a few weeks now. I've generally been rolling out a couple of weeks and down as much as possible at zero cost. They're currently all at 19th March expiry with strikes between 785 and 820. I'm pretty comfortable with it since I had a similiar experience earlier in the year on the call side. I'd much rather be selling puts and calls together but it's nice to be able to recover from the unexpected and keep earning premiums.

I've had to manage portfolio margin along the way. Buying cheap puts has minimal impact on my margin calculation and I've found selling calls to be more effective. I'm currently maintaining at least 8 sold calls at a time and this is helping keep the margin healthy and some buying power intact.

Good to hear, thank you!

You mentioned to sell calls to manage margin, I guess those are covered calls? otherwise I’d think, that those would have a negative impact on margin?

 

[Chenkers]

Good to hear, thank you!

You mentioned to sell calls to manage margin, I guess those are covered calls? otherwise I’d think, that those would have a negative impact on margin?

Yes, all covered calls. I try to roughly balance the -C to -P but will sell excess covered calls if required to reign in margin on any DITM -P's. By margin I'm referring to my excess liquidity based on portfolio margin calculations, not an interest bearing negative margin balance. My -P's are generally margin backed with some degree of nakedness, although any real risk of early exercise would be covered by margin/excess liquidity.

 

[Lycanthrope]

Full disclosure, while waiting for the SP to get back towards $800's, I've switched to selling weeklies - 14x cc720 for this Friday, not big bucks, $9 per contract, but keeps things ticking-over

17x $780's expiring this week too, all being well, will be looking to sell 31x contracts next Mon/Tues, for this side of the P&D - too much of a wildcard to sell for the other side of that, at these prices, anyway

I'm also OK with an exercise too, doesn't phase me

 

[LN1_Casey]

I miss doing weeklies. As such, I have sold a weekly call for Mar19 $705 for $10. Max Pain shows a crap tone of calls at 700, so I'm assuming it's safe. If not, hey, we're back above 700s, and I'll have to roll it to another date.

As @Lycanthrope says though, not beyond the next week, as P&D can do anything.

 

[Lycanthrope]

I miss doing weeklies. As such, I have sold a weekly call for Mar19 $705 for $10. Max Pain shows a crap tone of calls at 700, so I'm assuming it's safe. If not, hey, we're back above 700s, and I'll have to roll it to another date.

As @Lycanthrope says though, not beyond the next week, as P&D can do anything.

I would have gone with $705 strike too, but don't have it listed at my broker - I've requested clarification on that...

Kind of kicking myself for not trusting myself and selling $700's instead...

 

[juanmedina]

I haven't sold anything this week. The last couple of weeks when I sell calls or puts on Monday or Tuesday I get crappy premiums and then the stock moves a lot on Wednesday and I end up underwater for the week hoping that contracts expire OTM. I am Testing that theory this week and the way is going so far I see some puts and put spread to be sold later today.

 

[Lycanthrope]

I haven't sold anything this week. The last couple of weeks when I sell calls or puts on Monday or Tuesday I get crappy premiums and then the stock moves a lot on Wednesday and I end up underwater for the week hoping that contracts expire OTM. I am Testing that theory this week and the way is going so far I see some puts and put spread to be sold later today.

Well, I would be more aggressive if the SP was trading >$800 as I'm OK to sell shares at that price, for now I'm relatively cautious.

So I always wait-and-see what happens Monday and Tuesday, which are the usual green days, then make a decision based on the Max Pain situation, sentiment, macro, gut-feeling... Seemed apparent to me, with the masses of FUD, the tech rotation, the 10Y rising and the triple-witching this week, that $700 was unlikely, but I made the decision to sell the $720's when the SP was trading in the high $690's

Still, $12600 more "free money", which is better that a poke in the eye with a pointed-stick

I've added 248 $TSLA since December by selling calls and puts, plus taken out cash to pay for my ongoing house renovations/mortgage, stick that in your HODL and smoke it!

Will look to get 52 more shares next well to round-up to 3200 and be able to sell one more contract

 

[bxr140]

I haven't sold anything this week. The last couple of weeks when I sell calls or puts on Monday or Tuesday I get crappy premiums and then the stock moves a lot on Wednesday and I end up underwater for the week hoping that contracts expire OTM. I am Testing that theory this week and the way is going so far I see some puts and put spread to be sold later today.

I'd recommend caution when trying to base a strategy on days of the week. Longer term there's not a lot of statistical relevance to directional probability between the days of the week, and in fact the standard deviation is pretty much equal across the week (its a slight downtrend as the week moves on). In reality, ups and downs are pretty much all governed by the bigger picture trend and much more accurately identified by other indicators; strategizing based on days of the week is heavy on trees and light on forest.

I'm a big proponent of technical analysis and real data, and if you can truly find something statistically relevant in the days of the week that's awesome (and please share, because I've hunted for something relevant for years)...but I'd encourage extreme skepticism when taking unquantified advice about days of the week and absolutely would discourage building a strategy around short term subjective observations.