Applying options strategy 'the wheel' to TSLA

[juanmedina]

Anyone selling puts or CCs in 2020 found it 'easy money' (which is great), but that was also the short game taking bullish positions (OTM -P's and OTM covered calls are both bullish) that beat the odds in a once-in-a-decade rally. Anyone who's seen a drawdown in their account balance with those same bullish positions over the past few weeks is dealing with the long game of statistical inevitability.

Keeping the analogy going, selling options on a strategy that considers things like volatility and price analysis is like counting cards.

E-trade has an option income back tester if anyone wants to play around with it.

I closed most of my 765cc

 

[sub]

The 1% idea is fresh today's of this morning so I haven't had much time to try it out. Today it was mostly around $702.50, which I think is safe for the week, but I was more comfortable pushing the strike a bit higher and settling for around 0.8%, there will be some weeks where I feel I can take a higher %age, they will balance out.

So I'm fishing in the 1% range, but taking into account all the arcane things we $TSLA folks think about: P&D, ER, FUD, Max P, Macro's, 10Y yeild... then I look at how it's hanging and go with my gut feeling

I don't have a roll feature, so if I really wanted to get out of a position then I'd need to rebuy then resell. TBH, for the moment, I'd let them exercise as I don't see the SP going anywhere in the short term and I'd be happy selling puts too

Again, I could miss out on a big pop, but these don't happen that often, not on a weekly basis, and I think less so since we had the huge run in 2020

Again, remember, weeklies and looking to sell on the back of an SP rise on Monday/Tuesday, so would need to rise even more and even then, is it going to shoot 20% past the strike price? Maybe, but probably not. And then you sell puts for the same strike for several weeks until you get a dip and it sticks

And I also reserve the right to rebuy on Friday for pennies and sell some yolo cc's into the close, but need a few beers to enable the courage for that...

I agree on another big pop not being likely. I couldn't do what I'm doing without the ability to roll, I probably wouldn't do it actually. selling PUTS to get back in will probably work pretty well in most cases.

 

[stealthyc]

I agree on another big pop not being likely. I couldn't do what I'm doing without the ability to roll, I probably wouldn't do it actually. selling PUTS to get back in will probably work pretty well in most cases.

Is a roll not just a buy/sell combo order? There is no reason you can't just do them separately, you just risk some price movement between fills.

 

[Mokuzai]

Depends on your options level and cash. You need to have enough cash or margin to buy back the first leg without the premium from the second. Or be able to sell an additional option while holding the original in your account.

My IRA doesn't allow margin but I'm able to roll options that I otherwise wouldn't be able to if done in two separate orders.

 

[stealthyc]

Depends on your options level and cash. You need to have enough cash or margin to buy back the first leg without the premium from the second. Or be able to sell an additional option while holding the original in your account.

My IRA doesn't allow margin but I'm able to roll options that I otherwise wouldn't be able to if done in two separate orders.

Ah, very true, makes sense!

 

[Lycanthrope]

I agree on another big pop not being likely. I couldn't do what I'm doing without the ability to roll, I probably wouldn't do it actually. selling PUTS to get back in will probably work pretty well in most cases.

Fear is the mind-killer, in this case fear of selling. I overcame this by always having $4000 pre-strike as my lowest "cash out" price. When I sold the cc780's last December, I expected the SP to meander around the $600's, like it's doing now, but the fact that it soo tickled $900 was quite cathartic as I was totally resigned to losing my shares well under the Current price. The fact that the SP dropped back to inclusion-week levels and lower was pure luck, but I realised I no longer needed to worry about my calls being exercised.

Now don't get me wrong, I'd rather not sell-out at $700 strikes, I'd feel better in the $800's, but I'm not going to make a drama out of it either. I have $250 & $700 LEAPS in my other account that will do very nicely if the SP goes nuts and that's a certain safety-net on the upside.

Is a roll not just a buy/sell combo order? There is no reason you can't just do them separately, you just risk some price movement between fills.

Indeed a real "roll" is as complex buy-to-sell order, but both legs happen at the same time, the benefit being that the strike can't get away from you in the time it takes to sell, then set the buy order, and also means you don't need cash or margin to close out the existing position - which separate buy and sell orders do need. In fact as I reinvest all my premiums in shares for the moment, I would have to sell som shares in order to rebuy a position that was getting uncomfortable, so I tend not to bother.

 

[bxr140]

are you including the underlying stock gains/losses in this calculation?

Yes, of course. I realize this thread has become a bit of a catch-all, but in general its main purpose is discussion around selling options against TSLA shares that are not meant as B&H. As such, account balance is the really the only thing that matters in context of that methodology.

B&H is a different scenario for sure, but the general point is still the same: If one is selling covered calls on B&H TSLA shares with a fixed/static strategy, one is going to be disappointed long term. Sure, with downward TSLA movement its a non-issue as the loss on the underlying is just part of long term ownership and the gain on the -C's simply softens the blow. On the upside however, maintaining a fixed strategy is going to result in materially significant gains left on the table and--as was the case for CC sellers in 2020--unavoidable dumping of otherwise B&H shares because their CC's were so underwater.

Its important for us to all accept that the above two concepts*** can exist at the same time for a trader; one does not necessarily preclude the other. Some amount of capital can be dedicated to B&H shares and some amount of capital can be dedicated to selling options. Someone who's in growth mode would want to be more conservative with CC's on their B&H shares, in an effort to realize inevitable gains from big moves. Someone who's met their financial goals might be more agressive with CC's on their B&H shares, accepting the possibility of having them called away (with or without an immediate re-buy).

***For those who wish to trade smartly and safely, one would also have capital dedicated to buying options.

 

[Lycanthrope]

are you including the underlying stock gains/losses in this calculation? Selling CC's like I am, and being super bullish long term on TSLA, I couldn't care less what the stock does on a short term basis. I don't consider the stock going down as "losses" since I would be holding the shares anyways. The CC premium is just icing on the cake and allows me to increase my position. I'd like to double what I currently have (2580) before I start pulling funds for living expenses/life style doing the same thing. With my current strategy, which could change, I think I can double my position in 3-4 years. With other investments this would easily allow my wife and I to retire at that point (we are both 47).

Thing is, let's imagine you had 5160 $TSLA, why would you sell any of it? With that kind of capital (assuming the SP is a least where it is now), you can just eep selling covered calls for your living expenses. Where it becomes less obvious is when you need a large amount of cash out, like my situation, for a house, then you may have other options, like borrowing against the shares (I took a mortgage at a stupid low rate), plus I have a year or so to save up the costs of the renovations, so some planning can help there. And what's paying for the renovations, you guessed it, covered calls...

Of course selling covered calls can turn into the wheel selling puts but any given Friday

 

[Mokuzai]

Thing is, let's imagine you had 5160 $TSLA

How did you know? Actually bought 100 shares today at $660 to bring it up to this amount in this account.

 

[gabeincal]

What platform are you trading on?

Etrade

 

[ZeApelido]

Yes, of course. I realize this thread has become a bit of a catch-all, but in general its main purpose is discussion around selling options against TSLA shares that are not meant as B&H. As such, account balance is the really the only thing that matters in context of that methodology.

B&H is a different scenario for sure, but the general point is still the same: If one is selling covered calls on B&H TSLA shares with a fixed/static strategy, one is going to be disappointed long term. Sure, with downward TSLA movement its a non-issue as the loss on the underlying is just part of long term ownership and the gain on the -C's simply softens the blow. On the upside however, maintaining a fixed strategy is going to result in materially significant gains left on the table and--as was the case for CC sellers in 2020--unavoidable dumping of otherwise B&H shares because their CC's were so underwater.

Its important for us to all accept that the above two concepts*** can exist at the same time for a trader; one does not necessarily preclude the other. Some amount of capital can be dedicated to B&H shares and some amount of capital can be dedicated to selling options. Someone who's in growth mode would want to be more conservative with CC's on their B&H shares, in an effort to realize inevitable gains from big moves. Someone who's met their financial goals might be more agressive with CC's on their B&H shares, accepting the possibility of having them called away (with or without an immediate re-buy).

***For those who wish to trade smartly and safely, one would also have capital dedicated to buying options.

Right, it is good to remember. Options are priced based on Black-Scholes model, which basically sets prices based on volatility a.k.a the likelihood for those prices being reached.

Over many many iterations, the distribution of price swings should generally match this model, and thus you would not be "beating the system".

This is where having any semblance of model of the system (in this case, TSLA price movements) that is more accurate than random can put in your a better than position where the ideal options model for that system can extract higher returns than buy and hold.

For me, it is easier to view this model at a longer time frame, where 1) I am totally willing to have my shares called away at those prices and 2) I "think" I have a model for when TSLA has had a significant run-up and will have a pause or dip and a good position to sell CC's with longer expiry.

Since I only want to engage in selling longer expiry CC's at the right moment, that may only happen a few times a year. Patience is virtue, lol.

It would be great to supplement that strategy with selling weeklies OTM while paying attention to the TSLA and macro news.

 

[ZeApelido]

Thing is, let's imagine you had 5160 $TSLA, why would you sell any of it? With that kind of capital (assuming the SP is a least where it is now), you can just eep selling covered calls for your living expenses. Where it becomes less obvious is when you need a large amount of cash out, like my situation, for a house, then you may have other options, like borrowing against the shares (I took a mortgage at a stupid low rate), plus I have a year or so to save up the costs of the renovations, so some planning can help there. And what's paying for the renovations, you guessed it, covered calls...

Of course selling covered calls can turn into the wheel selling puts but any given Friday

I agree. Can you convince my wife of this?

She is not impressed by thousands of gains selling weeklies. But she was happy when I sold CC's 1 year out exp. in the 6 digits.

If the stock can get above $1000, then I can sell CC's for mid 6 figures cash per year. I think that would convince her!

 

[sub]

Is a roll not just a buy/sell combo order? There is no reason you can't just do them separately, you just risk some price movement between fills.

No, there isn't, except you have to keep cash in your account just to roll the calls. I don't keep any cash in my account, I immediately use the premium from the sold calls to buy shares. I would have to hold back 50-100k if I couldn't roll, possibly more. As the stock moves against you the option values can increase significantly. For example, had I needed to roll one more time last week I would have needed around 100k. I trade in an IRA so no margin.

 

[sub]

Thing is, let's imagine you had 5160 $TSLA, why would you sell any of it? With that kind of capital (assuming the SP is a least where it is now), you can just eep selling covered calls for your living expenses. Where it becomes less obvious is when you need a large amount of cash out, like my situation, for a house, then you may have other options, like borrowing against the shares (I took a mortgage at a stupid low rate), plus I have a year or so to save up the costs of the renovations, so some planning can help there. And what's paying for the renovations, you guessed it, covered calls...

Of course selling covered calls can turn into the wheel selling puts but any given Friday

Yes, of course, and this is my plan. My thinking is, as I buy more shares, which then allows me to sell more calls, I can buy more shares faster. My other goal is that I don't end up with less shares than I had when I started selling options. I was too scared to do it for all these years, now I'm kicking myself. I've held Tesla shares since early 2013, only being out briefly to pay off some student loans etc, then got back in at almost the exact same price. Lucky. My goal is to grow my account and just live off of the option premium. I also have income producing real estate and will be adding more in the next 2-3 years. I might use a little bit of the proceeds in the next few months to do some work on my house, which I'm turning into an Airbnb next year.

 

[Discoducky]

I have $250 & $700 LEAPS in my other account that will do very nicely if the SP goes nuts and that's a certain safety-net on the upside.

I have a very similar safety-net on the upside. When I make dispensible income I cover my weekly/biweekly options trading with some LEAP buying. Gives me that warm feeling of knowing that only $20k or so can possibly end up being $200k in two years if TSLA goes up 3 to 5x.

 

[samppa]

IB announced that they are increasing margin requirements for TSLA concentrated portfolios, starting today after market close.. changes will be implemented in 10 days.
The requirement will work as follows:

• An alternative stress test will be run, subsequent to the margin calculation currently in place, with the greater of the two becoming the active requirement. TSLA (Tesla Inc.) stock and its derivatives will be subject to a stress test that simulates a price change in the underlying stock of -50%.

• The projected loss for TSLA, assuming a price change of -50%, will be compared to the aggregate margin requirement as determined under the alternate calculation for the aggregate portfolio and, if greater, will become the margin requirement for the portfolio.

If you're on IB and use margin, be sure to check this..

 

[Lycanthrope]

I have a very similar safety-net on the upside. When I make dispensible income I cover my weekly/biweekly options trading with some LEAP buying. Gives me that warm feeling of knowing that only $20k or so can possibly end up being $200k in two years if TSLA goes up 3 to 5x.

Mine are all June 2022 and I intend to exercise the $250's and use the $700's to pay for it. If we get a pop in the SP before then, I will sell $1700's against the $700's to give some free cash to cover taxes, etc. (this account is taxable, like my other)

 

[Lycanthrope]

Yes, of course, and this is my plan. My thinking is, as I buy more shares, which then allows me to sell more calls, I can buy more shares faster. My other goal is that I don't end up with less shares than I had when I started selling options. I was too scared to do it for all these years, now I'm kicking myself. I've held Tesla shares since early 2013, only being out briefly to pay off some student loans etc, then got back in at almost the exact same price. Lucky. My goal is to grow my account and just live off of the option premium. I also have income producing real estate and will be adding more in the next 2-3 years. I might use a little bit of the proceeds in the next few months to do some work on my house, which I'm turning into an Airbnb next year.

I have a similar reflection and started to sell some very far OTM calls last year to trickle a few extra shares.

Reality is that I was too terrified at the idea of losing my shares before and the massive increase in the SP over the last year justified my hesitance. So what changed?
- firstly the SP went to levels where I was not traumatised if I cashed out ($4000 pre-split, remember)
- wife decided we buy a house, requiring cash by mid 2022 (~$1m)

So faced with the above one can either sit on the shares and hope the SP goes up, then sell the shares you need when the time comes, or be proactive selling cc's to get the cash you need without selling any shares.

I find the risk of selling the cc's is lower than the risk of doing nothing. The only risk I feel I'm taking now is by buying shares with my cc premiums - if we get a black-swan and the SP crashes, I might not even have enough portfolio value to cover the house renovations.

I plan to mitigate this by selling much more aggressive calls on 50% of my portfolio as-and-when the SP gets back above ATH. Then maybe keep 50% in cash and sell safe puts against that.

Will see. Holding several 1000's of $TSLA gives massive possibilities and strategies, regardless of the share price.

 

[samppa]

Kirk from OptionsAlpha said "use volatility to determine range, not share price." I'm a certified newbie so I don't know what that means yet. "Deltas gammas thetas bollinger bands vwaps greeks etc" confuse me so bad, it's beyond belief... What i do is simply add +-$100 to whatever everyone else is saying will be the estimated Friday close.

Recently, I've had to build the 2 put legs lower (than usual) to make room for more downside movement. I think that's what skew means? The wide range makes the credit smaller but imagine 40x-50x IC. It only uses up approx $50k margin for a few days, in exchange for maybe $300k+/yr IC income. My plan is to use IC 1) to supplement CC, 2) to rescue any CC fails, 3) to pay for fees/taxes, and 4) to use as withdrawals for expenses/gifts.

Not advice, and not qualified to give advice. I'm just here to listen and learn and copy trades! And, oh, I follow this thread much more than the main one.

sorry for the late reply.. was thinking about this and then kind of forgot. I'm also just learning about options, and currently selling weekly contracts, only one contract at a time. Been working ok so far. Dabbled a bit with different spreads, now I've just been selling weekly puts (covered partly by cash, partly by margin from shares, trading account is about 50% tsla/50% cash). I've been quite aggressive here since I wouldn't mind assignment or rolling, right now I have a 670p expiring this friday, which I sold last week for $31.86. I'll probably close it tonight or tomorrow. For next week I might open a less aggressive position (further OTM) because I don't want to have any open positions when p&d report comes.. or I might play it really safe and just close this and skip next week all together.

Skewed Iron condor just means that it's not balanced, when it comes to strikes.. so that say if you're skewing to upside you'd use -50+150 range compared to current strike price. just as an example. Or have more contracts on the other side etc.

A strategy of 40-50 contracts of same Iron Condor does sound quite risky to me (of course I don't know your risk profile here at all).. what's your exit plan if there is a big swing in stock price to either direction? I know IC is a limited risk strategy, but typically risk on either side is much bigger than possible profit.

 

[juanmedina]

IB announced that they are increasing margin requirements for TSLA concentrated portfolios, starting today after market close.. changes will be implemented in 10 days.
The requirement will work as follows:

• An alternative stress test will be run, subsequent to the margin calculation currently in place, with the greater of the two becoming the active requirement. TSLA (Tesla Inc.) stock and its derivatives will be subject to a stress test that simulates a price change in the underlying stock of -50%.
• The projected loss for TSLA, assuming a price change of -50%, will be compared to the aggregate margin requirement as determined under the alternate calculation for the aggregate portfolio and, if greater, will become the margin requirement for the portfolio.

If you're on IB and use margin, be sure to check this..

Why are brokerage houses doing this? There has to be a reason because is not only one brokerage house doing that . It seems strange to me.