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Applying options strategy 'the wheel' to TSLA

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

  1. pz1975

    pz1975 Supporting Member

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    Those weekly 3,000 calls are looking pretty irresistible to sell. $2.50 each and you either collect the premium or sell shares this week for almost double the current SP at $3,000!
     
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  2. ZenMan

    ZenMan Member

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    Sold some 2000s expiring Friday for $34
     
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  3. Right_Said_Fred

    Right_Said_Fred Moderator

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    I swapped my 10 sold puts 1600 exp 8/7 for 10 sold puts 1640 exp 7/31, so one week earlier. I think premiums will start dropping in the weeks after earnings and I believe that the extra week will give me a better chance of getting a good premium when I sell the next set of puts or calls (depending on whether the shares get assigned). I got $1200 for my trouble.
     
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  4. Gabos

    Gabos New Member

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    Hi guys, I've been reading reading through the posts here lately quite a bit since I'd like to get into some options trading, especially at this time. I'm planning to buy an OTM call with money willing to part with for a chance of a jackpot. Looking for a mid-term expiry, best case after Q3 report. I mainly wanna play the possible S&P inclusion but still wanna have some cushion if possible and also since the more probable strike prices are out of reach with my play money. I still don't know much about options liquidity or how OTM calls valuate without getting ITM, so I have a few questions

    Would I be able to liquidate the positions even during a squeeze ?

    Until now I thought it would be best to buy the calls during a dip/lower SP (e.g. friday or today morning - didn't have the money ready yet though) but after the last Fred's post I'm not so sure - would the cost of the calls go lower after earnings even with positive results and htherefore a high probability of inclusion?

    Also, how do OTM calls appreciate? Say I buy a Oct20 3500c and the price rises to 2500 next week, what are the price dynamics? I've been playing with a demo account for about a week now but am not anyhow wiser (even with the same example trade, being bought on thursday, it has raised by about 50% with todays SP run up - would it follow the same pattern for every %rise in SP?). I guess expiration date plays quite a role in this too, right?

    I really appreciate all your insight and the fact you share your valuable knowledge on this forum!
    Thanks!
     
  5. vikings123

    vikings123 Supporting Member

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    #625 vikings123, Jul 20, 2020
    Last edited: Jul 20, 2020
    Options are pure gambling for the casual investor but I will say that you can make money off of Tesla options. Shorties and MMs will give you so many opportunities to buy the dip, just be patient. I sense some FOMO in your post so be careful not to jump in when the ship has already sailed. For eg; If you did not get in during the first couple of hours today you are better off sitting out.

    Liquidity has never been a problem for Tesla OTM options. If you are looking for a lotto I would suggest to wait and see where the stock trades on Wednesday before you make a play. For eg: if the stock trades around 1700 on Wednesday, look to buy a lotto that is deep OTM like a 1880 strike expiring on July 24th. Just be prepared to lose it all. NFA.
     
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  6. juanmedina

    juanmedina Active Member

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    I agree. Options are pure gambling specially on the buying side. If we get a big drop in the SP in the future that might be the time to buy options in particular LEAPs IMO.
     
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  7. Right_Said_Fred

    Right_Said_Fred Moderator

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    I agree that buying options equals gambling, with the odds against you. Time is your enemy and there could be an IV drop after earnings (although the timing of S&P 500 inclusion may prolong the uncertainty and therefore volatility longer). So even if you get the direction right, you could still end up losing money on the option.

    This is not advice though! ! If we rocket to 2000+ all I said is moot.



    P.S. This thread is not about buying options, it’s about selling them. So it’s better to continue this in another thread.
     
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  8. Gabos

    Gabos New Member

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    Yeah, I appologize for the kinda OT post, honestly I knew it wasn't the exactly right thread, but figured I could get more points of view and better advice in an active discussion of experienced options trader like this one. @Right_Said_Fred

    I know it's rather a gamble and it's money I'm okay with losing (I'd rather lose it than kick myself for not trying for what I belive in and missing on a good oportunity) - I've read a lot about the possible squeeze and think it's a real possibility fot TSLA to go even beyond $3000 in short term upon S&P inslusion.
    @vikings123
    SO yeah, I also admit there is FOMO (regarding the options, since I've been holding the stock for a while now, but didn't realize soon enough that it would take "such time" to get ready for options trading). But I'm rather looking for deep OTM call like the one in example with far enough expiration as a buffer and an expectation to make money on the call even without it getting ITM (but with a slight hope to make some extra if it gets ITM) rather than a weekly lotto.
    And @juanmedina LEAPs are something I'm also planning on, though later once there is some sort of a dip and I've had enough time to rebalance.

    So sorry once again for the OT (end of conversation on my part) and thank you for your opinions (can't and "not advice" :)
     
  9. Right_Said_Fred

    Right_Said_Fred Moderator

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    Well, if your strategy is for the call to gain value but not necessarily from becoming ITM, then make sure the expiry date is not too close. A call for 7/24 probably does not provide enough time for a squeeze to take place. Calls with a high strike will lose value quickly. It is better to look for calls with an expiry date in late August or September. That should normally provide enough time for any S&P 500 news to get out and maybe even the inclusion itself. But be aware that even if Tesla qualifies it may take a while before the S&P 500 committee announces a decision.
     
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  10. adiggs

    adiggs Active Member

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    My primary addition to the other information provided by others is to check out the education videos at Free Beginner Options Trading Course from Option Alpha.

    This is the first of 3 tracks or collections of videos that jointly constitute basic education on options. Each track was about 10 hours for me to go through (1.25x playback speed worked really well) and, IMHO, constitutes about the minimum level of education I would consider for any options trading (buying or selling options). It's not the end of your learning and education - it's just some basics to get started and have an idea of what you're looking at (such as the dynamics going on in premium changes on an option).

    Some important caveats / things to know about this resource:
    1) it's free. And related, my own experience as well as every 3rd party review I have read arrived at the same conclusion - this is fantastic education on options. This isn't the end of your education in options - it's just the start, but for me at least, these were the basics that got me started actually selling options which was when the real education (experience) began.

    For this thread, I consider this to be the minimum knowledge level possessed by everybody participating in the thread.

    2) The site is teaching a specific option strategy (selling volatility), thus it has a focus on selling options and that strategy. The specific option strategy isn't one that I'm making use of (or that this thread is focused on), so there's a certain degree of filtering you'll need to do. Many of the trades we do are also used within that other strategy though. Thus it's still all applicable. You might need to do some filtering to account for that other, related strategy, but I didn't find that onerous. There are some paid services on the site specific to their option strategy - I don't make use of any of those.

    3) The three tracks - I think of them as:
    Beginner = basics of options (put, call, selling vs. buying, time decay, greeks, ...)
    Intermediate = getting into a trade
    Advanced = getting out of a trade

    Again the focus in the education is on their option strategy, but I found all of the education valuable for pursuing this different option strategy we're focused on here in this thread.


    EDIT: And welcome! I hope you find all of this valuable.

    EDIT 2: And I agree with the others on buying v selling options. You can lose money either way, but I'm doing a lot better selling options than I have buying options. You'll learn about why in that training :)
     
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  11. adiggs

    adiggs Active Member

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    Days like today creates a push/pull dynamic for me, that is different from a simple buy/hold strategy. I like seeing the stock price go higher. That's easy.

    However, I have sold calls at the 1700 strike expiring on Friday and I'd like to see them expire worthless (keep my shares), but I'm backed into a situation where they're going to expire one way or the other (don't have the cash in that account to close theme early / more aggressively). So one way or the other, those calls expire on Friday (for other reasons, I've determined that attempting to roll them isn't worth it).

    Thus, I like to see the stock going down.

    On balance I like the dynamic as more often than not, the addition of the option positions increases my daily earnings over the share price movement (good and bad).


    Thus I like today's drop in the share price - my likelihood of those 1700 calls expiring worthless is improved.


    And if I'm right about what I expect to happen with the share price over the remainder of the week (close the week at >1700), then I get to experience the wheel in actual practice!. More learning and I hope I continue to be paid for that education.
     
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  12. Mulligan Jake

    Mulligan Jake Member

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    I just started reading your post.
    Yes, I’ve been doing this for 3 years. It’s worked great till the last few months. I can’t get the calls high enough to stay ahead of sp.
     
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  13. adiggs

    adiggs Active Member

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    As we prepare for earnings later today, and the aftermath for the remainder of the week, I realized that at this moment I have arrived in a nearly perfect strangle position. It's not balanced (more puts than calls), but they are each $125 (1450 and 1700 strikes) OTM. I never planned it this way, and I probably can't ever do this using different positions sold at different times, for different reasons, over several days or a week. And yet here I am, with a sold strangle ready to go into earnings!

    Of course, I also think that the bias is sharply upwards. I am also increasingly thinking that if EVERYBODY is thinking that the bias is upwards, then that's a good indicator that the bulk of that theoretical move is priced in (as buyers have already bought in anticipation of the move).

    And thus - instead of thinking that the 1700 strike call is obviously going to finish ITM, I'm starting to think I have a chance that it won't (or it'll finish only a little ITM, and I'm especially ok with that - it's being really far ITM I worry about).
     
  14. adiggs

    adiggs Active Member

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    Welcome! If you've been doing this for 3 years, then I expect that you have a lot to add.

    To me, the focus in this thread isn't position size and money anybody is making - we all have portfolios of different sizes, and with different outcomes we're trying to achieve.

    Rather it's the learning we are each experiencing as we enter and exit positions that might be helpful to others; why we choose to enter or exit a particular position and timing (now vs later, expiration). I think the adage I've encountered, is that experience is learning from your own mistakes, and wisdom is learning from other people's mistakes. Something like that :)


    And your observation about not working as well recently has also been my observation. My understanding, more generally, is that the wheel works best in sideways and steadily moving markets (smaller, more predictable moves, even when they're in the same direction for a sustained period). These recent big and fast moves are where this strategy works badly, and even loses money (a hole I'm trying to dig myself out of this month).

    I'm finding that I'll be working this strategy, even when the larger circumstances aren't ideal or even good for it, mostly because I feel like I know it well, have had a lot of success (over 3 months :D), and because my standard of success is so low (I'm just trying to create 'dividends').
     
  15. Right_Said_Fred

    Right_Said_Fred Moderator

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    IV is already dropping like a brick. Price drops of about 25 to 30% for both calls and puts (with expiry dates 2 to 4 weeks out).
     
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  16. adiggs

    adiggs Active Member

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    I'm seeing that as well - IV on this week's expiration is dropping even more.

    The whammy is big. I had (still have actually) some calls expiring tomorrow at 1700 strike; they were priced at $54 yesterday, and just under $10 now. Time decay and IV crush have done them in (to my benefit), despite a small share price move against them.

    The 1450 puts have gone from $45 to $3.

    The 1850 calls have gone from $27 to $1.50.


    I might be playing future earnings in a similar fashion - sell a reasonably far OTM strangle before earnings, and close it the day after; probably using the same week expiration for maximum time and IV decay. That is a lot of option premium gone, especially after effectively no move in the share price (which is the rub; if it actually moves one direction or the other, then it's still good, but not AS good).
     
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  17. JusRelax

    JusRelax Member

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    #637 JusRelax, Jul 23, 2020
    Last edited: Jul 23, 2020
    I'm curious -- do you plan on selling covered calls for next week? If this earnings is anything like Q1's earnings, my guess is it would be very risky to try out covered calls for next week.
     
  18. adiggs

    adiggs Active Member

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    Good question - it's one I'm asking of myself right now.

    My thought of the moment, and something I'm likely to wait until the weekend to actually make (I want more time to reflect on this course of action), is to sell mostly FAR OTM calls. Like 2500 or 3000 and stick with either 1 or 2 week expirations. The other thought is to sell 1 call that is pretty aggressive - say the .30 delta. The idea with that 1 call is to actively court assignment with the intent to then sell a very high delta put to turn cash back into shares (the wheel).

    If I only make the round trip, then it's likely to be a smallish gain. But if I 'miss' a couple of weeks on being assigned, then those can be very high premium weeks. Hence - the thinking about it over the weekend :)

    Another thought is to wait it out for a week or two on the call side - see where things go. I also see the earnings report as a game changer, but that doesn't answer the question of what that means for the share price over the short term. I think that there is a good argument to be made that Tesla is already priced to near perfection, and thus sideways trading in response to earnings isn't all that unreasonable.


    In short I don't know, though I think my bias is stronger in favor of writing more calls next week than most.
     
  19. adiggs

    adiggs Active Member

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    And I'm out of all positions (yay).

    If I do nothing more this month, then this ends up as my second best month by going through a big enough loss to wipe out all previous earnings (and a lot more), and then earning back all of those losses and enough more to yield 2nd best month. And still another week to go!


    Many learnings along the way - the primary one I can articulate right now is the power of options that are ATM or close. They yield enough incremental premium to make a bigger difference than strictly dividend scale money, and that provides another source of protection from really big moves such as I've had to deal with the last couple of weeks.

    I'll be thinking this week about how to incorporate some of these close ATM options within the larger dividend strategy (I've got some ideas that will need some time to think through clearly).
     
  20. adiggs

    adiggs Active Member

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    With the large drop in the share price today, it has me thinking of writing a "put ladder" for next week. The ladder terminology may exist elsewhere, but not something I've seen. What I mean by that is to write a range of puts covering a range of deltas.

    In this case, maybe 1 at .30, 1 at .15, and then any further puts at .05 to .10. The idea is to have a high delta put that is more likely to be assigned and yields a bigger premium. The low delta puts yield small premium while being so far out that I would be quite happy to buy shares at that price (and be paid to do it, even if I'm not paid very much to do so).


    I mention this as an hour or 2 ago, I was thinking in terms of doing nothing until this weekend and a chance to think on this. But the big move down is improving option prices for next week. So ...
     

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