Wiki Selling TSLA Options - Be the House

[adiggs]

Thank you both, I really do appreciate all of the help in this thread. The advice and cautious approaches of most really sets us apart from the gambling/WSB crowd that cheers huge risks that can wreck a portfolio.

All of my other positions for next week are 600/700 and 590/690 BPS, but I wanted one BPS closer to the money to get comfortable with management/rolling, per the techniques provided by @adiggs and others.

NOT-ADVICE of course

But I like the small / aggressive position to consciously and intentionally get into a management situation because I've been in the situation where I needed to know how to do this sort of management and didn't. That was a big position and my off-the-cuff solution got me into a 2 year position that needed a year to finally resolve. This was one of my 3 or 4 big mistakes over the last 18 months and some better preparation would have led me to different choices. If a similar situation arose today for me, I'd be doing different things.

Expensive mistakes can be the best education. But even better are cheap mistakes that teach the same lesson.

Even better is learning from other's mistakes!

 

[MikeC]

I wouldn’t rush it. I have an account that just broke $10k this week. Slow and steady will win and you will be there before you know it.

I’m working on getting high deductible health insurance so I can get a tax free health savings account that I can do this in too. Working to try and get it in place this year so I can fully fund it this year with $7200 then in Jan with another $7200. Then hopefully I can have it at $30k by the end of next year.

Is here an HSA where you can sell spreads? I have one that I am able to sell covered calls and cash-secured puts in, but that's it.

 

[adiggs]

Yeah, I closed-out the Evergrande week's BPS as soon as I could that Monday - this one you mention was for mast week expiry, I took 75% profits on that, so around $75k in order to open next week's BPS early - 200x 600/685 +$5.25, but I screwed that up a bit yesterday trading the short side and re-entering this morning with the premiums much lower now just sit on +$2.50 = way to throw $55k down the crapper!

I have to learn how to roll these volume of BPS, but I keep several $100k's available for intervening

You could, you know, just let the winning BPS coast into the finish line and be ok with ~$100k for the week.

There's all that day trading you'd miss out on though!

I wouldn’t rush it. I have an account that just broke $10k this week. Slow and steady will win and you will be there before you know it.

I’m working on getting high deductible health insurance so I can get a tax free health savings account that I can do this in too. Working to try and get it in place this year so I can fully fund it this year with $7200 then in Jan with another $7200. Then hopefully I can have it at $30k by the end of next year.

Completely agree and I'd add on - a consistent $10k/week is, like, an outrageously high income by any rational standard. It might not get you into the really exclusive country clubs, but it's hard to describe that as anything except wealthy.

Which is only to say - no judgement etc.. intended - anybody at this result level is doing awfully well.


If you find a health savings account in which spread options trading can be performed, please let us know. I've got an account like that where I haven't particularly investigated - just assumed I couldn't do anything like this, so its just sitting in cash and slowly being spent down. Earning money there faster than I'm spending it would be -- ridiculously good?

There is a lot of that ridiculously good going around. And since nothing is free it's got me wondering where the other shoe is that hasn't dropped yet.

 

[EV forever]

I closed out all my positions for this week - around 80-90% profit on these. Have not completed downloading and calculating in the worksheet - but I am pretty certain this was my first +50K week - considering this is my 2nd month of doing BPS - I am impressed with the learnings on this group. Thanks @adiggs for starting this!

standard deviation is like a -16 delta on the put side and 16 on the call side. It comes from the bell curve. This will help explain it better than I can.

I also use -20 delta meaning that there is about a 20% chance that that strike will expire ITM. I go with -20 when I am extremely bullish and use 1 standard deviation when I'm neutral. I'm super bullish about tonights meeting, however from a stock price perspective, I'm neutral. It seems to take the market about 3 trading days to digest really good news from tesla events (If they digest it at all).

Thanks for asking the question @deerfield - I was wondering about the SD as well. Looks like overall I am around the same range as well using the probability ITM as the selection criteria, although I do take a smaller more aggressive position. I already opened positions for next week 725/625 are the ones around 20% ITM for the sold put with a 100 spread to be conservative. Around 15% ProbITM are 695/645 - 50 spread to give a higher number. Then a few aggressive ones at 750/650. I still have a tiny amount of room left for tomorrow - often with TSLA the stock actually drops after their events - so keeping some room just in case for tomorrow.

 

[MP3Mike]

If you find a health savings account in which spread options trading can be performed, please let us know.

Schwab let me apply, but I don't know if they will approve it.

 

[adiggs]

I decided to open my BPS for next week and went with 640/700s I collected about 3.35 each, which clears the somewhat ridiculous 5% of spread size bar.

I would prefer to open these on a downward move (sell into strength) but I decided to act on two ideas:
1) The +$4 of the moment might BE weakness, and I feel more strongly in that direction than not (i.e. - shares are going up from here over the next week due to the various news)
2) Even if there might be a better entry tomorrow, there also might not be, and if I'm clearing the 5% threshold then trying for even more doesn't seem like a sound strategy for the long haul. Entries will be better and worse, but 5% for a 700 strike put is like good.



Also baked into this is the idea that the 700 strike put is effectively unreachable, at least over such a short period of time. I don't mean that it ISN'T unreachable, only that it seems very safe to me.

I haven't look at call spreads to pair up with these put spreads. There are enough others talking about how badly those premiums suck, plus my own recent experience, to make that effort not worth wasting

Oh - and y'all might notice that I'm getting radical for me and shrinking my spread width a bit ($60). I still like the wider spreads, but I also like my overall position lots. I like being more distant from the share price, and am using up some of that risk reduction by shrinking the spread width. (NOT-ADVICE )


I've also noticed a dynamic in my margin account that is bothering me. My house/SMA surplus (I now watch both as I've seen the house surplus be larger than the SMA a few times now) are both about 60% of my cash on hand in that account. I'm having a hard time reconciling how I can enter defined risk positions and be unable to use all of my cash (should I desire) due to margin constraints.

I'll figure that out another day, and be hoping for assignment on my 800 strike calls for this week. I'm also considering getting really radical and just closing them those calls (I know right!?!). They're ahead nicely since I purchased them, and I've decided that account has too much delta (shares and long calls).

 

[adiggs]

I am pretty certain this was my first +50K week - considering this is my 2nd month of doing BPS - I am impressed with the learnings on this group. Thanks @adiggs for starting this!

Congratulations on the good results and you're welcome - it's my pleasure to get this started, even though I had no idea what would develop. I'm doing pretty well from all this as well

The learnings from this group are generated by us all, and accrue to us all.


Not directly from your comment, but a good takeoff anyway - maintaining the quality of the thread and ongoing learning for us all, is also a task for us all. From a previous life (when I earned a paycheck) the very conscious idea at the company I worked at was that we were all of us, hourly to executive staff, responsible for creating and maintaining the company culture we desired.

That culture was well established before I came along, but I took that idea to heart and considered myself a bearer and promoter of the company culture for the nearly 3 decades I was there. We create what we want, and we're all on the hook to keep this going.

 

[InTheShadows]

NOT-ADVICE of course

But I like the small / aggressive position to consciously and intentionally get into a management situation because I've been in the situation where I needed to know how to do this sort of management and didn't. That was a big position and my off-the-cuff solution got me into a 2 year position that needed a year to finally resolve. This was one of my 3 or 4 big mistakes over the last 18 months and some better preparation would have led me to different choices. If a similar situation arose today for me, I'd be doing different things.

Expensive mistakes can be the best education. But even better are cheap mistakes that teach the same lesson.

Even better is learning from other's mistakes!

I like using other tickers to test stuff with. Like the WSB YOLO tickers. Their IV is sky high so unpredictable and you can test your theories and figure out mechanics usually risking < $1000. You could even go down to $100 but it would be harder to use wide spreads at that amount. And if it turns into a winner, well you got a sweet return.

 

[InTheShadows]

Completely agree and I'd add on - a consistent $10k/week

Haha. I wish with that account. That account is $10k of equity.

 

[InTheShadows]

Is here an HSA where you can sell spreads? I have one that I am able to sell covered calls and cash-secured puts in, but that's it.

From what I can tell it's the same as a ROTH or an IRA. You need to sign a spread agreement. I looked at both Fidelitys and TD Ameritrade and from what I can tell you can sell spreads in both.

 

[corduroy]

There is a lot of that ridiculously good going around. And since nothing is free it's got me wondering where the other shoe is that hasn't dropped yet.

I've been thinking a lot about the other shoe dropping lately. When you have people regarded as the greatest investors of all time, like a Peter Lynch, returning 30% annualized over 20 years, and we are modeling annualized returns in the thousands of percent, are we part of a mass delusion?

 

[InTheShadows]

From what I can tell it's the same as a ROTH or an IRA. You need to sign a spread agreement. I looked at both Fidelitys and TD Ameritrade and from what I can tell you can sell spreads in both.

Ooh, maybe not. I'll be digging deeper into this. Even still, it's a great way to hold TSLA shares.

 

[generalenthu]

As some one who spends more time in the main thread than here, I think i finally figured out a way to be at peace with my positions. After experimenting with a ton of near OTM and ATM puts, I have come to appreciate the versatility of the BPS with its plethora of strikes, spread sizes and expiries. That is one additional dimension (spread size) than what the outright puts give you. Obviously nothing new to the folks here.

My main hang up was with a bullish view where the stock might take off and leave the BPS behind where the capital might have been better deployed in other strategies, especially with all the catalysts on the horizon. So ICs were a strict no for me, especially with the meager call premiums.

What I settled on finally is to pair up my 3-9 DTE BPS with a call calendar on the high side. I am currently in 1000 strike -Jan / +March (2022) that is trading at ~$15 a pop. In case of weakness, I can more easily write BPS for income generation (especially with elevated IV) and if the stock takes off, the calendar spread should too, offsetting some of the drop in downside IV. I'd be gladly looking forward to rolling out my short strike at 1K. While this calendar is negative theta, it is peanuts compared to the theta from BPS, and a ton more capital efficient than owning outright shares. Of course it comes with its own vega / delta exposure, but it is all much smaller than what the BPS will earn you.

I think I can take off some of my outright shares exposure and deploy that into a combination of BPS + call calendars, but I will wait for a few more weeks and observe how this combo performs.

 

[Drezil]

I've been thinking a lot about the other shoe dropping lately. When you have people regarded as the greatest investors of all time, like a Peter Lynch, returning 30% annualized over 20 years, and we are modeling annualized returns in the thousands of percent, are we part of a mass delusion?

Well.. 2020 was 2500% return for me.. and i got very greedy this year. Still down -18.75% YTD. Even with insane things like +25% this month already.
Losing 80% in a few months made me very humble and appreciative of the thing we got here.

Also this place gives me a pool of opinions on things.. and when i see other trades i also asks things like "am i too agressive/passive with this one?". Has already saved me a lot of money.

2 most distinct things i learned the hard way:

1. close early & often - reopening can be quite lucrative.
2. If you don't know what to do because you can argue convincingly both ways, just do half.

The latter one often enables the former ones yielding excellent returns on slow days trading the swings.

 

[bkp_duke]

Something is happening, that's some impressive buying going on right now. Some of my GTC orders just executed.

 

[dc_h]

I'm all moved out to next week. I rolled 650-600 to the same for next week to net 2.35 yesterday and now 700-640 to 705-655 and 705-645. I fat fingered a trade last week and just kept the spread the same. I'll sell another 20 small spread bps either tomorrow or next week and those closer to the money. A smaller higher risk bet, which was 10% of my trade income last week. Having a few different spreads, I reduce my chance of needing to roll everything, but even my higher spread is not likely to need to roll. I think we'll be up after the shareholder call, but Elon likes the good news held for product releases and bad news for shareholder and earnings calls. I liked the idea of an IV burnoff after the shareholder call. If we pop tomorrow, I may roll my 650-600 up to 700-650, but I'm happy with my return already and can wait until next week to roll again.

 

[InTheShadows]

I've been thinking a lot about the other shoe dropping lately. When you have people regarded as the greatest investors of all time, like a Peter Lynch, returning 30% annualized over 20 years, and we are modeling annualized returns in the thousands of percent, are we part of a mass delusion?

I have spent some time thinking about this and came to the conclusion that as long as I could weather a 6 month storm I would be fine. I had some nasty trades this spring with cash secured puts that went against me that basically stalled out my earnings for 3 months, I finally cut them as losses to free up capital with the new information I had learned here. (Though I think with what I know now I would have been able to exit those as break evens or even possibly as winners.)

The reason I came to the 6 month conclusion was because of the last market disasters we have had, 9/11, 2008, covid. In every instance the FED stepped in and fired up the printing press to prop the market back up. I got burned buying puts during covid because I thought there was no way the market could recover that fast. Then after a lot of losses I realized that I was betting against the FED and their printing presses.

Even look at Evergrande, different country, same actions by the government. Fire up the printing presses and bail them out. Just like I think Ford and GM will be getting a bailout within the next 4 years (Is this in the form of the tax credit? I hope so because tsla will take most of it.).

If you look at Warren Buffett's net worth graph. It followed this trajectory and how much easier is it for us to trade now and to have access to the TSLA trading pool (everyone here) than it was then.

 

[InTheShadows]

Ugh, I didn't get all of my positions opened for next week.

Something is happening, that's some impressive buying going on right now. Some of my GTC orders just executed.

 

[adiggs]

As some one who spends more time in the main thread than here, I think i finally figured out a way to be at peace with my positions. After experimenting with a ton of near OTM and ATM puts, I have come to appreciate the versatility of the BPS with its plethora of strikes, spread sizes and expiries. That is one additional dimension (spread size) than what the outright puts give you. Obviously nothing new to the folks here.

My main hang up was with a bullish view where the stock might take off and leave the BPS behind where the capital might have been better deployed in other strategies, especially with all the catalysts on the horizon. So ICs were a strict no for me, especially with the meager call premiums.

What I settled on finally is to pair up my 3-9 DTE BPS with a call calendar on the high side. I am currently in 1000 strike -Jan / +March (2022) that is trading at ~$15 a pop. In case of weakness, I can more easily write BPS for income generation (especially with elevated IV) and if the stock takes off, the calendar spread should too, offsetting some of the drop in downside IV. I'd be gladly looking forward to rolling out my short strike at 1K. While this calendar is negative theta, it is peanuts compared to the theta from BPS, and a ton more capital efficient than owning outright shares. Of course it comes with its own vega / delta exposure, but it is all much smaller than what the BPS will earn you.

I think I can take off some of my outright shares exposure and deploy that into a combination of BPS + call calendars, but I will wait for a few more weeks and observe how this combo performs.

Please do keep us updated on how this goes. Yet another possibility of learning something new that I wouldn't have even thought of, much less done, on my own.

 

[UltradoomY]

I've been thinking a lot about the other shoe dropping lately. When you have people regarded as the greatest investors of all time, like a Peter Lynch, returning 30% annualized over 20 years, and we are modeling annualized returns in the thousands of percent, are we part of a mass delusion?

The key difference to take into account is that there are people who are doing this, have been doing this for a long time and who have made yacht loads of money and quit.
The reason institutions (like Peter Lynch's firm) and others do not is they are diversified, and have a duty to their account holders to make sure one stock or equity cannot tank the fund.

Thus being diversified, they have limited analysts that can research individual stocks and companies - Even ARK and Cathie Wood's firm has their top people researching and knowing all they can about a lot of stocks.

We have a unique ability and liability in that we are only beholden to ourselves (and families) and have a distinct informational advantage.
We can also be 100% in one stock if we want because the only rules are those set by ourselves.

This is something - options and all derivatives - that many a fortune has been won or lost on.
Start small, build up and learn along the way.
There is no other shoe to drop for those reasons. The market rules have not changed, and unless they do, this is the game we get to play if we want.

One other tangent that works is - most - if not the super majority of people do not have the time, patience, starting capital or mental toughness to do this.
It is not easy to go through all the numbers, greeks, strikes, upcoming catalysts, reports, announcements, twitter, forums, etc., etc., etc.... and stay on top of to be successful.
So in short (no pun intended) it is sustainable long term, there is no secret and we can all do it. It does however take a lot of work to be consistent and profitable, and for me that is also very enjoyable.
Cheers!