Applying options strategy 'the wheel' to TSLA

[Lycanthrope]

I tried to sell a c505 yesterday, but set my limit slightly too high, after which the moment was lost, so I wait and see... This malaise can't last forever.

So, took advantage of today's pop, to sell this c505 for next week, $1500 cash, thanks!

OK - let me make sure I understand - so does that mean you believe that the MM's will most likely (95% say) kneecap (or be able to kneecap) the SP under 450 all the way till after 3Q Earnings ?

Bought an Oct 30 440 C for 37.00 last week, also with a Jan 15 540 C, intending to sell the 440 C a day or two before 3Q E, like in selling the news ... is that too basic and likely to be foiled somehow? I figure it gets me more leverage than just HODL, while not running too many risks till next week.

As I know this is the wheel thread, I also sold an Oct 30 480 C for 18.40 - to keep me motivated too.

[Still learning, won't hold anyone responsible for my education - made enough on Sep 25 covered call to fund more tuition for a few more trades ]

I chose $447.50 strike because $450 has clearly been the line the MM's don't want to cross, so even if they keep manipulating I think it's still a fairly safe bet. Remember after Q2ER the SP was capped at $1700 in AH and PM, then walked-down to $1380 until the split announcement, so I'm not taking a post-ER pop as a given, might be yet another sell-the-news event.

> This malaise
?

Being manipulated with low volume.

Do you see 2022 LEAPS well priced to buy now?

Not really, my reference would be the June 2022 $700, which are currently almost 2x what I paid for them in July. For LEAPS you need to buy after a big pull-back - the drop we had to $330 a few weeks back was the time to jump-in (assuming IV fell too).

If you get a really big drop, like the C19 low of $340 from $960, then that's a gift - I sold 100 shares in March for $440, bought 10c June 2022 $1400's and sold them a few weeks later for 3x. Should have held them though, now worth substantially more!!

 

[adiggs]

> I'm using longer dated options now
I have been wondering why not many seemingly are considering long date options.
Here are two advantages I see

1. As you stated way less stress. And you still get a good premium. Similar to your trade, Jan-2022 C840 is $62. That's (62/445)*(12/15) = ~11%. Now IV is relatively low. On Aug-31, the same call was $100. Even at $500 SP, the return was 14.5%.
2. Taxes: I would think you will have to pay the taxes only for calendar year 2022, in other words you will have the full capital until 2023, that is until you file 2022 taxes in 2023. Would this also be a LTCG, instead of STCG?

Not a tax attorney / accountant - I believe that option premiums are always short term capital gains (US taxes) when the sold options are closed for a net profit. That profit doesn't get taxed though until the year in which the position is resolved, so one advantage of the Sep '22 840c I've sold is that I most likely won't be taxed on that profit until '22. I would be taxed in '21 if I closed it in '21 of course. (Actually , there are no tax consequences for that particular trade as it's in a Roth IRA).

 

[Criscmt]

Not a tax attorney / accountant - I believe that option premiums are always short term capital gains (US taxes) when the sold options are closed for a net profit. That profit doesn't get taxed though until the year in which the position is resolved, so one advantage of the Sep '22 840c I've sold is that I most likely won't be taxed on that profit until '22. I would be taxed in '21 if I closed it in '21 of course. (Actually , there are no tax consequences for that particular trade as it's in a Roth IRA).

> STCG
You are right, I wasn't very sure when I posted my message/question yesterday.

> Tax year
That's correct, you have the full capital with you until the transaction is closed.

 

[adiggs]

That's correct, you have the full capital with you until the transaction is closed.

And I love this dynamic!

 

[Lycanthrope]

How does it work in the US with rolling options - is that considered realised gains at the roll moment?

Maybe it depends on the transaction type? If your broker has a true sell-to-buy then it's arguable, but in my case it's not available, so it's a sell order followed by a separate buy order.

 

[Mokuzai]

How does it work in the US with rolling options - is that considered realised gains at the roll moment?

Maybe it depends on the transaction type? If your broker has a true sell-to-buy then it's arguable, but in my case it's not available, so it's a sell order followed by a separate buy order.

From what I can tell it looks like a loss immediately and then offset by the gain later if it expires worthless or gets exercised. I have a call that sorta got away from me in my IRA account that I've pushed forward all the way into 2022. The IRA doesn't allow selling options beyond covered calls and cash secured puts and even though I didn't have the cash to buy back the call it let the transaction go through as a roll. That account is showing a huge loss right now in the current year even though I'm up quite a bit as long as that option either exercises or expires worthless in 2022.

But all sold options are short term capital gains regardless of how long you hold them since the premium was delivered immediately. It looks like rolling can be a way to defer gains...though I'm not sure if you can claim that as a loss now then a gain later. I may have to hire somebody to do my taxes this year as these accounts are getting into "find every deduction possible" territory.

 

[adiggs]

From what I can tell it looks like a loss immediately and then offset by the gain later if it expires worthless or gets exercised. I have a call that sorta got away from me in my IRA account that I've pushed forward all the way into 2022. The IRA doesn't allow selling options beyond covered calls and cash secured puts and even though I didn't have the cash to buy back the call it let the transaction go through as a roll. That account is showing a huge loss right now in the current year even though I'm up quite a bit as long as that option either exercises or expires worthless in 2022.

But all sold options are short term capital gains regardless of how long you hold them since the premium was delivered immediately. It looks like rolling can be a way to defer gains...though I'm not sure if you can claim that as a loss now then a gain later. I may have to hire somebody to do my taxes this year as these accounts are getting into "find every deduction possible" territory.

@Lycanthrope - Mokuzai has articulated the dynamics I've seen. Even the roll in an account that didn't have the cash to do the close order separately from the open order.

So - even though a roll is entered as a single order with 2 legs, for tax purposes it goes into the books as 2 transactions. The close transaction realizes the gain or loss on that open position at the time of the roll, while simultaneously establishing a new open position with cash in hand and a liability equal to the cash (which then evolves normally from there).


On a roll, in a regular brokerage account, whatever the results from the first leg (a gain or a loss), that is what you'll be reporting on your taxes that year. I figure that this dynamic is going to make for some lumpy taxes - much lumpier than I'm accustomed to after all these years working for a paycheck. That lumpiness (big realized gains / taxes one year, little or no gains or even overall losses the next, etc.) is something I'll be cranking into my thinking after this year.

With a larger overall point of view - taxes are a worthwhile consideration, but are secondary. If I have a 6 figure tax bill some year, it comes from a good cause

 

[juanmedina]

are you guys still waiting for the IV to go up? I don't think is going to happen lol. I sold some more calls yesterday and early today. I still have a few more left to sell and I might wait until next week.

 

[Lycanthrope]

Thanks to both of you! This is in line with my understanding too.

According to my accountant, losses from options trades are deductible, from shares trades, not.

In the meantime, thanks to dip, rebought 1x 23/10 c505 for $6.50 - around 60% profit, I think, less than I normally look for, but seemed like a poor trade to keep 100 shares in reserve. Will look to sell the same call early next week for more.

And sold another 23/10 p447.50 for $28.09 - I hold 3x of these now, am OK if they execute, but obviously looking for a Q3ER pop to kill them off.

 

[adiggs]

are you guys still waiting for the IV to go up? I don't think is going to happen lol. I sold some more calls yesterday and early today. I still have a few more left to sell and I might wait until next week.

I've got a call position I've been planning to enter Tuesday or Wednesday of next week, before earnings. I'm hoping for increasing share price going into earnings plus an increase in IV.

My guess is those will be November calls - maybe a 600 strike (don't know yet); something far out there while still being a reasonably good premium. Whatever it is, it'll represent a new ATH.


I've also got put positions for November that I'm on the edge of closing early, with a plan to reopen after earnings assuming a sell-the-news reaction. If I get another decent drop in share price on Monday, then I'll probably close / open those puts then.

 

[Chenkers]

My guess is those will be November calls - maybe a 600 strike (don't know yet); something far out there while still being a reasonably good premium. Whatever it is, it'll represent a new ATH.

I would be wary of any calls expiry just after the election. A delay in declaring a result due to postal votes or Trump trickery could cause a short term market drop right around your expiry.

I have several 340/500 call spreads expiring on the 30th. I'm hoping for a decent post earnings bump by then. I also closed a bunch of covered calls for the 23rd on Fridays dip for a small profit.

 

[adiggs]

I would be wary of any calls expiry just after the election. A delay in declaring a result due to postal votes or Trump trickery could cause a short term market drop right around your expiry.

I have several 340/500 call spreads expiring on the 30th. I'm hoping for a decent post earnings bump by then. I also closed a bunch of covered calls for the 23rd on Fridays dip for a small profit.

A drop in the share price after the election will be good for me on sold calls (I don't buy options any more - I've proven to my satisfaction that I'm bad at it, in many ways).

 

[Chenkers]

A drop in the share price after the election will be good for me on sold calls (I don't buy options any more - I've proven to my satisfaction that I'm bad at it, in many ways).

Sorry, I thought you were referring to bought calls. I'm also looking to sell a bunch of calls over the election period, expecting a drop post election to close them out cheap. I'm hoping we get a lift after earnings without an IV crush so I can sell the calls at a decent price.

 

[LN1_Casey]

Sold a 540 call for next week for an appropriate $4.20 on Friday. I think the Q3 ER will be amazing but I don't think MM's will allow it to run wild the first week, especially with the strike at 500 a too-tempting target. If it does and it gets called away, it'd have bought my Tesla. Win-Win.

If the premiums are too tempting, might sell a Oct 30 call for a higher strike next week regardless of this call or not. If that gets called too, than I'd start selling puts for post-election dips. One way or another, I see volatility in the market post election that will create a buying opportunity.

 

[Criscmt]

Thoughts on selling Jan-2021 C600 as protection post ER and post election?

Before ER, I am planning to cut down my leverage by moving my ATM LEAPs (expiring in 9-18 months) into DITM LEAPs expiring > 15 months.
And on top of that, selling Jan-2021 C600. And, use the money from the calls to buy shares.
My eventual goal is to move from being primarily in LEAPS to primarily common stock, even if it means some stock on margin.

The idea is to protect from SP and IV drop (even if SP doesn't drop) in the near term.
The plan is to buyback the Jan calls sometime before expiry.
I am hoping I won't be assigned unless it's close to the expiry.
If SP seem to be going beyond $600+premium as we approach Jan-2021, I plan to buy back at a loss. My long calls would've appreciated anyhow. The only factor I see making this risky is S&P inclusion anticipation again like in July-August.

 

[LN1_Casey]

Thoughts on selling Jan-2021 C600 as protection post ER and post election?

Before ER, I am planning to cut down my leverage by moving my ATM LEAPs (expiring in 9-18 months) into DITM LEAPs expiring > 15 months.
And on top of that, selling Jan-2021 C600. And, use the money from the calls to buy shares.
My eventual goal is to move from being primarily in LEAPS to primarily common stock, even if it means some stock on margin.

The idea is to protect from SP and IV drop (even if SP doesn't drop) in the near term.
The plan is to buyback the Jan calls sometime before expiry.
I am hoping I won't be assigned unless it's close to the expiry.
If SP seem to be going beyond $600+premium as we approach Jan-2021, I plan to buy back at a loss. My long calls would've appreciated anyhow. The only factor I see making this risky is S&P inclusion anticipation again like in July-August.

I dunno, Jan 21 will be post Q4 numbers, and likely post 500k/year. S&P inclusion can happen after this Q3 results, as they finally admit that Tesla is profitable even without the credits, or that the credits are going to be a part of their bottom line for a while and not a one off thing.

I can see SP600 happening in December, after the election is over and the market finishes panicking, let alone the month following with the Q4 P&D.

 

[juanmedina]

Thoughts on selling Jan-2021 C600 as protection post ER and post election?

Before ER, I am planning to cut down my leverage by moving my ATM LEAPs (expiring in 9-18 months) into DITM LEAPs expiring > 15 months.
And on top of that, selling Jan-2021 C600. And, use the money from the calls to buy shares.
My eventual goal is to move from being primarily in LEAPS to primarily common stock, even if it means some stock on margin.

The idea is to protect from SP and IV drop (even if SP doesn't drop) in the near term.
The plan is to buyback the Jan calls sometime before expiry.
I am hoping I won't be assigned unless it's close to the expiry.
If SP seem to be going beyond $600+premium as we approach Jan-2021, I plan to buy back at a loss. My long calls would've appreciated anyhow. The only factor I see making this risky is S&P inclusion anticipation again like in July-August.

I wouldn't sell those calls right now the premium is not good IMO. I want to sell leaps as soon as the IV picks up as protection as well but I been looking at Sep 21 c800s and January 22 c1000 at they peak they were $90 so when they hit $80 I will start selling some. My intention is to close them out early.

I've got a call position I've been planning to enter Tuesday or Wednesday of next week, before earnings. I'm hoping for increasing share price going into earnings plus an increase in IV.

My guess is those will be November calls - maybe a 600 strike (don't know yet); something far out there while still being a reasonably good premium. Whatever it is, it'll represent a new ATH.


I've also got put positions for November that I'm on the edge of closing early, with a plan to reopen after earnings assuming a sell-the-news reaction. If I get another decent drop in share price on Monday, then I'll probably close / open those puts then.

IV keeps dropping now at 73% I am kind of tempted about start buying calls instead of selling calls. I have some 505-520s still that I am thinking about closing but they still have $3 in them.. decisions

 

[adiggs]

IV keeps dropping now at 73% I am kind of tempted about start buying calls instead of selling calls. I have some 505-520s still that I am thinking about closing but they still have $3 in them.. decisions

Part of my decision criteria for when to close an open covered call (or put):
1) Given that I've hit my profit criteria, do I consider the risk 'high' for the position? If so, close - no more thought necessary.
2) Do I have another position I would rather be in? If so, then close the current and open the new position.
3) Do I have a new position I would like to be in, but there will be a delay (such as post-earnings), then it's a bit more tricky. If I wait to earn those last few $, then the increasing IV might offset time decay or moves in my direction, and I end up not being ready for that new open.
4) If I don't really have something else I'd rather be doing, then sitting on that last few $, even if it isn't very much, is still more than being out of the market without a new position ready to go.
- This last criteria has led to a few positions that were easily ready to close, but since I didn't have anywhere to go yet, I just hung onto them to squeak out another few $, and in a few cases, a few more dimes.


I'm usually more focused on closing early for that 2/3rds, 3/4th, or even 9/10th profit level, even if it leaves me out of the market for a few weeks or even a month. A closed position can't ever move against me!

 

[Bunky]

Does anyone have any experience with requesting more strike prices from CBOE? Wondering if it is worthwhile, would be good to sell some LEAPs further out of the money than say $800/$1000.

 

[Nate the Great]

I had this problem.

Select "Moneyness" (spelling).