Applying options strategy 'the wheel' to TSLA

[adiggs]

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.

If you do figure that out and can make it happen, or at least find out how to make the requests, let us know what you learn. If it's a voting type of mechanism, where more requests increases the likelihood of action, I suspect we can organize a ballot stuffing

 

[Bunky]

If you do figure that out and can make it happen, or at least find out how to make the requests, let us know what you learn. If it's a voting type of mechanism, where more requests increases the likelihood of action, I suspect we can organize a ballot stuffing

Seems like you give them a call and they may or may not fulfill your request. Will give it a try tomorrow.

New Strike Price Requests.

 

[Criscmt]

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.

I plan to be ready to buy them back at some point of time before end of November.
I agree on S&P likelihood, and certainly Q4 results should give a big boost, barring really bad macros. I am looking at Jan-2021 calls due to combination of decent premium and decent theta decay.

 

[Criscmt]

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.



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

> Jan-2022 C1000
I had the plans to sell them ~Aug-31
Somehow my emotional side tricked me into ignoring my rational side
I would love to sell calls if they reach such level again. I want protection for the next 1 month. For that was looking for the calls with decent premium + decent theta decay. Picked Jan-2021 C600 for that combination. Plan is to buy them back when macros seemingly get stable, likely after elections.

> IV 73%
Doesn’t seem low if we look at it from historical perspective. The last few months are a bad comparison, as we had back to back catalysts, S&P + BatteryDay?

 

[Criscmt]

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!

IMHO, This is maturity.
With short to mid term options you need to act like a trader, rather than like a HODL investor, in other words err on the side of taking the profit sooner, rather than waiting longer.
That said, the point of opportunity cost applies to all kinds of investments.

I am curious if you have any thoughts on selling Dec, Jan ~600 calls as protection for downturn in the next 3-6 weeks?

 

[FS_FRA]

@All I've been pretty much passively reading here and other TMC threads for many years. For various reasons it's been a nightmare of a task for me to get some of my TSLA shares to be transferred to a broker that supports options trading.

Short story: my normal broker in Germany (comdirect) doesn't support trading non-German options. Finding a reliable broker in Germany that does was not simple. Actually moving TSLA to the new broker (InteractiveBrokers) has been a 3 month struggle. Then getting the depository location of the shares transferred to the US (so that I can trade options in US) took 3 weeks...Getting approval to trade options at IB is pending "due to overload of staff from COVID". Now we have Brexit looming with a transfer of IB customers from UK to locations within to EU pending (with unknown impact)..... Shitshow

Anyways, now I'm almost ready to become active and I wanted to thank @adiggs for opening this thread and everyone else who contributes here regularly for their posts and insights. I hope I can return something of value in the near future.

Always learning....

 

[Nate the Great]

With earnings, I think there will be a sell-off down to 370.

 

[juanmedina]

With earnings, I think there will be a sale of down to 370.

why would that be?

 

[Nate the Great]

Because with earnings sometimes there is a sell-off even with good news.

 

[adiggs]

IMHO, This is maturity.
With short to mid term options you need to act like a trader, rather than like a HODL investor, in other words err on the side of taking the profit sooner, rather than waiting longer.
That said, the point of opportunity cost applies to all kinds of investments.

I am curious if you have any thoughts on selling Dec, Jan ~600 calls as protection for downturn in the next 3-6 weeks?

To the first point, that buy and hold mentality has served me extraordinarily well for the TSLA shares I've accumulated over the years. And has failed me spectacularly on the few calls I've purchased (leading me to stop trying to leverage up results using call purchases ).

For some reason, the mentality for selling options does work for me. I think because at the limit, I can "sell and hold" and at the end of the option, I will have earned all of the premium (whether I'm also assigned or not, the premium is all mine).


That idea of opportunity cost, risk, and reward applying to all investments - so very very true. One reason for the bias towards early close is that it also ends the possibility (in that position) of something suddenly going very, very wrong (a risk that is always present, even if the odds shrink towards zero, they never reach zero until the position is closed).


For your direction question, that's approximately the covered call position I am currently contemplating. I like the 600ish strike as that will be ~$100 beyond the ATH, so I like that gap the distant strike provides. For me, I think of covered calls as "pre-selling" shares at a desirable price point, with the outcome being that I collect a premium now for the privilege of pre-selling my shares, and the downside of collecting a premium and keeping my shares if/when we finish OTM.

Which is sort of like protection for a downturn - it's at least income / earnings that you can collect along the way while you wait for the share price to recover.

I have been planning to open a position today or tomorrow along those lines. I was also expecting the stock to be trading up today and tomorrow in anticipation of earnings - with the moves down the last couple of days, I might wait another few days.

Anyways, now I'm almost ready to become active and I wanted to thank @adiggs for opening this thread and everyone else who contributes here regularly for their posts and insights. I hope I can return something of value in the near future.

Always learning....

Welcome aboard @FS_FRA . I like your ending observation - always learning. Good luck in your adventures, and I hope you'll share with us what you learn along the way. That's always been my purpose in this thread - learn what I can from people with more knowledge and experience.

And I think that means contributing back as well, to whatever degree that I can. At least if I wander into a hole, y'all will likely know how I got there so you can maybe avoid it yourself!

 

[LN1_Casey]

Because with earnings sometimes there is a sell-off even with good news.

I hope not, because after earnings is when I need to sell my share for my car purchase.

Also, because shortly after earnings is the election, which may also cause a drop due to the uncertainty of everything (like if the Orange one loses and makes a statement that he'll refuse to step down). So it'd be a double impact. Great for future call buying, but not so much for those who need immediate use.

 

[adiggs]

I hope not, because after earnings is when I need to sell my share for my car purchase.

Also, because shortly after earnings is the election, which may also cause a drop due to the uncertainty of everything (like if the Orange one loses and makes a statement that he'll refuse to step down). So it'd be a double impact. Great for future call buying, but not so much for those who need immediate use.

That immediate use idea - that's one reason for me approaching this as an income production strategy. I think it'll be possible to retain ownership of the shares while also producing income for "stuff". Such as making payments on a car loan, for a car I really want to own

Not advice of course, but an idea to crank into the equation. I'd want a fair bit of education and experiences myself, already "in the bank" as it were, before counting on option selling for anything that substantial.

 

[adiggs]

My first non-trade, trading post

I've got a reasonably significant covered call position I've been looking to enter. For a few weeks now, my approach was to wait for today or tomorrow, and then open the position at a relatively high share price and relatively high IV. Neither of those things are true, at least as far as today goes. Sort of a buy the rumor, sell the news approach to opening a covered call. So a new plan is needed (and I continue to eat the opportunity cost of not having a covered call open -- all that time decay passing me by).

With the behavior so far this week, my new plan is I'll be continuing to wait until after earnings and see what happens then. As with all investment choices, there are opportunity costs; risks and rewards, etc.. My hope is that on the back of amazing earnings, the share price will bounce upwards in a meaningful way, and that will provide a better premium at what I believe is an unreachable share price. As with any such decision, I can be wrong, but at least you can add to the scale that I plan to have a significant position with this view of the world.


Due to my move to monthlies and longer dated options (minimize my daily effort), I'm looking at Nov - Feb monthlies, at the 600 or 700 strike. I prefer the 700 strike as additional protection from reaching 600. Both are well clear of the ATH, but I've also seen TSLA go this far above the ATH in a very short time period several times. I think that I've got good reasons to having a Jan/Feb expiration (if I hold that long then taxes will be in next tax year, and this is a taxable account; I don't put much weight onto the scales for tax outcomes though).

And though I view this as a pre-sale of the shares at that strike, I don't REALLY want to sell.

 

[st_lopes]

Because with earnings sometimes there is a sell-off even with good news.

50 day MA was up to 411 today... highly unlikely, but I guess anything is possible

 

[clmason]

My first non-trade, trading post

I've got a reasonably significant covered call position I've been looking to enter. For a few weeks now, my approach was to wait for today or tomorrow, and then open the position at a relatively high share price and relatively high IV. Neither of those things are true, at least as far as today goes. Sort of a buy the rumor, sell the news approach to opening a covered call. So a new plan is needed (and I continue to eat the opportunity cost of not having a covered call open -- all that time decay passing me by).

With the behavior so far this week, my new plan is I'll be continuing to wait until after earnings and see what happens then. As with all investment choices, there are opportunity costs; risks and rewards, etc.. My hope is that on the back of amazing earnings, the share price will bounce upwards in a meaningful way, and that will provide a better premium at what I believe is an unreachable share price. As with any such decision, I can be wrong, but at least you can add to the scale that I plan to have a significant position with this view of the world.


Due to my move to monthlies and longer dated options (minimize my daily effort), I'm looking at Nov - Feb monthlies, at the 600 or 700 strike. I prefer the 700 strike as additional protection from reaching 600. Both are well clear of the ATH, but I've also seen TSLA go this far above the ATH in a very short time period several times. I think that I've got good reasons to having a Jan/Feb expiration (if I hold that long then taxes will be in next tax year, and this is a taxable account; I don't put much weight onto the scales for tax outcomes though).

And though I view this as a pre-sale of the shares at that strike, I don't REALLY want to sell.

I’m in the same boat as you here.

I sold jan’21 CC at $680 back in Mid-Sept for $50/contract.

My plan was to sell 2 contracts (~3 month expiration) every month, taking in $5K in premium per contract... my theory is (was?) that I could generate $120K/year without much effort with this strategy.

Always a chance I could get called, but it would be at a very high price and I’m holding since the IPO, bought a lot over the years. Way overdue for at least a modicum of diversification.

But I’ve been watching premiums since my original trade and I have not seen anything close to $50 per contact that far out of the money. Back when I made the original trade TSLA was at $450 and it was only a couple weeks after $500.

So I’m thinking... the timing of opening these CC’s needs to happen when TSLA is at the high end of its mid-to-near-term trading range. Catching this high end of the range takes patience. There may not be a once per month opportunity where my desired expiration, premium price, and strike price all line up. It’s kind of like an eclipse event.

Some food for thought.... I’m watching and waiting for my Goldilocks moment and will strike when the iron is hot.

 

[adiggs]

I’m in the same boat as you here.

I sold jan’21 CC at $680 back in Mid-Sept for $50/contract.

My plan was to sell 2 contracts (~3 month expiration) every month, taking in $5K in premium per contract... my theory is (was?) that I could generate $120K/year without much effort with this strategy.

Always a chance I could get called, but it would be at a very high price and I’m holding since the IPO, bought a lot over the years. Way overdue for at least a modicum of diversification.

But I’ve been watching premiums since my original trade and I have not seen anything close to $50 per contact that far out of the money. Back when I made the original trade TSLA was at $450 and it was only a couple weeks after $500.

So I’m thinking... the timing of opening these CC’s needs to happen when TSLA is at the high end of its mid-to-near-term trading range. Catching this high end of the range takes patience. There may not be a once per month opportunity where my desired expiration, premium price, and strike price all line up. It’s kind of like an eclipse event.

Some food for thought.... I’m watching and waiting for my Goldilocks moment and will strike when the iron is hot.

There are definitely better and worse times to open a position. Trying to figure out whether it's a better or worse time, at any particular moment in time, is one of the activities I particularly want to avoid and am particularly bad at (so I sell both puts and calls - whatever direction the stock is going, I'll have a position going well!). All else being equal, I like to stay in the market so time decay is working for me as much as possible.

In your case, something to consider - maybe your strategy is a good one for you, but the month to month results will be more variable than you originally thought. So instead of a particular premium (which will be highly dependent on IV), you instead use some measure of risk that works well for you. Let the premium you earn vary, while keeping the risk at a level you're comfortable with.

Whatever platform you're trading on, you probably have access to a Prob ITM calculation (probability of ITM at expiration). That will be the most accurate representation of the markets belief in the likelihood any particular option will finish ITM. I've been using delta as a proxy for Prob ITM (I know it's less accurate, but it's also easier to find for me -- more creative laziness on my part).


I've been looking for a goldilocks entry - maybe I need to let the positions vary each month; keep the risk more consistent when opening the position, and let the results vary and fall where they may.

Thanks for the post - you got me thinking!

 

[clmason]

Let the premium you earn vary, while keeping the risk at a level you're comfortable with.

This struck a chord. Thanks for your insight!

BTW - i'm on Schwab. I don't see many Options tools. I'll have to fish around.

 

[clmason]

Regarding adiggs comment about using probability of ITM at expiration as a tool for evaluating options. What other tools or charts do you all use to vet your trades? Platform recommendations and/or links appreciated.

 

[juanmedina]

Regarding adiggs comment about using probability of ITM at expiration as a tool for evaluating options. What other tools or charts do you all use to vet your trades? Platform recommendations and/or links appreciated.

TastyWorks has it as well as ThinkorSwim... I use neither lol. I just set a Delta % of the SP when I sell the calls.

This is a recent decent video on the wheel strategy:

He suggest selling calls with a delta of .3 but IMO this doesn't work with Tesla SP the stock is too volatile.

 

[FS_FRA]

Regarding adiggs comment about using probability of ITM at expiration as a tool for evaluating options. What other tools or charts do you all use to vet your trades? Platform recommendations and/or links appreciated.

I like this tool here for a simple visual representation: Options profit calculator