Wiki Selling TSLA Options - Be the House

[adiggs]

Indeed, in fact just rebought to, for... $0.01

For others reading - we've had somebody else post about an expired option being exercised after market close (option holders have 30 minutes after market close to decide on assignment, apparently). So a .01 position close is a good way to avoid that potential pain, and as Lycanthrope also points out, that cash is now free to be re-used.

My own takeaway (wisdom = learning from other's experience): pay the $1/contract and close stuff being held to expiration, OTM. At least with Fidelity, they wave the commission on sub 0.65 closing trades which makes that a little more palatable.

Even better, when there's a good new position - close an hour or more before end of market trading, and open that newer better position! It seems like there are noticeably better prices on Friday for the week ahead, than on Monday.

 

[adiggs]

And with a potential shift in the SP upwards, it's not at all obvious where to sell puts for next week - guess I'll wait and see if we get a dip at some point. Ideally need it to settle in a new channel again.

I closed out my 760 & 785 puts this morning - the big share jump wiped them out pretty quickly and thoroughly (good for me).

I decided to forgo my 'aggressive' put for now as I think a regression is possible / likely - so I sold the 800 puts for 6/12. That's the .17(ish) delta. That brought in $9 in premium and looks like a reasonable option for letting time pass and making money while we test this $900 / $950 range and find out if we're breaking out into a new trading range, or coming back down. Having been through this more times than I can count over the last 5-7 years, the % bet is on a regression. The weighted bet though is to hold shares through this (which I'll be doing).

I've got some 910 calls for this week against some of my core shares. I'd say those are in play. If they get assigned, then my plan-of-the-moment is to sell very aggressive puts against them where very aggressive is something like the .40 or .45 delta. That's usually 1-3 strikes OTM.

Yeah, it's a fee per trade, regardless of the number of shares or options. Plus there's a small %age tax on share trades, something like 0.3%, or something like that - it was $350 when I buy/sell 100 $TSLA at the moment, so I have to factor this in too.

That's a fee that I have a hard time wrapping my brain around. That's certainly an incentive to be trading a lot more than less each trade. My stock trades are free (both ways) at Fidelity, and the option trades are .65 / contract (so $6.50 for 10 contracts - I'm rarely trading that many contracts). And if you go crazy far OTM and the .65 / contract gets too large, then the commission changes to .50% of the value of the trade. Closing option trades for .65 or less are free.

These fees are small enough that I can practically ignore them. At $350 / trade, some of the trades I've done can't be profitable!


Then again, I'm going to be paying taxes on most of my gains. I'm assuming something like 40 or 45% (I should look that up). And as my wife put it - darn . (Paying taxes means there were earnings to be taxed on - good thing).

 

[Dharma]

I just want to chime in and say I'm enjoying learning from you two on TSLA options.

I was bearish before Trump's press conference on China last week so I've sold six covered calls at 1010 (3 expiring next week and 3 the week after.) Thanks to the run today I am a little concerned about my shares being called away. I'm OK with selling at that price but will get hit with short term capital gain tax (avg. cost around $450). As a hedge I bought 100 shares this morning pre-market, and plan to purchase perhaps 300 shares more if SP does cross $1000, so if I do get called I have 400 shares to sell with relatively small capital gain.

 

[adiggs]

I just want to chime in and say I'm enjoying learning from you two on TSLA options.

I was bearish before Trump's press conference on China last week so I've sold six covered calls at 1010 (3 expiring next week and 3 the week after.) Thanks to the run today I am a little concerned about my shares being called away. I'm OK with selling at that price but will get hit with short term capital gain tax (avg. cost around $450). As a hedge I bought 100 shares this morning pre-market, and plan to purchase perhaps 300 shares more if SP does cross $1000, so if I do get called I have 400 shares to sell with relatively small capital gain.

I'm worried about my 910 calls being assigned as well. If we're at the top of a trading range (1 reasonable hypothesis), then I'll be writing aggressive puts and likely getting those shares back quickly, along with high put premium and maybe some sell to buy strike price improvement. Or even just avoid being assigned as the shares trade flat to down from here.

Another reasonable hypothesis is that the shares trade down tomorrow quite a bit. Regressing back towards recent trading. I chose the 910 call specifically because it was the other side of the very large number of calls at 900. So in this scenario, I'm hoping for an 895ish close . In this case, the option premium will head quickly back to where I like to see it, and I might even get to buy the options early for a profit (right now - I'm guessing that I'll be holding these until very close to expiration).

The third reasonable hypothesis, and the one I'm really worried about, is that this week is the start of a new TSLA breakout to ATH. We go through 910 this week, and 1000 next week, and 1200 the week after, ... I look up in a month and the new trading range is 1500-1800. I really hope that this happens, but it waits a week for it to get going


Also worth looking at, is the max pain for next week. That's a weekly, monthly, quarterly, and LEAP expiration. When I looked on Friday, max pain was 615 or 675 (I forget which). Even better, there's been stunning amounts of contracts purchased over the last couple of years (there's a huge Put wall at $50 ).

Anyway, there's also close to $2B on the line, and the markets are incented to get the share price back down next week at least. And with as far as they'd like it to move, this week is a good time to get started (or so I tell myself).


If we knew what would happen, then it'd be easy to choose our trade and hit it out of the park every time.

 

[adiggs]

I just want to chime in and say I'm enjoying learning from you two on TSLA options.

I was bearish before Trump's press conference on China last week so I've sold six covered calls at 1010 (3 expiring next week and 3 the week after.) Thanks to the run today I am a little concerned about my shares being called away. I'm OK with selling at that price but will get hit with short term capital gain tax (avg. cost around $450). As a hedge I bought 100 shares this morning pre-market, and plan to purchase perhaps 300 shares more if SP does cross $1000, so if I do get called I have 400 shares to sell with relatively small capital gain.

And you're welcome!

We're hoping more will join us - I tend to avoid talking about # of options in any particular trade (each of our account sizes is our own business), but the premium collected (per option), the strike and expiration, and most importantly - why you made those choices; that's good stuff. That's stuff that we can all learn from. And at least for me, that's the benefit and why I share many of my trades (I'm making enough trades these days, and most of them aren't really a source of new knowledge for me, so I'm not posting all of them).

Another reason I post, is I've learned something that others might not find interesting, but by writing it down for others to see, it helps me crystallize and reinforce the lesson (for me). So self interest

 

[pz1975]

I personally avoided writing any short-term options late last week (my usual batch all closed worthless Friday). The reason is that when there is a major binary event (other than predictable ones like delivery and earnings reports), the IV often doesn’t match the true level of potential SP movement.

The SpaceX launch I figured could cause a major move in either direction depending on the results. I didn’t want to risk that by selling any new calls or puts for the next few weeks. I probably should have bought weekly OTM calls and puts but I find they are usually a losing proposition so I didn’t do that either.

I don’t want to this post to make it look like I am only reporting something good I did. I have reported my strategy in this thread in the past including mistakes I have made. My main point is I try to avoid these “wheel” type strategies around potentially major binary events.

 

[Dharma]

I'm worried about my 910 calls being assigned as well. If we're at the top of a trading range (1 reasonable hypothesis), then I'll be writing aggressive puts and likely getting those shares back quickly, along with high put premium and maybe some sell to buy strike price improvement. Or even just avoid being assigned as the shares trade flat to down from here.

Another reasonable hypothesis is that the shares trade down tomorrow quite a bit. Regressing back towards recent trading. I chose the 910 call specifically because it was the other side of the very large number of calls at 900. So in this scenario, I'm hoping for an 895ish close . In this case, the option premium will head quickly back to where I like to see it, and I might even get to buy the options early for a profit (right now - I'm guessing that I'll be holding these until very close to expiration).

The third reasonable hypothesis, and the one I'm really worried about, is that this week is the start of a new TSLA breakout to ATH. We go through 910 this week, and 1000 next week, and 1200 the week after, ... I look up in a month and the new trading range is 1500-1800. I really hope that this happens, but it waits a week for it to get going


Also worth looking at, is the max pain for next week. That's a weekly, monthly, quarterly, and LEAP expiration. When I looked on Friday, max pain was 615 or 675 (I forget which). Even better, there's been stunning amounts of contracts purchased over the last couple of years (there's a huge Put wall at $50 ).

Anyway, there's also close to $2B on the line, and the markets are incented to get the share price back down next week at least. And with as far as they'd like it to move, this week is a good time to get started (or so I tell myself).


If we knew what would happen, then it'd be easy to choose our trade and hit it out of the park every time.

Thanks for explaining your thought process. I do also hope your hypothesis #3 only occurs when all we have written are cash covered puts!

By aggressive puts (under scenario 1), are you writing in the money puts or slightly out of money puts?

 

[Right_Said_Fred]

During the corona crash I sold and rebought my core shares (as reported elsewhere) and that left me with a lot of extra cash. I put half of that in a new private trading account, to venture into options trading. I was an options daytrader 15 years ago (strangles and straddles, covered with futures). I'm now choosing a more relaxed strategy, which doesn't require covering with futures. All sold options are secured either by cash or stock.

The proceeds of the account are almost tax free (Dutch law assumes I can make 4% on the balance per year and charges 1,2% per year as tax. It doesn't make a difference if the actual returns are lower or higher).

So far these were my actions:

- 20 April sold 1 put 700 for 20 May 2020 @ 64.00. Bought it back on 15 May @ 4.65. Profit 59.35
- 5 May: sold 1 put 750 for 5 June 2020 @ 52.50. Bought it back on 19 May @ 18.50. Profit 34.00
- 15 May: sold 1 put 790 for 19 June 2020 @ 62.00. Still active. Last trade yesterday was @ 12.98
- 19 May: sold 1 put 800 for 19 June 2020 @ 53.00. Still active. Last trade yesterday was @ 15.18

My plan is to sell calls if the shares get assigned. I also plan to rebuy sold puts if they are cheap enough and if I see a good opportunity to sell puts at a higher strike. I did that with the first two puts I sold.

If I were to close the position now I would have made 18k, which is a return of 13% in 6 weeks time. Nothing to complain about. I realize I would have made more if I had bought the 200 shares, but there was no guarantee they would be going up. And I have a lot of core shares, which I do not use for selling options.

So far the options trading has been pretty straight forward because the stock has mostly been stable or going up. I'm sure there will be more challenging times ahead. I will try to adapt my strategy if necessary.

 

[JusRelax]

Also worth looking at, is the max pain for next week. That's a weekly, monthly, quarterly, and LEAP expiration. When I looked on Friday, max pain was 615 or 675 (I forget which). Even better, there's been stunning amounts of contracts purchased over the last couple of years (there's a huge Put wall at $50 ).

Is next week really the weekly/month/quarterly expiration? Isn't it always the third Friday of the third month, which would make it the week after next week?

 

[Right_Said_Fred]

During the corona crash I sold and rebought my core shares (as reported elsewhere) and that left me with a lot of extra cash. I put half of that in a new private trading account, to venture into options trading. I was an options daytrader 15 years ago (strangles and straddles, covered with futures). I'm now choosing a more relaxed strategy, which doesn't require covering with futures. All sold options are secured either by cash or stock.

The proceeds of the account are almost tax free (Dutch law assumes I can make 4% on the balance per year and charges 1,2% per year as tax. It doesn't make a difference if the actual returns are lower or higher).

So far these were my actions:

- 20 April sold 1 put 700 for 20 May 2020 @ 64.00. Bought it back on 15 May @ 4.65. Profit 59.35
- 5 May: sold 1 put 750 for 5 June 2020 @ 52.50. Bought it back on 19 May @ 18.50. Profit 34.00
- 15 May: sold 1 put 790 for 19 June 2020 @ 62.00. Still active. Last trade yesterday was @ 12.98
- 19 May: sold 1 put 800 for 19 June 2020 @ 53.00. Still active. Last trade yesterday was @ 15.18

My plan is to sell calls if the shares get assigned. I also plan to rebuy sold puts if they are cheap enough and if I see a good opportunity to sell puts at a higher strike. I did that with the first two puts I sold.

If I were to close the position now I would have made 18k, which is a return of 13% in 6 weeks time. Nothing to complain about. I realize I would have made more if I had bought the 200 shares, but there was no guarantee they would be going up. And I have a lot of core shares, which I do not use for selling options.

So far the options trading has been pretty straight forward because the stock has mostly been stable or going up. I'm sure there will be more challenging times ahead. I will try to adapt my strategy if necessary.

This morning I bought back the puts 790 and 800 for 19 June 2020 @ 11.50 and 13.30 (which I had sold two weeks ago @ 62.00 and 53.00). I sold 2 new puts 850 for 17 July 2020 @ 56.50 each.

 

[adiggs]

By aggressive puts (under scenario 1), are you writing in the money puts or slightly out of money puts?

My version of an aggressive put is the .30 delta. I have been increasingly thinking about the puts and calls I sell in terms of their delta. The primary reason is that delta is a pretty good proxy for the option finishing ITM (Prob ITM).

Most of the options I sell are in the .05 to .16 delta range. When I started, it was more like .05. Over the last month or two, I've crept up to .16. The atm option is around .50, but I've seen it as low as .45. If I got REALLY aggressive, such as after an assignment, I'd probably be selling the .40 delta (1-3 strikes OTM in practice).


The further out an option is, the further OTM a given delta is.

 

[adiggs]

Is next week really the weekly/month/quarterly expiration? Isn't it always the third Friday of the third month, which would make it the week after next week?

View attachment 547152

You're right - it's June 19 this month (working from home, I've noticed that time has become a more fluid concept ). Selling options hasn't helped with the fluidity of time.

 

[adiggs]

This morning I bought back the puts 790 and 800 for 19 June 2020 @ 11.50 and 13.30 (which I had sold two weeks ago @ 62.00 and 53.00). I sold 2 new puts 850 for 17 July 2020 @ 56.50 each.

Is there a particular delta you target on your put sales? It looks like you're going out about 4 weeks on your sales, or is that more like 8 weeks? I like the results you're getting - I particularly like the possibility of lowering my daily / weekly effort to monitor these things.

 

[Tslynk67]

This morning I bought back the puts 790 and 800 for 19 June 2020 @ 11.50 and 13.30 (which I had sold two weeks ago @ 62.00 and 53.00). I sold 2 new puts 850 for 17 July 2020 @ 56.50 each.

Is there a particular delta you target on your put sales? It looks like you're going out about 4 weeks on your sales, or is that more like 8 weeks? I like the results you're getting - I particularly like the possibility of lowering my daily / weekly effort to monitor these things.

Indeed, those are juicy looking premiums. Of course they leave you more open to price-movements in the wrong direction too. I tend to buy mind mid-week, the week before strike date - still have some decent time-value, but it fades really quickly in the days before strike.

 

[adiggs]

Indeed, those are juicy looking premiums. Of course they live you more open to price-movements in the wrong direction too. I tend to buy mind mid-week, the week before strike date - still have some decent time-value, but it fades really quickly in the days before strike.

These have been my expiration windows - roughly 3-8 days to expiration. I've gone out to about 18 trading days recently, and all the possible ups and downs weren't fun

I noticed, looking at my own trade tracker, that after 2 1/2 months of doing this, not 1 trade has been held to expiration. I've had a small number go to the last day. Most of the trades get time decay and a move in my favor (away from the option I sold) that gets me over 50% of the premium earned, and I close them. In practice these earlier closes are more like 70-90% gains.

I AM finding that I like the week and a half options more than the 2-4 day options, mostly because at the .15ish deltas I'm mostly working at (or lower), there's not much premium available for those very short dated options. These 6-9 day options get me a noticeably higher premium while retaining the benefits I see in the very short options (resolve quickly, while keeping my exposure to long runs minimized).

 

[Right_Said_Fred]

Is there a particular delta you target on your put sales? It looks like you're going out about 4 weeks on your sales, or is that more like 8 weeks? I like the results you're getting - I particularly like the possibility of lowering my daily / weekly effort to monitor these things.

I am not aiming for a particular delta, but try to find a premium of about 50.00 to 70.00 because I want it to be ‘worth my wile’. Sometimes this premium can be achieved with a less distant strike price, sometimes - like today with the sold 17 July puts - with a more distant expiry date.

These more expensive monthly options tend to lose value faster (in absolute terms) than the shorter term options. If possible I try to buy them back before expiry, in order to free the cash for a new position (I do not want to use margin).

Another advantage of choosing expiry dates of 3-6 weeks out is that there is not much need to monitor the position. It takes me just 10-15 minutes per week! If the stock runs the wrong way I will let the option be exercised. I will not buy it back with a loss. If the stock goes in the right direction I will wait until the premium has decayed enough to close it and open a new position.

 

[adiggs]

The SpaceX launch I figured could cause a major move in either direction depending on the results. I didn’t want to risk that by selling any new calls or puts for the next few weeks. I probably should have bought weekly OTM calls and puts but I find they are usually a losing proposition so I didn’t do that either.

Good call on the SpaceX launch causing a major move, at least for a day. It didn't even occur to me so that I could then discount the possibility!

And my success on buying options is so bad, I just sit out markets when I think that's a good idea (because for me, it's not )

 

[adiggs]

This morning I bought back the puts 790 and 800 for 19 June 2020 @ 11.50 and 13.30 (which I had sold two weeks ago @ 62.00 and 53.00). I sold 2 new puts 850 for 17 July 2020 @ 56.50 each.

Gotta love that big move up yesterday for wiping out the value of already sold puts. Took me less than a minute yesterday morning to close the 2 put positions I had; then I had to decide what to do next, but the close decision was easy.

And zowie - today those 850 puts are nearly a .40 delta. They were probably closer to .35 (.37?) yesterday before the share price traded down today. I like the strategy idea and I'll be at least looking at these longer dated options, but that's a higher delta than I use on my 'aggressive' puts.

Which is one of the things I get from this thread - other views and approaches for the general idea.

 

[adiggs]

I meant to write this last night, but I got distracted.

I realized then that without intending to do so, I've created for myself an overall position that I don't like. For context, I sell both puts and calls and have a larger desired outcome of something like a generous dividend (rather than a rapid capital expansion desire).

As a result, I'm sort of in a permanently shifting strangle. A classic strangle is to sell an OTM put and an OTM call at the same time, for the same expiration, of equal distance from ATM.

I'm similar in that I have sold OTM options on both sides, pretty much all the time. The range from the put side option to the call side option is constantly shifting, and I never attempt to make them equally far OTM (I focus on delta to pick the entry points for both sides).


So the mistake I realized last night is that I had created a very constricted window. Namely - I had 800 puts and 910 calls leaving me with a $110 range for the stock to trade in. For me, that's uncomfortably small.

Mostly this doesn't come into play for me - I tend to be pretty far OTM all the time, but this turns into a 3rd consideration each time I open a new position. That list is:

1) tactical decision about the appropriate option (delta, expiration time, max pain, OI walls, etc..)
2) strategic decision - will I be happy being assigned at that price (or at least willing)
3) (new) is this new position going to create an uncomfortably small window for my net strangle position


I don't know what the window for #3 is. I just know from last night that $110 is too small (given a share price of $800-900). My guess right now is $150 is probably ok, and $200 is really ok. I also know that I tend to be very far OTM on the call side, and maybe that by itself will make #3 functionally irrelevant (in which case, what's really happened is I got more aggressive on the call side than I should have).

For those selling both sides, something to consider.

 

[Right_Said_Fred]

Thank you for sharing your thought process and evolving insight. It’s good to constantly evaluate if your trading strategy still fits your needs and comfort zone. If you are looking for a nice dividend on a yearly basis then far OTM options will do just fine. What percentage return are you looking for? 10%? 20%? Even a gap of 150 between the puts and calls of your strangle may still be too small in that case. A gap of 250 or 300 points on monthly options will probably also get you there.