Wiki Selling TSLA Options - Be the House

[Dancing Lemur]

Aren't Strangles meant for when you expect the stock to move quickly in one direction or another? If we are entering a consolidation period or a continued steady growth, is a strangle still the right strategy?

Long strangles are when you expect it to move (buy OTM calls and puts). If you are the seller of those, though, you are betting that the price isn't going to move outside the bounds. Not normally a trade I make with TSLA, but based on the sleepy trading last week, I thought it was a good strategy for this week.

 

[strago13]

How is everyone tracking the performance of their options over time? Spreadsheet? some specific software?

 

[Runarbt]

Assuming you have either cash or margin to cover the puts with, right? If you’re all-in on shares I don’t know of a way to sell puts.

No way selling puts without cash or margin, i think?

Schwab allow you to sell puts on margin.
I have a margin within 35% of my $tsla shares, and can sell naked puts on this.

I have no cash - 100% in $tsla.. and I have a healthy margin I can trade on.

 

[Runarbt]

How is everyone tracking the performance of their options over time? Spreadsheet? some specific software?

F5 F5 F5

:-D

 

[Stretch2727]

What I described is a type of short strangle. Yes, the sold options are covered in both directions, either by other positions or cash/margin.

More specifically for this trade, at the close on Thursday last week I sold 700 strike 12/31 calls against other longer term options (March-Sept expiries with strikes between 340-550.) I also sold 660 12/31 puts, with enough cash/margin to cover them if assigned. For every put sold, I sold 8 calls.

Positions something like this:
8 400 C Mar 19 2021 - Mark $260.00
-8 700 C Dec 31 2020 - Mark $3.60
-1 660 P Dec 31 2020 - Mark $14.20

So, I collected $43 in premium for each set of 8 calls I hold, or $4.30/contract. That's about 1.5% return on the call's value when the options were sold. If either side is ITM near the close on 12/31, I will roll them out to next week to more favorable strikes. The risk curve looks like this, so not much different than just holding the original calls (and not "unlimited", except if the stock goes to < 400), but gains are capped at 700 this week:

View attachment 622433

Most of my funds are in an IRA so no margin. Not so inclined to hold a call but I will do with stock.

I just tried one expiring tomorrow. Sold 1 660 Put and 1 700 Call for 4.20 (just a coincidence mods!). TD Ameritrade sets it up in one transaction if you do the same time. Both sides are covered.

Just want to get feel for how this works and like to do small until I completely understand. In some ways it is just 2 separate transactions, if one side is in the money, I could roll with different prices into the following week.

 

[LN1_Casey]

How is everyone tracking the performance of their options over time? Spreadsheet? some specific software?

I did put mine into a google spreadsheet. It allowed me to mark each option, and then the profit from that, and the tax owed from that as well.

 

[bkp_duke]

I did put mine into a google spreadsheet. It allowed me to mark each option, and then the profit from that, and the tax owed from that as well.

This is going to beguile my age . . . but I still use MS Money. I can put each individual put/call in there.

Plus, the brokerage gives a statement each month with the info. This is what I use for tax purposes.

 

[bxr140]

Anyone doing Strangles? Selling an OTM call and put.

If so do you hold both the stock to cover the call and the cash to buy the stock if the put is in the money? Without this it seems the risk is unlimited.

Risk is always a problem when selling options, that's why its generally not for beginners (save for covered calls, which is actually less risk than just owning shares). In a non-margined account a "strangle" would actually be a cash covered put plus a covered call, and they would likely need to be placed as separate orders, and so yes you would need the sum of capital required for both positions.

FWIW I much prefer a four leg position over a strangle (Condor, Iron Condor, Double Calendar, Double Diagonal) because it bounds capital, though that's not always possible depending on the account type. A naked contract can have changing capital requirements depending on underlying movement, and its possible to get into a margin call situation while your position is at a very unfavorable value...

Also FWIW, one of the big reasons to contemplate a strangles and other double sided positions is that you can 'double dip' capital/margin. If the put side of a position requires 5k of margin (say, a $600/550 vertical), you can build the call side up to 5k (say, a $800/850 vertical), and then the total margin requirement for that position--an Iron Condor--is $5k. FWIW that position for next Friday pays out ~$2.65 or so right now, or just over 5% on your money.


Broken record here, but it all goes back to properly allocating capital (and properly analyzing price movement potential). It is really hard to imagine any scenario where selling a strangle in a non-marginable account is the best way to allocate capital/margin...

 

[ReddyLeaf]

Anyone doing Strangles? Selling an OTM call and put.

If so do you hold both the stock to cover the call and the cash to buy the stock if the put is in the money? Without this it seems the risk is unlimited.

Yes, selling short strangles is what the Wheel strategy is all about. I’m just getting started, but selling cash secured puts (CSP) and covered calls (CC). I’m trading in my IRA and only allowed those, plus buying calls or puts. Buying strangles is a similar strategy, but I’m not interested in buying puts, just calls. Here are some good descriptions of options strategies:
Strangle (options) - Wikipedia
Option Strategy Finder | The Options & Futures Guide

 

[adiggs]

I did put mine into a google spreadsheet. It allowed me to mark each option, and then the profit from that, and the tax owed from that as well.

Similar approach for me - I created my own spreadsheet where I track each position. A benefit of building my own spreadsheet is that I track exactly what I want to track.

It can be somewhat time consuming to enter each trade, but it's a bit of friction that keeps me from opening too many positions for me to keep track of. Seems like I'm around 4-8 positions open at a time, and that keeps it manageable.


I haven't been directly tracking the tax owed on each position, but I do have an overall results for the year for each account, and I can estimate the incremental tax due from that.

 

[adiggs]

Anyone doing Strangles? Selling an OTM call and put.

If so do you hold both the stock to cover the call and the cash to buy the stock if the put is in the money? Without this it seems the risk is unlimited.

I'm in a semi-permanent state of a short strangle, though I've never entered a short strangle in a single transaction. I sell both puts and calls, and I like the overall dynamic of having positions on both sides (I'm earning on one side or the other as the share price moves).

Until recently, all of the legs are fully covered (100% of the cash for the puts, 100% of the shares for the covered calls). Makes for a very capital intensive approach, but that works for me.

My semi-permanent strangle is imbalanced in all dimensions - a variety of expirations on each side that sometimes line up; a variety of strikes with different deltas / distance from ATM. I make my decisions on each leg independently of the other legs that are already open or I'm about to open, but the end result is an overall short strangle.

And yes - I do realize that this is a suboptimal trading strategy in many situations. I'm constantly learning and may be adopting new transaction / trading strategies in the future, but nothing that will represent a meaningful change for me in the next month (too much other stuff going on until end of Jan).


I've recently gained access to margin backed puts in my brokerage account. I've only written 1 position so far that makes use of that margin - I sold roughly 2x of what the position would have been with 100% cash coverage. There is a lot of incremental margin available there, but this is a toes in water thing for me - not in a rush to get to a higher leverage level.

This margin access is also why I'm so interested in some of the trading strategies being used by others that make use of that available margin, a little or a lot. I don't need to use the margin aggressively, but a little bit can help keep an account "on the wheel" (selling as many puts to turn cash into shares, as the number of sold calls that turned shares into cash).


There might be a new approach for me to these option sales. From reading others, I see @Lycanthrope working with much higher delta options, and seeing significantly higher premiums as a result. I'm thinking about taking a small slice of the shares I have and working them at something closer to what he's doing.

I'm also thinking about using the margin to do large batches of really far OTM puts. I went looking for the post / poster that has been doing this, and couldn't find it. It's something I want to learn more about.

I can readily imagine doing a combination of both types of trades - a small number that are very close ITM and that push the boundaries on how aggressive I can be at collecting premium, and probably a larger number of contracts that are far OTM.

If nothing else, I think it's a near certainty that I will do some of both in order to get a better feel for how these different types of positions evolve that will enable me to make a better decision for my situation.

 

[bxr140]

How is everyone tracking the performance of their options over time? Spreadsheet? some specific software?

Seriously one of the greatest questions so far.

It is a fantastic idea to track the performance of your positions in a spreadsheet. Its one of those things where you-do-you, but the various headers you might consider are:

• Entry Criteria. Especially if you're newer at trading its a great idea to quantify elements that make up a "good trade". These can vary widely amongst traders and can themselves be a little more objective (confirming a price, 52 week%, whatever) or subjective ("I think earnings are going to go well"), but getting them all down on a spreadsheet and weighting them is going to go a long way toward consistency in trades. You might have 5 or 10 different elements that all rack up into a red light/green light for entering. Or maybe there's a yellow light where your position size is more conservative. Or, or, or...
• Exit/Target criteria. No trade is a forever trade (that's different than an investment), and its imperative to make an honest assessment of when to get out of a trade. This exit point can also be a rack up of elements like hitting a price consolidation zone, etc.
• The two of those together form your reward.
• Stop criteria. Again this can be a rack up of different elements, like dropping below support or whatever. Basically anything that's not "I'm willing to lose 1000 bucks on this one" (that logic applies to entry and exit as well).
• Entry and stop forms your risk
• Risk and reward form a R:R ratio, which needs to be of sufficient magnitude to justify entering in the first place.
• Position size. Its a good idea especially when you're starting out to limit total position size to some % of your account balance, AND ALSO limit position size by the risk vs your account balance (which is usually the limiting factor). If the risk on any position you take is 1% of your account balance, for instance, you won't suffer major drawdown on a bad trade.
• Notes surrounding the logic you've used in above. If you're like me, you're too stupid to remember what you were thinking this morning let alone yesterday or last week or whenever you entered a trade. It might sound corny, but taking notes is probably the best way to climb the learning curve of trading.

You'll note all of the above actually happens before you actually take a position. Once you've entered and your stop/exit orders are placed, there's much less to do, but there's still important not taking to be done.

• Position value fluctuations. If you can correlate ups and downs to market events, that will better inform your future consistency.
• Stop trigger. Especially if you stop out, its imperative to understand why. Was the stop set properly, was there some market event, etc. Obviously you're never going to be 100% right, but the more information you have in the future, the more informed decisions you can make.
• Modifications. Its good to keep a log of any maintenance you're doing to your stop/exit orders. Often folks will bump up their stop to $0 loss once they hit some level of profit, or even up farther to ensure some profit. Its a good idea to do this but its a concept that needs to be measured. Its easy to be too aggressive with moving stops. You don't want to stop out too early and miss out on an otherwise good trade. Same thing with exits--if you get a big jump from the off you might run up your exit to extend your profit...but if you go too far (and don't properly follow with a stop) you can miss out on maximizing profit.
• Review. Its also imperative to review the fundamentals of how you asses a position in the first place with how it actually played out and, if necessary, modify those fundamentals to improve consistency/profit/risk mitigation for future positions.

 

[bxr140]

Buying strangles is a similar strategy, but I’m not interested in buying puts, just calls.

FWIW, selling a call is betting against TSLA; there's no fundamental difference to buying puts.

 

[bkp_duke]

All of you can thank me. EVERY time I sell an OTM Covered Call . . . TSLA walks right up to it and gives me heartburn.

I have a Jan 8th 700CC that was looking quite fine till today.

 

[adiggs]

All of you can thank me. EVERY time I sell an OTMCovered Call . . . TSLA walks right up to it and gives me heartburn.

I have a Jan 8th 700CC that was looking quite fine till today.

You sound like me with my OTM CC sales.

Good luck with that one.

 

[bxr140]

There might be a new approach for me to these option sales. From reading others, I see @Lycanthrope working with much higher delta options, and seeing significantly higher premiums as a result. I'm thinking about taking a small slice of the shares I have and working them at something closer to what he's doing.

More broken record here, but the higher the ∆ on a sold contract, the more directional it is. The more directional a sold contract, the "less good" the position is. Directional = buy.

For an adjacent concept, one could do clever things like sell a bunch of OTM puts to fund a long call, for instance, or go for more traditional ratio spreads.

I'm also thinking about using the margin to do large batches of really far OTM puts. I went looking for the post / poster that has been doing this, and couldn't find it. It's something I want to learn more about.

I'd recommend going with a spread if you can vs naked. For instance, a March $400 -P pays out ~6.75 (and is at a pretty strong consolidation zone and is ~90% probability OTM). Cash covered that's ~1.7% return on $40k capital. Not so great for a quarterly return (= 6.8% annual), though pretty safe. Naked will be better than that, but since TSLA typically requires higher margin requirements than other stonks, its hard to say where you actually end up. It will be at least $10k and more likely 20k, with potentially increasing margin with unfavorable underlying movement. So maybe hand wave at ~3x that ROC with a big risk asterisk. If however you made that something like a -400/+350 spread, you have a position that pays out ~$2.25, or ~4.5% ROC, and that's on a fixed $5k margin. That allows you to better control your position size and of course (as noted a few posts up) gives you the option to "freebie" into an iron condor with a call spread.

I can readily imagine doing a combination of both types of trades - a small number that are very close ITM and that push the boundaries on how aggressive I can be at collecting premium, and probably a larger number of contracts that are far OTM.

It is definitely a good idea to have a diversified set of positions, some of which are more conservative and some of which are more agressive. It is not a good idea to have those positions be versions of the same thing. (e.g, sold contracts that are closer to and farther from the money).

 

[juanmedina]

I ended up closing my 12/24 580p that I sold for $18 for 3. I also sold calls yesterday on my entire porfolio 01/29 800c for $17.4 in addition to the 01/22 780c that I sold last week for $18. I know for some of you these calls are too close to the current SP for confort but I am hopping to be able to close them out before the P&D report on January 1st.

I was able to close most of my contracts this morning. 01/22 780c I actually sold them for $21 and closed them out for $8.75 and I closed only 3 of the 1/29 800c for $10.6. I still have four 800cs that I had the limit order set for $10.5 and the low was $10.25 and they didn't close. I never had that issue before. I am going to wait and see what happens tomorrow and maybe close them out for $200-100 profit. Hopefully the IV goes up from here .

 

[bkp_duke]

You sound like me with my OTM CC sales.

Good luck with that one.

I never intended to keep it till expiration, but wanted to get some more theta out of it before closing the position. Now I'm looking at a longer roll than I intended.

1st world problems. Thankful.

 

[ReddyLeaf]

All of you can thank me. EVERY time I sell an OTM Covered Call . . . TSLA walks right up to it and gives me heartburn.

I have a Jan 8th 700CC that was looking quite fine till today.

Same with my 12/31 700c I sold them on the 23rd for $4.00 with the SP nearly $80 lower. Fortunately, I’ve bought back all buy one. Damn, that’s up 600% TODAY since yesterday, over $5.00. Guess I’m losing on that one.

Edit: IV must be going through the roof. Even my Jan2023 1100c LEAP is up 15%.

 

[bkp_duke]

Same with my 12/31 700c

Oof. That one I would lose sleep over tonight.