Wiki Selling TSLA Options - Be the House

[ggr]

Sometimes I discover that I've been willfully stupid for a long time, and suddenly wake up. Over the last couple of weeks I have discovered the magic feature of rolling options. Up to now, I've always placed limit orders when trading to buy/sell options. I always thought of rolling them more as a strategic thing, but then would do it with individual orders, which I had to place carefully, especially if the market was volatile at the time. Now I have discovered that the real beauty of rolling options is that it's actually safe to use a market order; both ends of the trade move in the same direction and similar amounts, if the ends are close enough in time or price.

This morning I swapped 5 June '22 $750 calls for 7 $1100 calls and 5 shares.

 

[Tslynk67]

Sometimes I discover that I've been willfully stupid for a long time, and suddenly wake up. Over the last couple of weeks I have discovered the magic feature of rolling options. Up to now, I've always placed limit orders when trading to buy/sell options. I always thought of rolling them more as a strategic thing, but then would do it with individual orders, which I had to place carefully, especially if the market was volatile at the time. Now I have discovered that the real beauty of rolling options is that it's actually safe to use a market order; both ends of the trade move in the same direction and similar amounts, if the ends are close enough in time or price.

This morning I swapped 5 June '22 $750 calls for 7 $1100 calls and 5 shares.

How does this work? I thought you had to sell current options and then buy new ones.

So I sold my $875's and I'm looking to get back in, for the same premium for Jun 2022 $1250's - close, but need a little dip to make it.

I'm still convinced closing above $1000 will be a challenge this week, unless the MM's are delta-hedging instead - or are just using those 4 million shares they bought during the C19 dip...?

 

[mongo]

How does this work? I thought you had to sell current options and then buy new ones.

You set up a multi leg trade that has both the buy and sell as one atomic transaction along with a price for the whole deal.

 

[ggr]

How does this work? I thought you had to sell current options and then buy new ones.

So I sold my $875's and I'm looking to get back in, for the same premium for Jun 2022 $1250's - close, but need a little dip to make it.

I'm still convinced closing above $1000 will be a challenge this week, unless the MM's are delta-hedging instead - or are just using those 4 million shares they bought during the C19 dip...?

Yes, one is actually doing two trades, a sell and a buy, and the tax implications are exactly the same (in the US). Here's what it looks like in ETrade, though:

The thing is that all I had to do was say that I wanted to be paid $10 per contract (which was around the midpoint) and the brokerage takes care of the trade.

For me to do the same thing by fiddling with limit orders would have been at best time consuming, and at worst the market might have moved against me and I would have had a much worse outcome. This is the revelation (to me).

Maybe you can't do this with your broker.

 

[Right_Said_Fred]

Just upped the ante by buying back my 2 puts 870 for 2 July @17.90 and selling 2 puts 1000 for 10 July @76.00.

 

[adiggs]

Max pain for this week is 905, but 900 through 915 are <1% away, so there's a range there.

At a share price of 1015, the option seller expense moves up from 214M to 572M, with further increases in share price increasing the pain at a rapid rate.

For the 6/19 expiration max pain is now up to 750 (675 when I first looked last week, and yesterday or Monday at 700); it's going up fast. The cost difference is 1.8B vs. 3.4B. Back in December when I last saw this setup, the options were driven down to 508 or so on expiration day, and popped past 650 the week after (I remember because my 600 Calls expired worthless back then, and were ITM seemingly the next trading day).


I don't know that means the share price will come back down under 1000. It does look like some pretty large drag though.

 

[Right_Said_Fred]

Yes, one is actually doing two trades, a sell and a buy, and the tax implications are exactly the same (in the US). Here's what it looks like in ETrade, though:
View attachment 549985

The thing is that all I had to do was say that I wanted to be paid $10 per contract (which was around the midpoint) and the brokerage takes care of the trade.
View attachment 549993
For me to do the same thing by fiddling with limit orders would have been at best time consuming, and at worst the market might have moved against me and I would have had a much worse outcome. This is the revelation (to me).

Maybe you can't do this with your broker.

What is this kind of order called, where you combine a sell and buy order? I’ve looked for something like that with Interactive Brokers (Lynx) but haven’t been able to find it. Until now I’ve also had to chase the market and sometimes I have to modify my order several times before it gets triggered. It’s just by 5, 10 or 20 cents, but still I’d prefer for them to be executed simultaneously.

 

[mongo]

What is this kind of order called, where you combine a sell and buy order? I’ve looked for something like that with Interactive Brokers (Lynx) but haven’t been able to find it. Until now I’ve also had to chase the market and sometimes I have to modify my order several times before it gets triggered. It’s just by 5, 10 or 20 cents, but still I’d prefer for them to be executed simultaneously.

It's called a multi-leg. Roll Multi-Leg Strategies

 

[Tslynk67]

Don't think I have this roll option with my broker, I only have the 4 basics:

 

[mongo]

Don't think I have this roll option with my broker, I only have the 4 basics:

View attachment 550031

It's an order interface thing, not a different order type.
If you can do spread orders, it's like that.

 

[ggr]

What is this kind of order called, where you combine a sell and buy order? I’ve looked for something like that with Interactive Brokers (Lynx) but haven’t been able to find it. Until now I’ve also had to chase the market and sometimes I have to modify my order several times before it gets triggered. It’s just by 5, 10 or 20 cents, but still I’d prefer for them to be executed simultaneously.

Again, this might only apply to ETrade, but there's a dropdown

and as you can see there's the "Roll" option. It's brilliant for exactly this reason. Sorry if you can't do it.

 

[mongo]

Again, this might only apply to ETrade, but there's a dropdown
View attachment 550037
and as you can see there's the "Roll" option. It's brilliant for exactly this reason. Sorry if you can't do it.

@Right_Said_Fred
It seems like Lynx (TWS???) has it also:
"Use the Strategy Builder section of the Option Chains to quickly build complex, multi-leg strategies directly from the option chain display. Use the traditional ."f

 

[adiggs]

What is this kind of order called, where you combine a sell and buy order? I’ve looked for something like that with Interactive Brokers (Lynx) but haven’t been able to find it. Until now I’ve also had to chase the market and sometimes I have to modify my order several times before it gets triggered. It’s just by 5, 10 or 20 cents, but still I’d prefer for them to be executed simultaneously.

The general category is multi-leg. At least at Fidelity, there are many kinds:

Under options, I choose multi-leg which puts me into a different order form.

Then there is a 'strategy' from which I choose:
Butterfly
Roll
Buy Write
Collar
Combo
Condor
Straddle
Spread

I believe the strategy is chosen as some strategies require a higher options authorization than others. The strategy chosen also controls the interface choices after that. For instance, a Buy Write will have 1 line for buying shares, and a second line for selling options against those shares.


The typical multi-leg strategy / order we've been talking about here is a Roll (or at least that I've been talking about). I think the general idea here is that you are replacing one option position with another. I.e. - I have sold the 915 6/19 Put, and I want to replace it with the 915 6/26 Put.

That's a buy to close on the first, plus sell to open on the second.

In the multi-leg order, you enter the combined order as a single order. The two legs will each generate their own commission (this isn't something for nothing ), but as @ggr noted, that can simplify entering the position. You don't specify separate amounts for each leg - instead you specify a combined result, and your broker gets whatever prices on the legs are needed to get your overall result satisfied.

 

[EV forever]

That's awesome @EV forever.

My first put sale was actually 8 years ago. I sold 7 TSLA $29 puts about 6 months before the stock went crazy. I wanted to buy the shares; I just figured it'd be a good idea to get somebody to pay me to buy those shares.

Thankfully those shares were assigned; I have them today.

Haven't done anything else on the sell side with options since then.


I started this wheel strategy about 3 months ago; my implentation is decidedly dividend oriented rather than capital appreciate oriented.. My first put sale was so conservative -- some at $200 when the shares were lower $400's, and when new money arrived, some more at $175. Intentionally way far out of the money. And not only did it work, I think it was my single most success trade.

I would probably double or more that trade if the trading conditions were as good today as they were back then.

But it was a good learning experience, and I figured if I was being paid to acquire this education, then who was I to complain. I probably had something I could verbally identify that I learned in every one of the first 10 or 15 trades. And I learn from others.


I've thought about going out that far (1.5 - 2 months) - I know the premiums are huge. I keep stumbling over how volatile TSLA is though, and how far it can drop over that big of a time window. I probably earn about the same premium over that time period, maybe a bit more, but at a lot more work. The main thing is the volatility and that big time window - I get stuck on that every time

Well, I closed my 07/17 @ 830 Put for $21 for $35 in profit - not bad profit for 6 days. Beginners luck most likely Who would have thought the SP would run up that high today - big surprise!

Now trying to decide the next position to sell, hard to guess since the stock has gone up so fast!

 

[troyhouse]

So used the dip opportunity to close 06/19 855p for 90% profit and opened 06/26 950p. Will closely monitor it.

 

[adiggs]

So used the dip opportunity to close 06/19 855p for 90% profit and opened 06/26 950p. Will closely monitor it.

Also used the current price action to close my 915 puts that expire tomorrow - paid $.50 to get out for about $5 profit / contract in 2 days.

That also gets me into the 3-8 day time window for going out a week, so now I've got a sell order in for the 940 6/19 put at the .21 delta. Collected a $13 premium for these new puts.


My larger picture view of things is that there is some downward pressure for end of day tomorrow, and a lot of downward pressure for next week. So these puts could easily be assigned. This week's max pain has moved up to $970, and next week is up to $775 (from $750 yesterday). Next week max pain is increasing quickly, though I don't think it'll go much past $900.

In addition, this week and next has the feel of last January for this equivalent expiration. There, the share price was held down on the week of expiration, closing around $508. I had $500 strike calls I lost about 60% on, and $600 strike calls that expired worthless. The next week saw $650.

As a result, I'm hoping the $1000 strike calls I have for next week expire worthless and I'll plan to sit out covered calls for the week after (given that I get out of the 1000 strike calls without assignment). I want to see if this setup is like January, because if it is, then I think it's reasonable to think the shares will take off for $1800 - $2700.

Also hoping that if I'm right, and that I get assigned, then I'll have that many more shares for a big price rise, though I'll be selling aggressive puts against these new shares (assuming that I have them).


(Not advice, and note that my expectations for short term price movement could generously be described as bad)

 

[adiggs]

That also gets me into the 3-8 day time window for going out a week, so now I've got a sell order in for the 940 6/19 put at the .21 delta. Collected a $13 premium for these new puts.

Minor point - this is a perfect example of routine trading for me. This option that I sold an hour or two ago is now price at $19. This always happens to me on day 1 of my option sales - they go against me, and frequently large amounts like this.

If I were to sell with a high price (like say $18 when it was down in the 12's or low 13's), then it wouldn't have moved enough or in the right direction and I'd have missed out on opening the position.

*sigh*

(Reinforcing the point - don't listen to me on short term direction or pricing )

 

[ggr]

Also hoping that if I'm right, and that I get assigned, then I'll have that many more shares for a big price rise, though I'll be selling aggressive puts against these new shares (assuming that I have them).

I assume you mean selling aggressive calls?

 

[adiggs]

I assume you mean selling aggressive calls?

Yes - if these new puts get assigned, then selling aggressive calls (probably .40 delta).

If the covered calls get assigned, then probably selling aggressive puts (again at the ~.40 delta).


I'm doing well at saying the opposite today of what I intend

 

[adiggs]

Interesting observation today from max pain. When this week started, the pain range was something like mid $100M, to about $400M.

Today, that range is 400M to 2B (using the 1200 strike; there will be a similar strike below; more extreme strikes can get all the way to $8B, but that's sufficiently unrealistic I didn't use it).

There's been a LOT of new options transacted this week. As in an order of magnitude (10x) or more of what had accumulated before this week. This has been the pattern for the 4-6 weeks I've been tracking this.

So the takeaway - on these weeklies - max pain before the week of, and probably before Wednesday the week of, is functionally irrelevant. There's too little volume accumulated so far, and too much activity still to come.


I haven't seen how the volume the week of expiration interacts with accumulated contracts on an expiration like June, where there have been contracts traded for ~2 years. There's already a huge amount of volume (more than this week has ramped up to).

Another observation about next week - max pain is 775. Within 1% of that max pain (in terms of pain, not strike price) are the 745 through 800 strikes (it's a big window near max pain). I'd say that any of those strikes could be tomorrow's max pain pretty easily.


So the second point is that the impact of the last week of trading is as much of a mystery to me as I think it is to everybody else. I know that the max pain for next week has already increase by $100 ($675 up to $775), and I don't think it's done going up.