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Wiki Selling TSLA Options - Be the House

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Can anybody explain what is going with Aug 21 puts, surprised the premiums are still so high. I sold a couple of them(one a few weeks ago and the other one last week before the 45% move). I want to close them but makes no sense to buy them back at this price.

For example Aug 21 900 PUT I sold at 37$ is only up 32% and I need to pay 25$ to buy it back. It makes no sense when the stock itself has moved 45%.
 
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How can the shares only be up $4 compared to last week? not sure i understand.

It was that particular day, compared to the previous day. This is where first reading about the greeks, but then doing some low risk trades, to see how these things work in practice.

In that particular case, the reason the option premiums increases so much is that the IV on that option had increased so much. Each point of IV change (up or down) has a corresponding change in the option premium - that change is Vega.

SO in that specific instance, the $4 increase in the share price created $4 * delta increase on the option price. The option price also decreased by Theta (a negative number - the daily decrease in the option premium due to time decay).

And the last important factor on the option premium was the change in IV. IV going up increased the option premium by Vega.

And the net result of all those factors was that at $4 increase in share price, at that moment in time the option premium had gone up by $14.


What I've learned by selling an Aug put, and buying an Aug Call, so that so far, time decay has a pretty minor effect on the option price. Delta and Vega still dominate changes in the option pricing. For put sales, I probably won't go out 2 months again - I want more time decay, immediately, and less exposure to IV change. Though I might make a point of selling puts / calls just before earnings - there's a frequent pattern of IV dropping right after earnings (resolution of ambiguity is how I think of it). For an option seller, a drop in IV on already sold options is extra money in your pocket.

For an option buyer, that same drop in IV is a loss. Or a headwind to the hypothesis that got you into the option purchase in the first place.


Also about the greeks and experience - the reason I documented that particular trade and how it was progressing, is that this is awfully new to me as well. That particular confluence struck me as odd - focusing on delta an option premium will never move as much as the share price.

That's evidence that IV is changing a lot, and fast right now. I don't have a specific measurement (though I'm sure there's a way to get it) - I can see that change in the options I'm following and the options I'm considering selling as my next position.

Does that help?
 
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Are you only referring to now NOT being the time to write premium on Calls? I would think it is the ideal time to be selling the premium on puts.

There's that. Bigger picture - I try to close a sold put position and also open a new sold put position simultaneously (or nearly simultaneous). The idea here is that if it's a bad time (IV wise) to close a put, then it's a good time (IV wise) to open a put. And vice versa.

That dynamic means that I can largely ignore the larger context or try to time the market. If it's bad for one side, it's good for the other.

That's also why I prefer selling both calls and puts (but am avoiding call sales right now due to the radical changes upwards in the share price).


Also bigger picture - for me personally, this is more of a dividend strategy than it is a capital appreciation / maximization strategy. I have enough core shares for me that I could ignore this and be completely fine. But heck - a 1-3% monthly dividend sounds like an awfully nice deal on top of the core shares :)

And everything else being equal, there's more money in selling high IV options than low IV options. SO I like this high IV environment!
 
That's evidence that IV is changing a lot, and fast right now. I don't have a specific measurement (though I'm sure there's a way to get it) - I can see that change in the options I'm following and the options I'm considering selling as my next position.

Does that help?

This is how the IV looks today - 40% higher compared to 7 days back - see table and graph below. However, @paydirt76 is also correct, as high as IV is, there is still time to buy vs. to make maximum gains knowing that TSLA has a lot of catalysts over the next few weeks

upload_2020-7-7_13-31-14.png


upload_2020-7-7_13-31-45.png
 
This is how the IV looks today - 40% higher compared to 7 days back - see table and graph below. However, @paydirt76 is also correct, as high as IV is, there is still time to buy vs. to make maximum gains knowing that TSLA has a lot of catalysts over the next few weeks

View attachment 561700

View attachment 561701

That's really useful stuff @EV forever. Do you have a link for that info? I've started thinking about the 2 year leaps as a mechanism for adding a little bit of leverage, as I also think there's a lot of catalysts. Having ready access to that view of IV over time will be particularly handy (the sources I've otherwise found are mostly behind some sort of monthly paywall).
 
I was hoping to close my 2 put positions today. Not enough movement though - the $18 share price up move translated into .75 in my favor on 1 (the July 24) and 4.65 against me on the other (Aug). It's the latter that tells me IV is going up.

I did decide to sell some 1800 calls today, late in the trading day. Only 2.25 premium, but there's 3 trading days to go and that's more than $400 out of the money. Those were .03 delta so I'm feeling pretty good about this pocket money. I'm expecting to stay at such low deltas and short week options if I sell any calls for awhile. The high IV makes this vaguely worthwhile, while (of course) also representing the market pricing in any chance of them finishing ITM. I expect the realized or historical IV will show this to be too high (and thus an edge that's good for us as option sellers).

That's definitely not advice - just what I've done.


I continue to have 1 Aug 1400 call I purchased. This is my new foray into buying options. My intent, and the increasing IV is reinforcing the intent, is to sell on earnings day prior to market close. I want to collect all of the share price increase between now and then (which I think will be more than less), and I want to collect any additional IV increase (which I think will be more than less).

I think I'll look back on this option as wildly successful, and simultaneously wish I'd had this education previously so I'd have gone much bigger on this position. But hey - anytime you get paid to learn is a good thing. And the pay on this particular education is generous ($53 to $165 premium so far).
 
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That's really useful stuff @EV forever. Do you have a link for that info? I've started thinking about the 2 year leaps as a mechanism for adding a little bit of leverage, as I also think there's a lot of catalysts. Having ready access to that view of IV over time will be particularly handy (the sources I've otherwise found are mostly behind some sort of monthly paywall).

Those are from Fidelity website- my accounts are with fidelity. I am certain other brokers will have these tools too. Yahoo does not have the IV or HV information - they use relative volatility, but I could not interpret it completely. The optionsalpha video course had discussed IV and HV relationship, which I did understand.

For Fidelity - it is under the News & Research - Options tab.

upload_2020-7-7_14-56-7.png



After you open that tab, this is the page it opens

upload_2020-7-7_14-58-46.png


The table is under 'Key Statistics' and graph is under 'IV Index' tabs

I also find the P&L calculator a lot more useful as it allows you to change volatility and get approximate premium calculations. The free optionsprofitalculator.com does not allow changing volatility.

Hope this helps.
 
Bonus! Fidelity is my broker as well :)


I wanted to try something out - the price action on my 2 put positions today is something I found interesting. I'm wondering if I can back, approximately, into the daily end result.

First, the 7/24 1125 strike put premium decreased .75 today while shares increased $18. I would expect from previous experience for the decrease to be more.

The factors I know of that affect changes in premium: share price change by way of delta, time decay by way of theta, and IV changes by way of Vega. I realize that all of these change dynamically, but I'll use the end of day values to see if I can approximate how I ended up making .75 when the shares moved $18 in my favor.

Delta is -.1475. With the $18 share price move, that reduces the premium 2.66.

Time decay in my favor was -2.12.

That's 4.78 in my favor if IV was constant.

Vega is .69, so to turn 4.78 in my favor into .75 in my favor, that looks like about 6 points of IV change today (therefore, looks like .98 to 1.04). The 6 points IV comes from 4.78 - .75 ~ 4.00. At 70 cents per point of IV change, I'll need 6 points of IV change for a 4.20 increase in the premium.

Anybody know how to look up yesterday's IV on this put option? A 6 point change in a day seems like a lot to me. And I'm ok with 'losing' out on this option, because IV changes that hurt this option will just help out on the next option I sell.


The other put is the Aug 1050 strike put. It's premium increased 4.65 today while the share price increased 18. I would have expected the option premium to decrease.

Delta is -.16, so an $18 share price move is ~$3 in my favor.

Theta is -1.27, so I'm ahead 4.27 so far.

Vega is 1.19. If IV changed 6 points as it did for the July option, then that's ~7.20 against me, for a net of ~$3 (7.20 - 4.27). The actual change was 4.65. So it looks like IV change here was more like 7 or 7.5 points. That'd be from .89 to .965 give or take.


The primary dynamic I noticed today is that the August put isn't moving as much based on share price change. This was true yesterday as well during that big move. The July put moved ~20 and the August put moved ~14. It's these absolute moves I really care about, as this is the actual money going into my pocket (or coming out).

The deltas are similar, so it seems clear that it's the higher Vega (and lower theta) that is creating this dynamic.

My conclusion is my bias will be even more heavily against going out 6 or 7 weeks as I did for this August put. Valuable learning worth $14 / contract so far with $47 left to collect. However that's going up against a put that's collected ~$20 so far and looks like it'll continue to outpace the August contract for a few more weeks (at which point, the August option will be shorter duration, and start reacting more like I'm used to).

Or maybe I'll still do a few of these longer dated put sales now and then to see how consistently this dynamic shows up. I know that 6+ point changes in IV isn't a daily occurrence! Maybe I'll like the action on these longer dated puts better when IV isn't changing so much (it looks like the longer dated an option is, the more sensitive to IV changes).
 
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The other put is the Aug 1050 strike put. It's premium increased 4.65 today while the share price increased 18. I would have expected the option premium to decrease.

I posted the same thing today about a different strike for same expiry. I can only imagine that there is good demand for these puts hence the high prices. Shorts are probably doubling/tripling/quadrupling down. I don’t understand their thesis anymore but this can only mean that the short squeeze is just getting started.
 
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I sold a 2000c for Friday for $3 and then I closed the call for $1.10 Than I sold $2150 for July 24 for $16.60. I may try to close it early if I get a chance and wait to see if the IV increases even more like @paydirt76 is predicting.

I was hoping to close my 2 put positions today. Not enough movement though - the $18 share price up move translated into .75 in my favor on 1 (the July 24) and 4.65 against me on the other (Aug). It's the latter that tells me IV is going up.

I did decide to sell some 1800 calls today, late in the trading day. Only 2.25 premium, but there's 3 trading days to go and that's more than $400 out of the money. Those were .03 delta so I'm feeling pretty good about this pocket money. I'm expecting to stay at such low deltas and short week options if I sell any calls for awhile. The high IV makes this vaguely worthwhile, while (of course) also representing the market pricing in any chance of them finishing ITM. I expect the realized or historical IV will show this to be too high (and thus an edge that's good for us as option sellers).

That's definitely not advice - just what I've done.


I continue to have 1 Aug 1400 call I purchased. This is my new foray into buying options. My intent, and the increasing IV is reinforcing the intent, is to sell on earnings day prior to market close. I want to collect all of the share price increase between now and then (which I think will be more than less), and I want to collect any additional IV increase (which I think will be more than less).

I think I'll look back on this option as wildly successful, and simultaneously wish I'd had this education previously so I'd have gone much bigger on this position. But hey - anytime you get paid to learn is a good thing. And the pay on this particular education is generous ($53 to $165 premium so far).

If your 1400c goes ITM will you close it? I got an August 1500 today lol
 
I sold a 2000c for Friday for $3 and then I closed the call for $1.10 Than I sold $2150 for July 24 for $16.60. I may try to close it early if I get a chance and wait to see if the IV increases even more like @paydirt76 is predicting.



If your 1400c goes ITM will you close it? I got an August 1500 today lol

My plan on the 1400c I bought is to close day of earnings or day before. The idea is to sell at the peak of IV and avoid the post-earnings announcement IV crush.

I realize that there may be a huge price increase after; if so, I'll miss out on that. My thinking is that if there's a modest move up, or even a move down, then the IV drop on top of it will reduce the option price enough that it'll be less after earnings announcement\. That might or might not be the peak, but it's a plan I can execute that sounds like it can capture most of the possible value.

I went with the Aug monthly as it ensured I was after earnings (date still unannounced I think), and it leaves me with the choice to hold out after earnings (change my plan!). I'd consider the change if there's not much of an IV increase in this option leading into earnings. An being multiple weeks after, it might not participate as much in the IV increase going into earnings.


EDIT to add: you keep finding juicy sounding calls to sell. Once I close this week's call, I might look out for a 4-6 day call vs. the 2-3 day calls I'm selling right now. Sounds like a lot more premium available and I have a hard time seeing a $700 move in the next week. And if we did have one, I think I'd be ok with that. In fact, I might find myself taking the proceeds and using them on some June 2022 calls as share enhancement. H"mm..
 
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I sold a 2000c for Friday for $3 and then I closed the call for $1.10 Than I sold $2150 for July 24 for $16.60. I may try to close it early if I get a chance and wait to see if the IV increases even more like @paydirt76 is predicting.

Not predicting implied volatility goes higher. Saying that realized volatility is higher.
Implied is what the market expects Tesla to move at based on how options are priced.
Realized is how Tesla actually moves.
 
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It was that particular day, compared to the previous day. This is where first reading about the greeks, but then doing some low risk trades, to see how these things work in practice.

In that particular case, the reason the option premiums increases so much is that the IV on that option had increased so much. Each point of IV change (up or down) has a corresponding change in the option premium - that change is Vega.

SO in that specific instance, the $4 increase in the share price created $4 * delta increase on the option price. The option price also decreased by Theta (a negative number - the daily decrease in the option premium due to time decay).

And the last important factor on the option premium was the change in IV. IV going up increased the option premium by Vega.

And the net result of all those factors was that at $4 increase in share price, at that moment in time the option premium had gone up by $14.


What I've learned by selling an Aug put, and buying an Aug Call, so that so far, time decay has a pretty minor effect on the option price. Delta and Vega still dominate changes in the option pricing. For put sales, I probably won't go out 2 months again - I want more time decay, immediately, and less exposure to IV change. Though I might make a point of selling puts / calls just before earnings - there's a frequent pattern of IV dropping right after earnings (resolution of ambiguity is how I think of it). For an option seller, a drop in IV on already sold options is extra money in your pocket.

For an option buyer, that same drop in IV is a loss. Or a headwind to the hypothesis that got you into the option purchase in the first place.


Also about the greeks and experience - the reason I documented that particular trade and how it was progressing, is that this is awfully new to me as well. That particular confluence struck me as odd - focusing on delta an option premium will never move as much as the share price.

That's evidence that IV is changing a lot, and fast right now. I don't have a specific measurement (though I'm sure there's a way to get it) - I can see that change in the options I'm following and the options I'm considering selling as my next position.

Does that help?

Thank you
 
I sold a 2000c for Friday for $3 and then I closed the call for $1.10 Than I sold $2150 for July 24 for $16.60. I may try to close it early if I get a chance and wait to see if the IV increases even more like @paydirt76 is predicting.



If your 1400c goes ITM will you close it? I got an August 1500 today lol

just a word of caution, I got burnt playing calls around ER for 1Q. I had bought May 1, May 15 and May 29 expecting good ER and a reasonable bump in price. Well then dear Elon decides to tweet that shares are too expensive, he is selling all his worldly possessions and the drama with Fremont factory. There was maybe an hour on April 30th where the price saw a nice bump which I missed living on West Coast, but it was downhill after that. The May 1 expired worthless as they were OTM. The May 15 and May 29 were ITM when purchased, but I had to close them at 80-90% loss.

With TSLA, life is highly unpredictable. If I want to play the ER and the S&P inclusion, I will likely buy later strikes but close early if we get nice price movement. Just my strategy going into the next 3 months.
 
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