ok, time to fess up. Yesterday, I sold 12Mar 800c for $5.00 on ALL of my TSLA shares.
Delta was around 0.10 at the time, so not a high risk play, but still nerve racking for this newbie. I didn’t time the Monday peak perfectly, but apparently good enough based on today’s nearly $40 drop, since the options are down 55%.
As part of my continued learning, I finally realized that using the premium to buy additional shares of TSLA, especially if I could buy at a lower SP, would act as an additional hedge against a rising SP. Before the trade, I had enough free cash in the accounts to cover rebuying the calls back up to $850 SP, which seemed relatively safe for 3/12 exp. Then, I realized that in an emergency, I could sell those odd lot shares (06, 16, 30 in each account) if the SP rose above $850, thereby raising additional cash to buyback the ITM options. Again, my goal is to generate some cash by selling covered calls, but definitely NOT lose my shares.
Hmmmm, so better yet, why leave the emergency cash static, if my biggest concern is losing shares on a 800c that goes DITM against me? It would be better to have the “emergency cash” rising in value along with the SP. This is probably eminently obvious to all you experts, but not to this newbie.
So, knowing that the SP goes up and down, this morning I put in 5shr buys at $5-$10 increments all the way down to $620. I managed to snag 25 shares down to $690 without even worrying about whether I would catch the best price drop. If the price stays below $800, which seems highly likely, the calls expire worthless and all of those premiums go into TSLA at a lower cost basis than the strike. A big win for my trading experience and a relief to not risk losing my shares.
If the SP somehow manages a massive rally and goes over $800 (say $900), I have 900x25=$22,500 additional available to buyback the DITM options. This combined with the $25,000 actual cash in the accounts, means that I could buyback nearly five contracts, even in the “worst” case $900 SP scenario. In reality, I would certainly be able to roll four contracts at a time up & out another two weeks and collect some additional premium, following
@adiggs methods.
So, even being constrained in an IRA without margin, I’m able to sell low risk (0.10 delta) covered calls and slowly increase the number of shares purchased. At this time I’m not comfortable going above 0.15 delta to access those higher premiums, just too risky from a long term perspective. If I can continue this method the rest of this month, I should have built up another 100 shares before the next earnings announcement.