we should open a call rolling club
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Just sold some April 16 CCs: 20 x $855 ($1.10) and 20 x $900 ($.72). Didn't catch the top on either, but figured I might as well pick up $3,500 for just three days' time and let the MMs do the heavy lifting to keep it from getting there.
bkp_duke
Well-Known Member
I'm definitely not going to roll past the Q1 earnings report.
I'm looking at 4/23 as I don't want to go past the earning report (yet). Also, I believe that IV will be higher on 4/23 so that I should get a higher credit from doing 2 weekly rolls compared with a 2-week roll now. Someone please correct me if I am mistaken.
jeewee3000
Active Member
Hi gang, I finally decided to give 'the Wheel' a shot, since my portfolio has grown enough that I wouldn't be terrified of parting with some shares. However my main goal is share accumulation so if shares get called I'll be selling puts the week after to convert that money back to shares.
I've been following this thread on and off since it's inception, but now things will get real I have some questions.
1) without going into numbers, do you generally only sell calls for a fraction of your holding or do you squeeze out all you can by selling calls against all your shares?
For example, say I have 1000 shares. Do I sell for example 1 agressive call, 2 less agressive calls and 7 very non-agressive calls (way OTM) to squeeze all the value I can out of my share holding? Or do you keep some shares safe in case of an uber bull run?
2) how agressive are you generally? I've read 20% OTM for weeklies a lot. But given the coming ER that seems risky to me.
3) do you try to time tops or not? Or do you dollar cost average (see question 1) by selling the same call for days on end?
4) in case your calls get near the money, do you:
a- try and roll upward to keep your shares?
b- take the loss (of shares) and switch to selling puts?
c- ... ?
Thanks a bunch. Will sit on the sidelines paper trading the Wheel till ER most likely. But want to inform myself as much as possible before starting to sell options.
(Note: I have experience in options, but mainly buying LEAPS on dips and converting them to shares/cash on highs. The Wheel is played using weeklies/monthlies I imagine, so on that front I've got to get a better feel for how the greeks fluctuate short term)
I've been following this thread on and off since it's inception, but now things will get real I have some questions.
1) without going into numbers, do you generally only sell calls for a fraction of your holding or do you squeeze out all you can by selling calls against all your shares?
For example, say I have 1000 shares. Do I sell for example 1 agressive call, 2 less agressive calls and 7 very non-agressive calls (way OTM) to squeeze all the value I can out of my share holding? Or do you keep some shares safe in case of an uber bull run?
2) how agressive are you generally? I've read 20% OTM for weeklies a lot. But given the coming ER that seems risky to me.
3) do you try to time tops or not? Or do you dollar cost average (see question 1) by selling the same call for days on end?
4) in case your calls get near the money, do you:
a- try and roll upward to keep your shares?
b- take the loss (of shares) and switch to selling puts?
c- ... ?
Thanks a bunch. Will sit on the sidelines paper trading the Wheel till ER most likely. But want to inform myself as much as possible before starting to sell options.
(Note: I have experience in options, but mainly buying LEAPS on dips and converting them to shares/cash on highs. The Wheel is played using weeklies/monthlies I imagine, so on that front I've got to get a better feel for how the greeks fluctuate short term)
While you have time (waiting for earnings) go to page one and watch the videos that @adiggs linked. Its a time investment but will really help with the Greeks and give you a baseline.
Most would agree here - not advice- that you should start small and grow as you learn. Definitely not total portfolio the first time around the wheel. That should fill in for most of your questions - then you need to come up with your own particular investment thesis to make the most of "The Wheel"
Cheers
Regarding #1, personally I don't want to part with shares either, so I started by selling naked puts, and from a "wheel" perspective don't sell CCs against my main holdings. That is not to say I never sell CCs against them, but it's less frequent and more opportunistic (for instance as I recall in Jan I sold 10x Mar 1400c for $20 premium). Obviously though if I decide to let myself get assigned vs rolling, it will be on margin. I sell or roll weekly, and generally do not sell any over an ER. I modify my aggressiveness depending on the situation, for instance I had some 730p which were actually something like 15% OTM when I sold them but were ITM over the past weeks so I was rolling those for good premium, but simultaneously when the stock was bouncing off the 500s I sold some that were basically ATM. I'm not an expert and I'm sure I do some really dumb stuff, but so far it has been working ok for me.
corduroy
Active Member
ICs really aren't any different than any other spread, you just need to understand how to manage risk/reward.
I actually just entered a SNAP IC for next Friday (earnings week). In this case I'm making 40 cents on my dollar, which is primarily from the top side spread being pretty agressive at ~18% prob ITM, but I also think its pretty unlikely that price is going up that high (I could have been more conservative and put my strike at the ATH).
Blue lines are my price targets
alterac000
Member
I do something similar. My methods have been highly unscientific though and I've been burned a few times as I took on too much risk through margin (note to self don't sell naked puts on margin - the past few months forced me to take enormous losses due to this)
I have also learned generally not to sell CCs through an ER, especially TSLA.
Not unless you're using the day's price action as a technical indicator for future price action. (I do not, as I haven't found any statistical relevant correlation--and believe me, I've looked).
Implied in the above statement is that if you're trying to time a roll based on market action, the timing of that roll is defined by how your method of price analysis assigns probability to future price action combined with your position's specific risk/reward folded in.
"It depends".
--Generally, you roll if the new contract has a higher theta than the original contract, because theta is the method by which a sold contract realizes profit. This applies to both OTM and ITM contracts and usually comes to fruition sometime during the expiration week, usually later in the week.
--Generally, you roll an ITM contract if the extrinsic value is very low, as the MM is far more likely to early execute to clear out their hedge against the contract they bought from you. (This is where "Roll Thursday" primarily comes into play)
--Just to beat the horse, IMHO never roll for a debit, as this is explicitly giving back some of the profit you realized from the initial sale of the contract, further diluting the [already low] ROI of the position.
I strongly encourage you to separate The Wheel logic from Selling CCs Against B&H Shares logic, as they are two very different approaches. If you're just starting I strongly recommend you not combine/conflate the two. Take some small amount of cash and run The Wheel proper. If you want to sell calls against B&H shares you can do that too but with the appropriate conservative strategy.
Definitely DO NOT sell calls against all of your B&H shares unless you're ok with having all of your B&H shares called away. If you're going to sell calls against those shares, sell a very small number of -Cs at safe strikes to start. One of the benefits of having a lot of shares and most of them unpaired with CC's is that if you get into ITM trouble with the CC's you have, you can split the "trouble" value across more -Cs. Depending on the situation, that can quickly get you out of trouble. (It can also put you deeper in trouble of course, as is the yin/yang of risk/reward).
It absolutely depends on your price analysis, the only certainty is that if you apply a fixed strategy (like: always sell at 20% OTM) it is a long term losing proposition. Being less aggressive or staying out for earnings is a sound approach, but obviously there's much more to it than that.
Any entry point for any traded position should be "timed" based on whatever method of price analysis you use. That doesn't matter if its a short or long position, shares or contracts, etc. Blindly entering is gambling.
(Note that in context "trade" != "investment"; a 10+ year Investment is much less sensitive to entry timing)
Follow the above rolling rules.
Hey! Welcome!!
As a general response you'll find that the regulars here follow different approaches and have different appetites for risk. Some are very technical about it, studying the greeks, others, like me, just go with gut feeling. For myself, I'm in money-making mode, so am prepared to take more risks than most, so bear this in mind:
1) Generally the same strike every week against whole portfolio (currently 32 contracts), sell on Monday/Tuesday once I see the general sentiment/direction of the stock. I decided on weeklies as it gives less opportunity for the SP to get away too far and more chance to rebuy the shares in the other direction
2) I target 1% of SP for the premium, but of course this depends on the open-interest chart for a specific week and I use the call-calls as protection - I did a simulation (look up-thread) where a 1% premium re-invested into shares weekly doubles your portfolio after 15 months
3) I assume the stock will rise at the beginning of the week and try to sell when I feel we're at a high, MM's are often manipulating Wednesday onwards to save their calls - I note that they don't pay much attention to puts, i.e. I feel they're happy to buy $TSLA at lower prices
4) Now I have strikes at $800 I'm OK to let them exercise, previously I have closed calls and puts before the expiry, but you'd normally wait until the final days to knock out all the time-value. However, most times when I did re-buy it was not to avoid exercise, but rather to take high profits and then resell something close to the SP
To date I've never had a call exercise, but have been caught a few times with puts. My experience is that I've lost more money closing out positions when I should have let them exercise
I sell weekly calls against all my shares and at ~10% OTM to maximize the premiums at a level I'd be comfortable with rolling out if necessary.
Unfortunately, this week caught me in a bad spot (sold 4/16 720c on monday!!), so I just rolled them out to 5/1 750c for a net credit (per bxr140's point about NEVER rolling for a net-debit) of $4/shr. adiggs' experiments with rolling DITM cc's gave me confidence to try it myself, and I found that, although I'm not getting the best returns (currently averaging out to ~12% annualized rate), I'm no longer afraid of losing the shares, since I roll them out while there's still a little bit of time-value left in the options to hedge against early exercise. Although I committed the faux pas of selling covered calls expiring after earnings, I'm banking on the possibility of wall street selling on the news. If not, then I'll continue rolling (and missing out on those call premiums). I still have much to learn.
Naked puts by definition are on margin no? That said, if you have portfolio margin and you are rolling the puts if they are ITM, you are not paying any interest and are just "reserving" your margin at likely a much lower amount than the full cost to exercise.
alterac000
Member
I looked it up after your post and believe naked put just means there is no corresponding offsetting position. In other words, if I'm selling a put = bullish position, but don't have a corresponding bear position of some kind i.e. a Covered Call, then it's considered a naked put. Maybe? I'm not an expert.
In any case, my major and extremely costly mistake was that during the runup of Dec 20' to Jan 20', I was highly leveraged and basically full on bullish positions such as sold puts. When the share price began to decline in late January, I wasn't fast enough in rotating out these positions...along with my stubbornness and maybe misguided optimism, and as the SP declined, so too did my margin leverage. While I was able to extend some of my sold puts out into later expiry and lower strikes, my margin decreased so much that ultimately I was forced to close out a large amount of sold put positions at a major loss. This combined with an ill-timed and bad strike Call position equated to watching my portfolio drop by about 55% between January to the Tesla low ~March 8. Maybe the worst 6 weeks of my trading life. Hence why I started to seek out information and advice on these forums, learning more about the wheel, rolling strategies, and so forth from those smarter than I!
I closed the 100 contracts for May 7 '21 $620 Put today for 70% gain. Not bad, felt lucky!This is really a good thread to learn option trading. Want to share some trades I made today.
First trade is I sold 100 contracts for May 7 '21 $620 Put at $23.8.
Second trade is I sold 30 contract for Jan21 '22 $500 Put at $63.6.
Wish me luck! Thanks!
Ouch, yeah it's more about managing margin leverage I suppose. I am comfortable selling naked puts, but I limit my margin use to about 10%.
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