Wiki Selling TSLA Options - Be the House

[bxr140]

Say I have in my portfolio:
100 TSLA shares
1 TSLA LEAP (eg Jan 2023, $1000 strike price)
$0 (zero cash)

I then sell a covered call against my TSLA shares. I can sell exactly one covered call. I sell a weekly for example.

Lycanthrope's explanation seems to imply that I can sell a second covered call, against that LEAP.

Not sure about the interpretation of the explanation but in this scenario, at least for typical brokers, you cannot sell a call against the leap. You have no collateral (cash or margin) for that sold call. The shares are already being used as collateral for the first covered call. The LEAP itself requires margin equal to its value (so its basically self covering...though maybe that's not the best way to describe it...?), and the zero cash is a goose egg.

I understand that the CC I sell against the LEAP must have a strike equal to or higher than the LEAP strike price.

Unique broker rules aside, this is not a requirement. If you sell a call above the +C strike you won't need to earmark any more margin. If you sell a call below the +C strike you will require standard credit spread margin, which typically will be [$ difference in strike * 100 shares * number of spreads].

I don't understand where you state that the expiry of the CC must be prior to the LEAP.

The expiry of the sold leg of a calendar spread must come before the long leg in order to fall into spread margin requirements. If a -C expiry is after the +C expiry in a calendar spread that means--in the eyes of your broker--at some point in the future the -C will be naked, because at some point in the future the +C is going to expire. With a typical broker and sufficient options trading level and sufficient margin to satisfy naked -C margin requirements you could absolutely create that position; the point is that regardless how long you intend to hold the position the broker will always classify the -C as naked.

***Its possible some brokers internally layer trading rules on their customers to minimize the amount of trouble those customers can get into.

In my mind it should be an expiration AFTER the LEAP expiry. That way with the passage of time the LEAP will convert to shares and then those 100 shares are covering the covered call.

There's really no value in coupling the two contracts. The -C is going to be naked and the +C is effectively just going to be a standalone call, you might as well just treat them as such. (Its also a terrible idea to sell a super long dated contract, but that's another conversation)

 

[stealthyc]

Because there's no such thing as a silver bullet strategy. Options trading is about aligning a strategy to a trade opportunity. Certainly effective options traders will gravitate toward a few types of strategies as opposed to the whole catalog of possibilities (linked again for convenience, here's the basics) but it really, again, all comes back to understanding how an options position actually returns profit.

We talked about synthetics/combos a bit upthread, but the short story is they're a fine way to increase exposure through leverage. A basic synthetic P/L's pretty much just like 100 shares, except you don't need 100 shares worth of cash to hold the position (you need whatever margin your broker requires for a naked put). In the event you're trading in a non-marginable account, there's zero upside to a synthetic over shares.

Changing up strikes and/or expirations gives you a little more flexibility to tailor the P/L based on your underlying and volatility analysis, but its not like there's a massive upside over shares or a regular synthetic, and the split builds in a flat spot in the P/L that needs to be accounted for in your analysis. And...you still need to cover the naked put.

In the synthetics are really just a play on using a sold contract to offset the price of a bought contract, which is exactly what folks are doing with covered calls (where the bought contract is just shares) and calendar spreads (which, among other configurations, is what the stupidly named 'poor mans covered call' is).

One other random use of synthetics is that you can open a short position on a hard to borrow stock. This was useful to me when I wanted to open an arbitrage position on Aphria and Tilray but could not sell Tilray short.

 

[adiggs]

I also opened a 545/600 condor for tomorrow at a $1.40 credit. I chose the lower strike as the first strike past 550 where I expect significant resistance to arise. I choose the 600 strike over the 605 as my thinking continues to be downward and the 600 strike was slightly better premium over the 605. I expect significant resistance at 600 but was much more willing to risk being right ATM tomorrow around 600 than ATM on the put side.

My intention is to use the condor proceeds after it settles tomorrow (make sure I earn the money before I spend it) to clear out one of those puts. Or maybe the flipped call - either choice is available.

Following up on this condor trade with more questions (@setipoo ) for those that have done more of these than me (my first ).

I am strongly motivated to close the trade positively rather than letting it go to expiration. I know that after hours assignment is rare, so the risk of letting contracts go to expiration is small. But I've also seen a $40 move at the closing cross (S&P inclusion day) and I don't want to go from $10 OTM to $30 ITM at the closing price and get assigned on a winning position that just got turned into a max loss.

So that's worth a small bit of money for a positive close, even if that doesn't happen until the last few minutes of the day.


Leading to my question. Do you close the put and call legs separately? Do you prefer closing them in a single transaction that covers both? And what sort of debit do you offer to the market to get these to close effectively? I've seen moments today where the put leg had the same price on the short put and the further out long put. They were in effect equally worthless (first at .11 and again at .10). When they are equal I see no reason not to close immediately - the cost on the short put is offset by the income on the long put and I'm left with a commission to pay.

I'm going to enter a close on the entire position for a penny for the time being and I'm looking forward to comments and thoughts from others.

 

[adiggs]

An observation about Fidelity and its grouping of positions into strategies. I normally open and close positions via the web interface. It's been working well for me and the positions are individually pretty uninteresting.

But I've got this condor going on and the web interface doesn't recognize it as a group of things that goes together, and thus it doesn't offer me a "close the whole mess" option, and I'd prefer not entering each of the closing choices into a ticket. So I'm looking at ATP (the desktop app) and it's grouping of stuff into strategies is .. interesting to me.


About 3/4ths of the condor is actually grouped together into that condor. The rest of it got grouped into a protective put on one side and a credit spread on the other (at least the credit spread is between the correct contracts). It's the other 1/4 that's been grouped into the protective put that is the problem. The credit spread is ok - I just don't want to close it independently of the other side. And that other side got grouped into a protective put between 24 long puts and 2400 long shares. Which then filters out into the rest of the account into erroneous pairings. This all goes away by close of trading today.

Now I'm going to go see if I can reassign contracts to a strategy.

And another sidebar - this Fidelity grouping strategy might also explain why I put on $50k worth of condor and my available margin increased. That's pretty cool


This is the sort of practical and mechanical education I was looking for. And I CAN indeed close that strategy with a single "close strategy" choice. As mentioned previously I'm offering up the whole condor for a penny. It's currently worth 4 to 8 pennies - I'm curious to see how close to expiration is needed to get out.

 

[bxr140]

Do you close the put and call legs separately? Do you prefer closing them in a single transaction that covers both?

From an efficiency and commission perspective, all at once.
From a maximizing profit perspective, sometimes its worth closing one side and letting the other side play out a little longer.

So...it kinda depends. You'll find something that's comfortable for you.

 

[bxr140]

Now I'm going to go see if I can reassign contracts to a strategy.

And another sidebar - this Fidelity grouping strategy might also explain why I put on $50k worth of condor and my available margin increased. That's pretty cool

Fidelity will always pair up legs/shares based on the least impact to you. Its in their best interest for you to trade more, so its in their best interest to make sure you have the maximum available to trade.

FEWIW, I haven't found a way in ATP to regroup legs/shares. You can regroup in power e-trade. Go figure

 

[Yoona]

Following up on this condor trade with more questions (@setipoo ) for those that have done more of these than me (my first ).

I am strongly motivated to close the trade positively rather than letting it go to expiration. I know that after hours assignment is rare, so the risk of letting contracts go to expiration is small. But I've also seen a $40 move at the closing cross (S&P inclusion day) and I don't want to go from $10 OTM to $30 ITM at the closing price and get assigned on a winning position that just got turned into a max loss.

So that's worth a small bit of money for a positive close, even if that doesn't happen until the last few minutes of the day.


Leading to my question. Do you close the put and call legs separately? Do you prefer closing them in a single transaction that covers both? And what sort of debit do you offer to the market to get these to close effectively? I've seen moments today where the put leg had the same price on the short put and the further out long put. They were in effect equally worthless (first at .11 and again at .10). When they are equal I see no reason not to close immediately - the cost on the short put is offset by the income on the long put and I'm left with a commission to pay.

I'm going to enter a close on the entire position for a penny for the time being and I'm looking forward to comments and thoughts from others.

It's 2 steps on thinkorswim:
1) highlight the 4 legs and assign them into a group
2) right-click the group to BTC it, or roll whatever side, or close whatever side, or take action on any leg.

 

[UltradoomY]

No, just watching and see if they let it run later in the day.
If not, no big deal, was strictly a YOLO play - have some YOLO $650's for next week too.

Rolled these C $600 strikes x 10 to 5 $620's next week for a total of $40 today when it was at around $591.50

Now have 5 $620 calls (total cost $1540)
And 10 $650 calls (total cost $7500)

These are the last of my YOLO's for a bit - everything else is out at September for catalysts and earnings, along with plenty of time value.

 

[dl003]

Do we ever consider part of the reason the stock is going down so much may be because of us, who has been shorting calls like there's no tomorrow?

 

[bkp_duke]

Do we ever consider part of the reason the stock is going down so much may be because of us, who has been shorting calls like there's no tomorrow?

I doubt our calls amount to a drop in the ocean of calls for TSLA.

Macros have taken a steaming dump the past 8 weeks. I squarely blame inflation rearing it's head and the big boys making a run out of growth stocks.

 

[adiggs]

I had to re-read back a few posts in this exchange, and I think the key condition was a "non-margin" account.

Here in the states (at least with TDAmeritrade), _even though_ margin isn't being used, a margin account is needed in order to sell covered calls against my LEAP's (I learned this just this week when I tried to repeat adiggs' experiment).

So if you don't need a margin account in order sell calls against your LEAPs in Belgium, then you've got a leg up.

One notion that might explain - in an IRA you might also need the spread trading authorization. I apparently clicked that off when I was applying for option authorization for the account. My general approach is to request max authorization these days, even though I don't make use of anything close to all of the features.

But it is also the case that I have "IRA margin" in that account. All that IRA margin does is enable me to use unsettled cash immediately rather than wait for it to settle a couple of days later.

 

[adiggs]

An observation about Fidelity and its grouping of positions into strategies. I normally open and close positions via the web interface. It's been working well for me and the positions are individually pretty uninteresting.

But I've got this condor going on and the web interface doesn't recognize it as a group of things that goes together, and thus it doesn't offer me a "close the whole mess" option, and I'd prefer not entering each of the closing choices into a ticket. So I'm looking at ATP (the desktop app) and it's grouping of stuff into strategies is .. interesting to me.


About 3/4ths of the condor is actually grouped together into that condor. The rest of it got grouped into a protective put on one side and a credit spread on the other (at least the credit spread is between the correct contracts). It's the other 1/4 that's been grouped into the protective put that is the problem. The credit spread is ok - I just don't want to close it independently of the other side. And that other side got grouped into a protective put between 24 long puts and 2400 long shares. Which then filters out into the rest of the account into erroneous pairings. This all goes away by close of trading today.

Now I'm going to go see if I can reassign contracts to a strategy.

And another sidebar - this Fidelity grouping strategy might also explain why I put on $50k worth of condor and my available margin increased. That's pretty cool


This is the sort of practical and mechanical education I was looking for. And I CAN indeed close that strategy with a single "close strategy" choice. As mentioned previously I'm offering up the whole condor for a penny. It's currently worth 4 to 8 pennies - I'm curious to see how close to expiration is needed to get out.

Finishing up the mechanics on this condor trade - I had an offer in the market for most of the last hour to close for a 5 cent net debit. I figured it would be a no-brainer for somebody to pick that up, but it didn't happen. The whole position went past end of day and expired worthless (max profit for me). Looks like that is totally fine for the trade expiring today as we're $10 OTM on the close leg. And I do realize that exercise after end of trading is rare regardless. Nonetheless I really don't want a late assignment on one of these short legs as that sounds disastrous in a position that gets traded in large number of contracts (I did 100 this time), and thus the desire for a definitive close at the cost of a few pennies of the position profit.

The max profit is nice but it also sounds like I will most likely need to babysit these things on expiration day when I trade them. I will try closing out the individual spreads next time.


In a barely related note I think I need to figure out how to put condors / spreads into my tracking spreadsheet. The math will be more interesting but I really don't want 4 line items for what is really 1 position.

 

[TSLA Pilot]

Not sure about the interpretation of the explanation but in this scenario, at least for typical brokers, you cannot sell a call against the leap. You have no collateral (cash or margin) for that sold call. The shares are already being used as collateral for the first covered call. The LEAP itself requires margin equal to its value (so its basically self covering...though maybe that's not the best way to describe it...?), and the zero cash is a goose egg.



Unique broker rules aside, this is not a requirement. If you sell a call above the +C strike you won't need to earmark any more margin. If you sell a call below the +C strike you will require standard credit spread margin, which typically will be [$ difference in strike * 100 shares * number of spreads].



The expiry of the sold leg of a calendar spread must come before the long leg in order to fall into spread margin requirements. If a -C expiry is after the +C expiry in a calendar spread that means--in the eyes of your broker--at some point in the future the -C will be naked, because at some point in the future the +C is going to expire. With a typical broker and sufficient options trading level and sufficient margin to satisfy naked -C margin requirements you could absolutely create that position; the point is that regardless how long you intend to hold the position the broker will always classify the -C as naked.

***Its possible some brokers internally layer trading rules on their customers to minimize the amount of trouble those customers can get into.



There's really no value in coupling the two contracts. The -C is going to be naked and the +C is effectively just going to be a standalone call, you might as well just treat them as such. (Its also a terrible idea to sell a super long dated contract, but that's another conversation)

Could you please expand on this part?

(Its also a terrible idea to sell a super long dated contract, but that's another conversation)

I was in a bind earlier this week with the sudden and chronic SP drop. As such, I sold some shares of other, lesser, stocks to cover a "pending" margin call notice from TD Ameritrade. Even so, had Friday's TSLA SP close been just a hair lower I would have been in a real margin call situation.

My original plan was to sell some 10 LEAP contracts, as far out of the money and as long as possible in the future, with the intent to buy them back later if the SP began to close in on $1,400, or ignore them if the stock would be far from $1.4k by then.

The specific contracts would be the:


16 Jun 2023, $1,400 Strikes

They sell for ~$77.65 at the close today (Friday). Thus, each contract is worth $7,765. I'd sell ten contracts for a net ~$77.6k, more than enough to cover the margin I could have had. (Fate smiles upon fools and little children, thankfully

However, next week is another potential for a margin call.

What is a better plan to restock the brokerage account with liquid cash for a potential margin call? Obviously, as a long-term investor I find that TSLA is my least-risk/highest-gain position and I have no desire or intent to sell any actual TSLA shares, but I kept expecting each margin buy (since January) to be the "bottom," and I was wrong . . . the market can be so irrational in the short-term!

Thanks for any insights; all appreciated.

(p.s. Given the margin buys, and buying since 2013, I now hold several thousand shares in my trading account.)

 

[bxr140]

In a barely related note I think I need to figure out how to put condors / spreads into my tracking spreadsheet. The math will be more interesting but I really don't want 4 line items for what is really 1 position.

Try treating it as two spreads. That way you're set up in the event you maintenance just one side of the position.

 

[buttershrimp]

Because there's no such thing as a silver bullet strategy. Options trading is about aligning a strategy to a trade opportunity. Certainly effective options traders will gravitate toward a few types of strategies as opposed to the whole catalog of possibilities (linked again for convenience, here's the basics) but it really, again, all comes back to understanding how an options position actually returns profit.

We talked about synthetics/combos a bit upthread, but the short story is they're a fine way to increase exposure through leverage. A basic synthetic P/L's pretty much just like 100 shares, except you don't need 100 shares worth of cash to hold the position (you need whatever margin your broker requires for a naked put). In the event you're trading in a non-marginable account, there's zero upside to a synthetic over shares.

Changing up strikes and/or expirations gives you a little more flexibility to tailor the P/L based on your underlying and volatility analysis, but its not like there's a massive upside over shares or a regular synthetic, and the split builds in a flat spot in the P/L that needs to be accounted for in your analysis. And...you still need to cover the naked put.

In the synthetics are really just a play on using a sold contract to offset the price of a bought contract, which is exactly what folks are doing with covered calls (where the bought contract is just shares) and calendar spreads (which, among other configurations, is what the stupidly named 'poor mans covered call' is).

Of course there is no one size fits all situation … but the bullish split strike synthetic I’m referencing has some key differences… It’s not a particularly advanced strategy, but if you can roll the put side out of danger, for a stock like Tesla it seems like the odds become progressively more in your favor each week, and Just one week of the stock price going above the long call strike yields a huge benefit! I’m not asking for someone to tell me that there are weaknesses to the strategy, trust me, if I’m bringing it up…. There are going to be weaknesses … but the idea of accumulating cash while not missing out on upward moves is a tremendous thing!

I mean who wouldn’t have wanted to use this strategy this week and just roll your puts if they finished itm? I mean it made me understand Greeks! That alone is a major achievement!

Bernie madoff used to tell his clients that he generate high returns by primarily using this strategy …. So there’s that…. But I think this has more to do with people’s eyes glazing over because it sounds complicated but it isn’t! It makes perfect sense why institutions use this strategy. As a weekly method, I’m in love. Someone slap me.

 

[adiggs]

Try treating it as two spreads. That way you're set up in the event you maintenance just one side of the position.

Drat it! This makes total sense. I hadn't thought about that, but it's a good thing to be aware of. More generally I need my tracking sheet to handle spreads and it's not setup that way right now.

sigh.

 

[Yoona]

Weekend mind-bending puzzle to anyone bored:

How to get rid of my May 28 Bull Put Spread 10x +p660/-p675? Margin=15x10x100=$15k

A) sell Iron Condor to buy it off, but i'd rather keep the full IC credit for myself.

B) roll down to +p575/-p600, but is very expensive and no credit received.

C) BTC BPS and STO -p600 for credit, but that uses 20x more margin. If i have room to flip only 2x, then the 8x will roll to next week and that 8x debit eats the 2x credit. It's a loss 4-5 weeks straight. And that's assuming SP closing is >600 per week.

D) what is the not-advice?

Thanks in advance...

 

[buttershrimp]

Weekend mind-bending puzzle to anyone bored:

How to get rid of my May 28 Bull Put Spread 10x +p660/-p675? Margin=15x10x100=$15k

A) sell Iron Condor to buy it off, but i'd rather keep the full IC credit for myself.

B) roll down to +p575/-p600, but is very expensive and no credit received.

C) BTC BPS and STO -p600 for credit, but that uses 20x more margin. If i have room to flip only 2x, then the 8x will roll to next week and that 8x debit eats the 2x credit. It's a loss 4-5 weeks straight. And that's assuming SP closing is >600 per week.

D) what is the not-advice?

Thanks in advance...

setipoo before I answer your question with thoughtful analysis (I’m incapable). can you or anyone answer a question:

can you sell cash secured puts with cash + margin? With buying power?

 

[Tslynk67]

setipoo before I answer your question with thoughtful analysis (I’m incapable). can you or anyone answer a question:

can you sell cash secured puts with cash + margin? With buying power?

Yes you can sell puts on margin, but consider what you would do if the share price were to drop 50% and you get a margin call?

 

[Yoona]

setipoo before I answer your question with thoughtful analysis (I’m incapable). can you or anyone answer a question:

can you sell cash secured puts with cash + margin? With buying power?

yes, but -P scares me in a downhill rush (last few weeks)