Wiki Selling TSLA Options - Be the House

[AquaY]

Just an incredible amount of knowledge being dropped this week. Thank you to all for taking the time to post your strategies, especially adiggs.

My only .02 to add to the spread discussion is the added benefit is black swan protection. I have been thinking a lot about this remote (but non-zero) possibility, that we could wake up and some huge event has triggered a 200pt drop in the SP. Knowing that there is a hard floor to my risk helps me sleep better at night with larger open positions.

It seems like whenever I want to post my thoughts or strategy someone else has already stated it and usually more clearly than I would have LOL.
I always have it in the back of my mind some market catastrophe. Oh I don't know, like perhaps a virus from China spreads across the globe.
It's why I am conservative in committing too much leverage. I actually mix up my trades between risk levels.
Most of my trades have a high probability of success and I'm getting returns of > than 1% on those. I also put on positions with more leverage or higher returns ( and risk) that have netted me 3 or 4 % weekly and monthly but usually do smaller trades in these or less frequently.
I like OTM BPS when I'm bullish overall but unsure of the market for the next week or 2.
While I also do CC and BCS I found the risk/return of them to be inferior to my BPS. I look at them often but end up probably doing 4 Put trades for each Call

I find people posting on what they think is /will happen and their thoughts on the trades they are entering not only interesting but educational and they increase my comfort factor as well. One thing that I've changed in my trading due to several people here is I've increased my weekly option trades dramatically as well s entering a few more aggressive trades than I normally would have.
I had my most profitable TSLA trading month since I started this year.
If I can keep that up I can renovate my house like @Lycanthrope is!

 

[adiggs]

My limitation for spreads is that I have to phone my broker to do them. I don't mind for making them but if I want to act quicjly on a roll, there is no guarantee that I can reach someone quickly on the phone. It is a limitation of the brokerage (iTrade in Canada) and makes me consider switching but it is a nuisance and time-consuming to change. I would also have to close out all my sold positions since i assume there would be at least a few days where I wouldn't be able to do anything.

Depending on the details of the broker (I haven't considered this previously), remember that you can leg into a spread, as well as the legging into an Iron Condor that has been discussed elsewhere.

The spread is, after all, a long put + short put. As long as the broker will match them up correctly for margin purposes then you could purchase the spread as individual trades. Which also means that you could roll using individual trades, as long as you have enough extra resources.

For opening a spread in the first place, that would be:
- BTO the long put
- STO the short put
(two trade tickets)

For rolling a spread, I think it would be:
- BTO the long put at the new expiration
- BTC the short put at the old expiration
- STO the short put at the new expiration
- STC the long put at the old expiration

The BTC/STO on the short put might need to be done in stages depending on your cash / margin position.

Of course all of these different trade tickets will increase or decrease your bid/ask slippage, and throw in a lot of variance from the share and option prices moving around while you're doing all of these transactions.

EDIT to add: The reason I can see to opening the spread in two transactions is that they don't have to happen at the same time. You could buy the long put today at a relatively high share price and sell the short put tomorrow at a relatively low share price. You get your spread with cheaper insurance. That's definitely NOT-ADVICE; I haven't done that yet, and I'm not even really sure how I feel about the incremental effort, or how it might work out over many trades.


Another thought - you might not need to close out all of your positions to change brokers. At least here in the US I can open my new account at the new brokerage. One of my funding options is to transfer an account from another broker. In that case my new broker contacts my old broker and makes the transfer of all of my positions (cash, stock, options, ..) as a back end process. It's a standardized function that they're all signed up for. After all if it's easy for people to leave my brokerage, then that also means that it's easy for them to join my brokerage!

I'm pretty sure that to do this well and keep it fee free for you then you want the new broker to 'pull' the assets, rather than having the old broker 'push' the assets.

 

[InTheShadows]

It seems like whenever I want to post my thoughts or strategy someone else has already stated it and usually more clearly than I would have LOL.
I always have it in the back of my mind some market catastrophe. Oh I don't know, like perhaps a virus from China spreads across the globe.
It's why I am conservative in committing too much leverage. I actually mix up my trades between risk levels.
Most of my trades have a high probability of success and I'm getting returns of > than 1% on those. I also put on positions with more leverage or higher returns ( and risk) that have netted me 3 or 4 % weekly and monthly but usually do smaller trades in these or less frequently.
I like OTM BPS when I'm bullish overall but unsure of the market for the next week or 2.
While I also do CC and BCS I found the risk/return of them to be inferior to my BPS. I look at them often but end up probably doing 4 Put trades for each Call

I find people posting on what they think is /will happen and their thoughts on the trades they are entering not only interesting but educational and they increase my comfort factor as well. One thing that I've changed in my trading due to several people here is I've increased my weekly option trades dramatically as well s entering a few more aggressive trades than I normally would have.
I had my most profitable TSLA trading month since I started this year.
If I can keep that up I can renovate my house like @Lycanthrope is!

This is the reason I wanted to backtest against SPY 2000-2002.

I have some experience in big 50% drops from some memes I was selling puts against in the spring. They were cash secured though and not spreads. I think with the knowledge I got from everyone here over the past month I could have exited those trades sooner with a profit and the few I cut losses on, I would have been able to avoid that.

Regarding the black swan event. Last spring I believe we saw how the government will respond to any black swan event. Fire up the printing presses and throw trillions of dollars at it to keep the market from crashing and speed the recovery of it.

 

[ammulder]

Regarding the black swan event. Last spring I believe we saw how the government will respond to any black swan event. Fire up the printing presses and throw trillions of dollars at it to keep the market from crashing and speed the recovery of it.

I assume the kind of black swan we're talking about is more Tesla-specific, and therefore less likely to receive aid. A couple simultaneous deaths caused by FSD Beta, or Tesla needing to replace batteries à la the Bolt. (Not to suggest these are likely, but a Black Swan is by definition something nobody expected to happen.)

 

[mongo]

I assume the kind of black swan we're talking about is more Tesla-specific, and therefore less likely to receive aid. A couple simultaneous deaths caused by FSD Beta, or Tesla needing to replace batteries à la the Bolt. (Not to suggest these are likely, but a Black Swan is by definition something nobody expected to happen.)

So... the Spanish Inquisition?

 

[InTheShadows]

I assume the kind of black swan we're talking about is more Tesla-specific, and therefore less likely to receive aid. A couple simultaneous deaths caused by FSD Beta, or Tesla needing to replace batteries à la the Bolt. (Not to suggest these are likely, but a Black Swan is by definition something nobody expected to happen.)

I’m not as concerned about those types of Tesla specific black swan events any longer. With multiple factories around the world, Fremont falling into the pacific or burning up is no longer a risk. The largest risk IMO would be the tragic death of Elon. In that event the stock would take a hit, however I think enough brilliant talent has been attracted to Tesla that they will still innovate and I’m am sure he is already grooming his replacement.

I thought apple would tank when Steve passed, we all knew that was coming, and when it did happen it had minimal effect on the stock.

As for FSD death, I don’t think Wall Street has even priced FSD into the stock much. We just had another first responder crash in Florida this weekend and I suspect that there will not be any reaction to it as far as share price is concerned.

As to battery fires, I think Tesla has pretty much solved that problem a few years ago. Other than ridiculously high speed crashes that rip the vehicles into shreds they don’t seem to happen anymore. I know of a 120mph+ Model X crash that happened near my place that the car crested a hill and jumped over the guard rail through two trees (10’ off the ground) and rolled down an 80’ cliff and no fire. The car was completely destroyed except for the passenger compartment, which first responders said had both occupants been wearing their seat belts they both would have survived. Sadly this accident was a double fatality. The cause was DUI and no seat belts.

 

[Tslynk67]

Depending on the details of the broker (I haven't considered this previously), remember that you can leg into a spread, as well as the legging into an Iron Condor that has been discussed elsewhere.

The spread is, after all, a long put + short put. As long as the broker will match them up correctly for margin purposes then you could purchase the spread as individual trades. Which also means that you could roll using individual trades, as long as you have enough extra resources.

For opening a spread in the first place, that would be:
- BTO the long put
- STO the short put
(two trade tickets)

For rolling a spread, I think it would be:
- BTO the long put at the new expiration
- BTC the short put at the old expiration
- STO the short put at the new expiration
- STC the long put at the old expiration

The BTC/STO on the short put might need to be done in stages depending on your cash / margin position.

Of course all of these different trade tickets will increase or decrease your bid/ask slippage, and throw in a lot of variance from the share and option prices moving around while you're doing all of these transactions.

EDIT to add: The reason I can see to opening the spread in two transactions is that they don't have to happen at the same time. You could buy the long put today at a relatively high share price and sell the short put tomorrow at a relatively low share price. You get your spread with cheaper insurance. That's definitely NOT-ADVICE; I haven't done that yet, and I'm not even really sure how I feel about the incremental effort, or how it might work out over many trades.


Another thought - you might not need to close out all of your positions to change brokers. At least here in the US I can open my new account at the new brokerage. One of my funding options is to transfer an account from another broker. In that case my new broker contacts my old broker and makes the transfer of all of my positions (cash, stock, options, ..) as a back end process. It's a standardized function that they're all signed up for. After all if it's easy for people to leave my brokerage, then that also means that it's easy for them to join my brokerage!

I'm pretty sure that to do this well and keep it fee free for you then you want the new broker to 'pull' the assets, rather than having the old broker 'push' the assets.

I've been thinking about BPS and discussing this outside the thread, my thinking is if you had the short leg going ITM, you would surely roll it to a new spread the week after, but depending on the direction and velocity of the stock, holding the long leg could become very profitable

This seems to be even more apparent with spreads just one strike apart, the moment the sold leg get ITM, close it roll, hold the bought puts to go deeper ITM and cream the profits - and with a low delta, the losses are limited

Has taken me a while to get my feeble brain around the concepts, but am now seeing many possibilities

 

[ChefBoyardee]

I've been thinking about BPS and discussing this outside the thread, my thinking is if you had the short leg going ITM, you would surely roll it to a new spread the week after, but depending on the direction and velocity of the stock, holding the long leg could become very profitable

This seems to be even more apparent with spreads just one strike apart, the moment the sold leg get ITM, close it roll, hold the bought puts to go deeper ITM and cream the profits - and with a low delta, the losses are limited

Has taken me a while to get my feeble brain around the concepts, but am now seeing many possibilities

Along those lines of profiting from a spread being tested, you could look into selling ratio butterflies:

Sept 3 example:
Buy 690P x1
Sell 680P x5
Buy 670P x4

Entry credit: $270 (7.24% Return)

The bearish side slightly reduces your return, but if 680 is tested, you can close the bearish side for $300-500, and roll the bullish side for a credit.

I've only done a couple so I'm still dialing in the right strike widths and when to manage but it seems promising. Helps reduce the stress of down days too

 

[CrunchyJello]

…. mentioned about decreasing the spread size so you can roll it down and increase the number of contracts to get out of the trade with out having to wait for the stock to recover. Holy cow! That is so genius.

This is probably one of the most important concepts one can have for repairing short puts/spreads that go against you. Then you don’t have to wait months watching your capital tied up trying to get out of a bad trade….

I think I missed that post;
can you clarify or link to it ….?

 

[buttershrimp]

This is the reason I wanted to backtest against SPY 2000-2002.

I have some experience in big 50% drops from some memes I was selling puts against in the spring. They were cash secured though and not spreads. I think with the knowledge I got from everyone here over the past month I could have exited those trades sooner with a profit and the few I cut losses on, I would have been able to avoid that.

Regarding the black swan event. Last spring I believe we saw how the government will respond to any black swan event. Fire up the printing presses and throw trillions of dollars at it to keep the market from crashing and speed the recovery of it.

this will seem random, but I was reading today about how to hedge market risk and curious if has anyone ever used or heard of using “unit puts” or OTM VIX calls as a form of hedging black Swan events of large market risk? Apparently this is done by devoting 5-10% of trading capital to shitputs that are insanely cheap, or VIX calls OTM…. Seems pretty sweet idea if I actually knew what the duration and strike distance should look like. The other trick is knowing how to redeem that value during an event.

 

[adiggs]

Just went looking at the nearest batch of calls I own that I use to back lcc's I've been selling. These are Dec '21 500 strike calls currently at $223 each. The interesting thing I just noticed about them is that their remaining time value is already low. At $223 they have $212 in intrinsic value right now with the other $11 in time value.

I expect the share price to be higher in December than it is now, or at least not a lot lower. Instead of rolling out of that position within the next month (mid Sept - maybe mid Oct) as I intended when I entered the position (capturing as much remaining time value as possible) I suddenly realize that I'll just continue selling aggressive lcc's with them, potentially right up to expiration week. My thinking is that $11 to buy 3-4 months worth of lcc sales is a pretty good deal. That's about $3-4 / month to fund these sales - I've been clearing that weekly. I've seen lower monthly prices on 2 year deep ITM options, but not so much better to just sell these out now. And if the shares are going up as I expect then I won't care about the time decay as the increasing option premium will easily offset it.

They are ahead by about $18 since I bought them, after paying for all of the IV and time decay since I bought them. IV is high compared to what it is on our weekly options - mid 50s instead of 30s, so I suppose that could be a big deal. But changes in IV are going to affect the time value, not the intrinsic value. I think I sort of knew this at least unconsciously, but now it's conscious - this is another reason for being deep ITM on these options. IV changes in premium (represented by Vega) are only going to affect the extrinsic / time value on the option. The intrinsic value changes with the share price and as I mentioned earlier, I'm feeling good about these being higher priced between now and December than they are now.

So an alternative way of looking at these options is that I've got leveraged ownership against increasing (or decreasing) share price changes from now into December, with the ability and intent to be selling lcc's along the way.


I'm loving this! The only additional thought about strategy that comes to mind - if we have another dip towards 650, I might need to convert more cash into long dated leaps. I'll have to ponder that - income is higher and more consistent from the put sales, but the long dated leaps gets me value from the shares going up, and I expect a lot of that at least over the next 6 months. I sort of think the shares are worth $1200 right now - whether the market will agree with me is, of course, a different matter.


Yet another observation - if I wanted to I could roll these out to Sep '22 600s at $210 or so. That would be a$13 credit ($1300 / contract) while moving the strike $100 (bad) and adds about 9 months onto the contract duration (good). Best of all is that the new position is fully paid for by the current position, throws off a modest net credit, and I get to keep on selling calls.

I'm not going to roll yet, but yummm.....

 

[bkp_duke]

Considering trying an Iron Condor this week.

What's the "not advice" on the strikes for one of those this week, and considerations of when to open a position like that?

 

[Chenkers]

Considering trying an Iron Condor this week.

What's the "not advice" on the strikes for one of those this week, and considerations of when to open a position like that?

I'm hanging back today as I want to see if there's much of a move to the upside and I'd like to see more solid Put walls develop in the $670 to $700 range. Ideally if we get strong and clear Put/Call walls developing between $700 and $730 then it will be moderately safe to base short legs a strike or a few outside of this range. If I could get a decent premium with the C- behind the $750 call wall then I'd be even happier. With IV so low there's a temptation to chase premium and I'd rather be cautious than spend the next week or two repairing a hasty move.

 

[UltradoomY]

I wanted to chime in on something I have been doing with my spreads - @Lycanthrope eluded to this as well.
For the bought side of the spread - put or call - if I am closing out the position because it has hit my profitability threshold of 85% or more - I close the sold side only.
I then either let the bought side run or roll it to the next week for a net $0 cost.
Then I have only to pick my sold position for the next week and I already have my spread - saving some money!

Also a way to manage a position that is moving against you is just roll the sold leg and keep the bought side open for the current week.
Then you can add a protective bought option to the "rolled leg" for a net credit no matter what!

Sorry if this isn't as well said as what is normally posted but it is a great way to visualize the dynamics of a spread and the freedom it gives you instead of just having one sold option (or multiple, you get it)

 

[Yoona]

Considering trying an Iron Condor this week.

What's the "not advice" on the strikes for one of those this week, and considerations of when to open a position like that?

i have this IC +p675/-p695/-c740/+c760:

"open puts at dip; open calls at peak" (not advice)

BPS was opened 2-3 weeks ago. BCS was opened last week to get gravy.

i may need to BTC this or extra babysit due to maxpain 690.

 

[juanmedina]

Each to their own, but I'm personally not a fan of large spread sizes. For me that's leaving a lot of money on the table using up margin to cover a wider price range than the balance of probabilities suggests will actually happen. I prefer to closely analyse the options OI and stock trading ranges, technical resistances and upcoming news/events to be able to pick my ranges with more precision (while still retaining a buffer). Keeping expiry dates no more than a few days out also helps in minimising the risk that the share price will move beyond your target range and gives a clearer picture of the expiry target. Plus the increased profits gained can build a decent buffer to guard against an occasional time when things don't work out.

There are a few other benefits of a tighter spread range, say $20-40. While max loss can be reached more quickly, the total quantum of that loss is much less than with a larger spread. Once the lower bought Put comes into play it provides protection and stops further losses if the share price continues to fall below that point. Rolling spreads in this position can be tricky but I feel I've had a lot of experience rolling these at this point. Rolling early helps a lot as time decay affects each leg differently and it can be very hard to roll without a debit if left later in the week. A tighter spread also allows the spread range to be more easily expanded or adjusted to get a better roll for credit. As long as there's enough margin buffer available then any spread can be turned into any other option with an equivalent monetary value. This can allow losing spreads to be rolled into an alternative position that can close out sooner without having to take a loss.

There are risks with all options trading and spreads introduce another layer of risk due to some of the differences in how they behave. My not advice would be for people to play with different spread ranges and distances from ITM and develop a feel for what they are comfortable with trading. Noting that any strategy should be able to evolve based on the risk and circumstances of any given week or period.

You open your IC usually midweek, correct?

 

[FS_FRA]

This Put-Wall is crazy - I know it's early in the week and that will change, but 60,000 contracts for Friday @ 600p...

 

[phantasms]

My cautious bets for the week. I missed the top but at least I'm not deep underwater much like I was this time last week. We'll see if that holds.

 

[UltradoomY]

View attachment 703176

This Put-Wall is crazy - I know it's early in the week and that will change, but 60,000 contracts for Friday @ 600p...

So what you are saying is that $595 puts are safe and to mortgage my house and sell more?
Definitely advice!

 

[Drezil]

my current plays (after i managed to -50% my depot 2 days in a row 2 weeks ago - lowest intraday was 78k€ .. now back to 215k€. I promised to play way less agressive this time .. and not shoot for >1 mio @900 SP anymore.)

plays that are open in the portfolio-view on the right, things i like to close at what prices on the left.

The 20 750c i sold at 3.00 just closed out 50% @1.50 (other half closes @1.00), will be reopened @3.00 if it goes up there again (or tomorrow morning) & then auto-close @1 if we hit it.

the Nov -930c cancels out the theta of the dec +900c, the -730c/750c are backed by the +700c, the dec 1200 is a moonshot.
sep 700/600 BPS is for living-money, 710/670BPS this week is for cherry on top

BTW: all prices in $ for the rows, in € for the section-heads and the overview.