Is anyone planning on just selling premium to fund their retirement until TSLA peaks? I'll be able to retire when TSLA doubles from here, but I would still be reluctant to begin selling at that point. Seems like premium could be had that would provide enough of an income until the stock really hit it's stride.
I've been thinking this, and doing it to some degree (I started back in March). I've also learned the last month that selling premium can be very stable month to month (mostly when the share price is very stable), and it can also be very lumpy, with some months showing large realized losses from the option sales and other months showing very large realized gains.
So you will at least need enough resources available so that you can handle these large swings.
If you have enough resources, then you can go WAY OTM. And that doesn't protect you from the sort of dramatic upward moves we're seeing. As one example from my life:
- I sold 1650 calls on 8/12 with the shares at ~1500 and a 2 day expiration on 8/14.
- On 8/13 (the next day), the shares were moving so fast ($1600 share price when I rolled) and 1 day to expiration, that I rolled those out to 2300 calls expiring on the Sep monthly (Sep 18 I think). I liked that new position a lot more and figured that'd be good.
- Today, 8/27 (4 days later and 3 weeks to expiration), I've rolled those 2300 Sep calls out to 2600 Oct calls. Any bets on whether I'll be rolling these again because we're hitting 2600 before mid-October?
On each roll, I've picked up a net credit, so the cash balance is increasing in the account. I've also realized some large losses on the closed positions, while opening larger and larger positions. And I will eventually, mid-October in this case assuming no further rolls, see all of those losses reclaimed and a "small" net profit consistent with an income strategy being realized.
More details about all of these trials and tribulations await in the wheel thread - the point for the moment is that selling premium isn't necessarily a smooth and steady monthly income stream. I'm comfortable that these trades will eventually be profitable, but some of them may take months or longer to reach that point while showing large losses along the way. The cash balance is increasing along the way, with the profit eventually being realized due to shares starting to trade sideways or down for a few months OR I stop rolling out the contracts and accept assignment.
(All of these comments are in relation to covered calls; they apply equally to cash secured puts with the share price going down)
In brief - there's more to know than just "sell options and collect premium"; like any strategy, there are risks, there are circumstances where the strategy works well and badly. And in the case of options, plan on at least 30 hours of education (MHO) just to have a basic understanding of option dynamics and to get started.