Wiki Selling TSLA Options - Be the House

[paydirt76]

I think i'm going to need some additional explanation. I'm not familiar with the concept of owning long-term deltas.

you have provided lots of knowledge/input in very few posts, however it may be going over lots of other posters heads like it is mine. Any additional explanations that you can provide in your posts would be greatly appreciated.

I will be creating a guide and start back at the fundamentals that apply here and building on them.

I'm hoping all know what deltas are... So if you buy a share of stock at $925, you are getting 1 share, 1 delta. When the stock goes up $1, the value of your position goes up $1. If you buy the Jun22 1000C, it costs $297(00) and has say 64 deltas per call. That gets you $464 per delta. Whereas with owning the stock if you want to have 64 deltas, it's $59,200.

If you own 1 Jun22 1000C, on average if stock goes up $1, the calls will go up by $0.64 (or $64 each). It's not going to happen on any given day, but on average.

The higher strike calls have even lower dollars per delta, but are inherently more risky. More leverage. More risk.

 

[vwman111]

I will be creating a guide and start back at the fundamentals that apply here and building on them.

I'm hoping all know what deltas are... So if you buy a share of stock at $925, you are getting 1 share, 1 delta. When the stock goes up $1, the value of your position goes up $1. If you buy the Jun22 1000C, it costs $297(00) and has say 64 deltas per call. That gets you $464 per delta. Whereas with owning the stock if you want to have 64 deltas, it's $59,200.

If you own 1 Jun22 1000C, on average if stock goes up $1, the calls will go up by $0.64 (or $64 each). It's not going to happen on any given day, but on average.

The higher strike calls have even lower dollars per delta, but are inherently more risky. More leverage. More risk.

Thank you very much for the additional explanation. I think i understand most of it.
1. Jun 22 1000C could have a delta of $0.64, therefore the deltas controlled/owned with the contract is 64.
2. I'm not sure how the $464 per delta is calculated. I would have assumed that a $1 move in the underlying gives you $640.
3. Managing one's portfolio in terms of delta is a change for me and i think for many others on the forum. We often discuss about how many contracts / additional leverage we can get with a given choice of calls. It seems like there may be a better metric or way of making decisions based on amount of delta one can acquire??

 

[EV forever]

Thank you very much for the additional explanation. I think i understand most of it.
1. Jun 22 1000C could have a delta of $0.64, therefore the deltas controlled/owned with the contract is 64.
2. I'm not sure how the $464 per delta is calculated. I would have assumed that a $1 move in the underlying gives you $640.
3. Managing one's portfolio in terms of delta is a change for me and i think for many others on the forum. We often discuss about how many contracts / additional leverage we can get with a given choice of calls. It seems like there may be a better metric or way of making decisions based on amount of delta one can acquire??

Thanks @vwman111 for asking for explanation - I wanted to understand the concept of deltas as mentioned by @paydirt76

Here is how I understood

1. 1 share would be 1 delta. So June22 1000C with a delta of 0.64 would be 64 deltas since 1 contract = 100 shares.
2. Since the June 22 1000C cost is $297 for 64 deltas, that calculates to $$464 for 100 delta ($297/0.64)
3. If SP goes up by $1, then the June22 1000C calls will go up by ~0.64
4. "The higher strike calls have even lower dollars per delta" June 22 1500C cost is $175 with delta of 0.46. So, $380 per delta. The higher strike calls are more risky for a lower $$/delta.

OK, I am with you so far. So, how do we use this information to make better investment decisions?

 

[Tslynk67]

We've got -2% futures right now on C19 second wave fears - take care out there...

 

[paydirt76]

3. Managing one's portfolio in terms of delta is a change for me and i think for many others on the forum. We often discuss about how many contracts / additional leverage we can get with a given choice of calls. It seems like there may be a better metric or way of making decisions based on amount of delta one can acquire??

Cool, see EV Forever's rephrasing... The contracts give you the optionality on 100 shares, they cost $29,700 (not $297.00), and when it says Delta 0.64 or 64%, that means today the contract gives you synthetic exposure as if you own 64 shares. $29700/64 Deltas = $464/delta.

Ultimately, there is no "golden answer." You're never going to own the best, but you can own the one(s) you can better live with. And also position sizing really matters. There's some ways to think about it psychologically, so when the dollar amounts start to get big there's less of a temptation to do thinks like panic sell to lock in a gain.

EV Forever asks, "OK, I am with you so far. So, how do we use this information to make better investment decisions?"

I think I need to write the beginnings of the guide, because the answer needs to begin with fundamental ideas and big picture thinking. We all want to go to the tactical. I do think everyone needs to know the Option Greeks of their position (mainly Delta, Gamma, Vega), just to be aware of the decision they're making when they own them. But then to do what's best for you, you need to go back to fundamentals and your personal goals for the investment and the catalysts you believe are going to move the stock in your favor.

Let me start at the beginning and get to goals.

 

[paydirt76]

Not sure how to tag people, but I'm going to give it a shot.

@vwman111
@ev-forever
@Lycanthrope

I've started a new thread here:
Paydirt's (TSLA) Option Investing Guide
Paydirt's (TSLA) Option Investing Guide

 

[troyhouse]

So I have 2 cash covered puts in play for 09/26, 895p and 950p. Lets see what happens with it.

 

[adiggs]

I think i'm going to need some additional explanation. I'm not familiar with the concept of owning long-term deltas.

you have provided lots of knowledge/input in very few posts, however it may be going over lots of other posters heads like it is mine. Any additional explanations that you can provide in your posts would be greatly appreciated.

I'd listen to @paydirt76 first - they clearly has the best background / knowledge of any of us here.

That being said, I would at least get through the first educational track at OptionAlpha as well. It'll provide a primer on basic options. Realize the site also has stuff for sale, as well as a larger strategy they are teaching. However the education is free and both my own experience, as well as reviews I've read from other sites agree that the education is excellent.

It'll have explanation of the greeks and a lot more.

 

[Tslynk67]

Sold 1x 19/6 $955 for $27.2

 

[EV forever]

Sold 1x 19/6 $955 for $27.2

Is this a covered call on your newly assigned shares?

 

[paydirt76]

I got love for you guys. Put a pause on selling covered calls. I will explain more in my options guide very soon (the next post in fact).

 

[EV forever]

Not sure how to tag people, but I'm going to give it a shot.

@vwman111
@ev-forever
@Lycanthrope

I've started a new thread here:
Paydirt's (TSLA) Option Investing Guide
Paydirt's (TSLA) Option Investing Guide

Thanks for this guide - very informative. I admit so far could only skim through it on my phone - one of the disadvantages of living in CA is that I am still sleeping when all you folks are actively posting in the morning. But will read thoroughly later after work.

Particularly intrigued by "The goal has evolved over time as the position has grown. In mid January 2020 with stock around $500, the account had grown to $800k and the deltas to 5,500. Which means for every dollar move in the stock, the value of the options would fluctuate on average by 5,500. The goal then became "own 5,000 deltas for the next 6,000 points on the stock." What if those deltas could be held for the duration of Elon's compensation plan? That could mean walking away with 5,000 x $6,000. What if those deltas could be held until WS is (nearly) uniformly bullish (which would take many years)?" I will try to calculate the deltas on my TSLA holdings using this method too

 

[Tslynk67]

Is this a covered call on your newly assigned shares?

Yup.

Jeeze, what happened to the 2nd coming of the antichrist?

 

[adiggs]

So this is amusing. According to this site, March 18 was the peak for IV over the last year.

Any guesses what day I sold my first puts? . No wonder I got off to such a strong start.

 

[Right_Said_Fred]

I'm moving a lot more money to my trading account. Nearly a 5-fold increase, to really give that 'wheel' a spin. Because writing 1 and lately 2 covered puts or calls is not moving the needle to where I would like it to go. I'm going to aim for an average of 40% compounded return per year. Will start posting here on my actions when I'm set.

 

[Tslynk67]

I'm moving a lot more money to my trading account. Nearly a 5-fold increase, to really give that 'wheel' a spin. Because writing 1 and lately 2 covered puts or calls is not moving the needle to where I would like it to go. I'm going to aim for an average of 40% compounded return per year. Will start posting here on my actions when I'm set.

Fun, is it not?

Just be prepared to get burned every now and again when the stock moves 20% in a week... But the accumulated gains outweigh that IMO.

 

[Right_Said_Fred]

Fun, is it not?

Just be prepared to get burned every now and again when the stock moves 20% in a week... But the accumulated gains outweigh that IMO.

Fun it is And lucrative.

About fifteen years ago I traded a lot in AEX-index puts and calls (all written), mostly strangles, covered with futures (FTI) when the index passed one of the legs. It was very stressful, especially the futures. I gave up after losing half of my returns of half a year's trading with one bad trade. It wasn't worth the stress and the time.

But now that I'm trading in monthly TSLA calls and puts (all written) I am covered by either cash or shares. That saves me from getting burned. I've been doing it for several months, the stress is completely gone and I made 40k already (20+%). Also, as a rule I will not buy back any options at a loss. In that case I will always choose assignment upon expiry (either receiving or delivering the shares).

 

[adiggs]

Love the gutsiness and conviction. Here I was stressing about my $1000 covered calls yesterday and you are writing them!

My head is saying the same thing as @Lycanthrope - there's too big of a change in payout past the $1000 strike to finish Friday above that price (assuming ongoing low volume, and relatively little news). In this case, I am particularly thinking back to my experience around the big January expiration. I had calls expiring that week at 500 and 600. The 500's were about $8 ITM near close and the 600s of course were worthless.

The week after the share price was 650s. The way I think of it is that the max pain price (or at least that neighborhood) is exerting a particularly strong 'gravitational' pull for these big expiration weeks.

In this case, my view of things is that we'll be under $1000 at expiration on Friday (and I won't be surprised if we see $900 this week). Once the extreme pressure of this week is relieved, I'm sort of expecting a big move up next week that doesn't immediately come back down. H'mm... maybe I go crazy and buy some calls this week.

 

[juanmedina]

Love the gutsiness and conviction. Here I was stressing about my $1000 covered calls yesterday and you are writing them!

Lol and I sold my first covered call ever with a $1150 strike

 

[adiggs]

Stock Option Max Pain

I see max pain for this week is up to 830 (from 800 yesterday or day before). The window of 'nearly max pain' (my term) using a 1% bound is 800-860. I conclude that any of those prices are readily available as new max pain values tomorrow, and I sort of expect 850-860 (it's been going up $15-30 a day for better than a week).

The big volume activity is at the 950 put and the 1000 call.

Take all that together and I find evidence in favor of a Friday close between 950 and 1000, with a preference on the part of market makers for something closer to 900-950.


This + $5 is approximately worth a cup of coffee.