Wiki Selling TSLA Options - Be the House

[Runarbt]

You are wrong. They can still sell short, they just have to do it on "the up-tick". (Or use their Regulation SHO exemption, if they have one.)

And the up-tick rule is in effect until the end of trading tomorrow.

Thanks. Well, shorting is limited then.. so might be what prevents us from going lower for the time being.

 

[LN1_Casey]

That 600 Jan 2022 put I have is now $143. It's free real estate. #NotAdvice-butAdvice

 

[adiggs]

Really stressing the "roll ITM puts" strategy for the first time for me. I've got some upper 700's and a couple lower 800's sold Puts expiring friday that are obviously deep ITM now. Per the "adiggs rule", it's interesting to me to get to experience this playing out first hand. Gives me a much better understanding of the mechanics. I'm going to wait and see what happens over the next few days, and be prepared to roll them out and down as much as i can - i like the idea of trying to keep the role at a net credit, will see if i can manage that. Again, having experienced it first hand now I understand it much better.

One suggestion I would add - pretend that you were rolling those positions today. What new strike on the different new expiration days can you get to, with a net credit that you like? I like to start tracking that ahead of when I actually roll - so far my posts about that info have me rolling under less desirable conditions than were previously available (and is par for the course when it comes to my predictions about direction, magnitude, and timing for moves in the share price).

I also like to start tracking the amount of time value remaining in the position - as that gets close to 0, that's another indicator that I might be close to rolling. Hopefully it's close to 0 because expiration is close.


For my positions:
On the put side, I have a significant position for March 5 with an 830 strike. That is $141 ITM (shares at $689) with roughly $1 in time value. I am very pleased to discover that I can roll this to March 12 and the 825 strike for a $2 credit (at this moment in time).

Being so deep ITM, I think of the roll for this position being more about gaining time. I consider every bit of strike improvement to be important, and to be gravy. I've also discovered this position is so deeply ITM that adding some of the earnings from the call leg to the put leg (taking a net debit to improve the strike more on the roll) is roughly $ for $. What I mean is that if I add $5 from the call side, then I get a roughly $5 strike improvement on the put. I'd rather that was closer to 2 for 1 or 3 for 2 (i.e. - turn that $2 net credit into a $8 net debit) and get a $15 strike improvement for making this choice.

Therefore my decision today is that it is too early to roll due to each roll being more about gaining time; I'll be waiting.


Meanwhile on the call side, that's doing really well. I lost out on part of this drop when I closed this batch of covered calls early with a 2/3rds gain. Would probably have a 4/5ths gain on those today, or would have opened a new position yesterday and already be rolling it into the current position.

I've opened a new 680 call position for Mar 5 for a $35 premium. I chose Mar 5 as it's ~2 weeks out (too soon to be writing the Mar 19 with me using every other expiration) and the premiums are significant and going up with IV. I went for a reasonably ATM strike with the 680.

I went so aggressive because
1) if the shares keep going down then I've gathered as much premium as I can (without selling ITM covered calls) to help keep those covered puts in range. And I'm ready to roll again if we're suddenly looking at upper 5s instead of upper 6s.
2) if the shares trade up, then both positions will be better positioned to get closer to ATM next week at roll time
3) And the premium collected, even if I use 75% of it to improve the leg that is doing poorly, will still yield roughly as much income in 2 weeks as my target for the month.

Interestingly to me, I feel safer with that ATM covered call than if I'd been further OTM. The significantly larger premium provides more choices, and I like how the position evolves better, whether shares are up or down from here.


And in superstitious news, the now ITM covered call and my predictive ability about direction / magnitude / timing of share price moves clearly means the share price is going up from here! That'll pummel this new call position I just put on (while also improving that big put). Maybe I can force the share price to go up!

 

[adiggs]

My short strangles are sitting at $845 -P and $875 -C for this Friday and next Friday. Was a bit nervous watching the underlying drop down to $619 this morning but my margin maintenance held up.

Planning on not making the roll decision for this week's $845 puts until Friday and likely push them out to March 12 and keep the $845 strike.

Not-advice

You might want to consider rolling that 875 leg down to a closer strike. The idea is that whatever the premium is on that 875 call it can't be much for whatever expiration you have. By rolling down, you'll be at the same expiration day but now you'll have more premium to decay between now and then.

This is how I've found myself in an 830p/680c inverted strangle But it also generated extra premium that provides additional choices. And rolling the far leg (calls when shares are going down; puts when shares are going up) towards the share price is part of the maintenance strategy with strangles - using the good performing leg to generate additional premium than would have been available without the big move.

 

[samppa]

Cheers everyone, I've been following this thread for a while and going through option alpha videos.
Today I did my first ever options trade: sold a 570/600 bull put spread for this friday.
Lots to learn!

 

[Tempus]

One suggestion I would add - pretend that you were rolling those positions today. What new strike on the different new expiration days can you get to, with a net credit that you like? I like to start tracking that ahead of when I actually roll - so far my posts about that info have me rolling under less desirable conditions than were previously available (and is par for the course when it comes to my predictions about direction, magnitude, and timing for moves in the share price).

I also like to start tracking the amount of time value remaining in the position - as that gets close to 0, that's another indicator that I might be close to rolling. Hopefully it's close to 0 because expiration is close.

Pulling this out - i'm definitely paying attention to what my options are. I'm targeting later in the week to roll, as you say, looking to eek out the time value from the current positions. I also wouldn't complain if the rally continues the rest of the week and i can get closer to closing these out, or at least rolling them closer to the money.
It also seems to me that I don't care so much exactly what the current stock price is during the course of the week - unless the puts go net positive for me and i can just close them. otherwise i'm rolling them out a week and down maybe $5... or maybe at the same strike if i can't get a credit otherwise. With them being so far underwater, i'm curious to see what my options are.

One other point that I hadn't really internalized until this happened is the downside to the roll mechanism. My risk profile says i'm ok with x number of sold puts open. So by having to roll these existing ones for likely smallish credit, i can't open new sold puts for greater returns. So net - if the price is running away from me on the downside, i'm losing "divident equivalent" money. If i was playing the call side more agressively, this might be less of an issue, but I tend to be very conservative there. It's possible I need to be more aggressive there - while we were on the major upswing, it didn't seem to make much sense.

 

[Mokuzai]

Not-advice

You might want to consider rolling that 875 leg down to a closer strike. The idea is that whatever the premium is on that 875 call it can't be much for whatever expiration you have. By rolling down, you'll be at the same expiration day but now you'll have more premium to decay between now and then.

This is how I've found myself in an 830p/680c inverted strangle But it also generated extra premium that provides additional choices. And rolling the far leg (calls when shares are going down; puts when shares are going up) towards the share price is part of the maintenance strategy with strangles - using the good performing leg to generate additional premium than would have been available without the big move.

The OTM leg, providing it's far enough OTM I'll usually just let expire worthless. My initial strategy was to wait until Wednesday's to then re-open the short strangle for the following week. But I've been instead opening the new positions on the expiration Friday to try and take advantage of the extra time decay on the weekend.

So I'll likely let the $875C just expire and open a new call at a lower strike and depending on the premiums may be able to lower the put as well but we'll see. I don't mind if they overlap a bit.

I ended up with an inverted strangle last week as well with a -$815P and a -$780C which both would have been ITM so rolled both. Rolled the $780C all the way to $875 taking a slight loss but moved the put deeper ITM from $815 to $845 which more than made up for the call. This of course looked to be a huge mistake if looking at yesterday and this morning but seems to be recovering. I was looking for it to gravitate back to the $850 range...oops.

I expect the next couple weeks are not going to produce quite the premium that I've been getting, but that's alright as I was targeting $5k/week average with this strategy and it's been performing 4x that so it can taper off a bit for a while.

 

[samppa]

What's the view here about synthetic long positions? Asking for some not-advice

 

[sub]

What's the view here about synthetic long positions? Asking for some not-advice

Looking at this exact thing myself. Buy the ATM call, Sell the ATM put and have the same risk/reward as owning shares. You can of course do this with any strike, it works out the same. You can then buy a far OTM put to limit the amount of $ committed to the position for cheap, and sell calls against it. You can then take the free cash and do something else including adding more positions and increasing returns.

 

[UltradoomY]

Looking at this exact thing myself. Buy the ATM call, Sell the ATM put and have the same risk/reward as owning shares. You can of course do this with any strike, it works out the same. You can then buy a far OTM put to limit the amount of $ committed to the position for cheap, and sell calls against it. You can then take the free cash and do something else including adding more positions and increasing returns.

I would be very, very cautious and put in a lot of time learning (on page one of this thread, and other places) about options and more importantly early assignment before jumping in to these types of trade strategies.
They are complex to say the least, that is if you are doing the research on IV and the greeks for each trade.
Definitely a strategy to start small and learn before moving up.

If you are looking for some historical context you can go through this whole thread and see a lot of learning in real time from others.

Just my 2 cents

 

[dl003]

What's the view here about synthetic long positions? Asking for some not-advice

I'm not a fan of synthetic longs. I prefer owning shares and selling CCs against them. In a downtrend, put IVs can go through the roof and I'll be under water. This risk doesn't exist with owning shares.

 

[bxr140]

I'm much happier to be dealing with Sold Puts than CC's...

Any reason why? I suppose one could contest there's not much difference either way (especially in a non-marginable account), but for equivalent positions (OTM -P = ITM CC) I actually prefer the CC over the -P. (I also don't try to max out my margin, which is the only material benefit of an OTM naked put over an equivalent ITM covered call.)

What's the view here about synthetic long positions?

Its pretty straightforward, with some tweaks available. The basic position (same strike and expiry -P and +C) is equivalent to 100 shares, +/- potentially some very small fluctuations between the call and put side greeks. You do end up eating the B/A spread on both ends of the position so that's a small downside vs just buying shares. Margin requirement is equivalent to a naked put, and that's the big thing to be managed.

EMMV, of course, but IMHO if you're contemplating this kind of position you're bullish and as such you might as well structure a portfolio around shares + long calls instead (potentially selling calls against the shares as well). And also of course, there's really no value to this position in a non-marginable account where the put will have to be fully cash covered.

The tweaks on the combination make it more interesting, if not less equivalent to 100 shares, where modifying strikes and expirys can better craft a P/L curve and optimize around volatility fluctuations, technicals, and market events. I generally prefer my short legs to expire before my long legs, and I generally prefer a little downside protection from the off in exchange for less upside potential...so I might pick an OTM -P strike that's, say, 2 weeks out, and then an OTM +C that might be 3-6 months out. Management of the -P then essentially becomes equivalent to managing a naked put. As noted above a protective put can also be added [at the expense of some profit potential] to further mitigate downside, effectively turning the position into a [long call + credit put spread]. This kind of tweaking can also be useful if you're working in a non-marginable account, as the OTM -P will demand less capital than an ATM -P.

FWIW, I don't actually enter those kinds of positions either. As noted upthread my go-to is a calendar call spread, as they generally provide more conservative downside protection than above. I like to enter as a horizontal and then, ideally, roll into a diagonal in the subsequent -C cycles.

 

[Chenkers]

Any reason why? I suppose one could contest there's not much difference either way (especially in a non-marginable account), but for equivalent positions (OTM -P = ITM CC) I actually prefer the CC over the -P. (I also don't try to max out my margin, which is the only material benefit of an OTM naked put over an equivalent ITM covered call.)

For one, there's no CGT issue if a sold Put gets exercised. I view TSLA as generally trending upward over the medium to long term, even after a sell off like this. Rolling a sold Put down and out is easier with a stock generally trending up whereas with a CC you're chasing an (upwards) moving target. Puts also generally attract a better premium so I can continue to earn more just rolling the same strike forward. Finally with TSLA the shares from an exercised Put have a decent chance of being sold for a profit as TSLA rallies on a Monday more often than not, partly due to the release of Friday options expiry pressure.

 

[dl003]

I also would rather deal with covered puts than covered calls because you can roll the puts down a finite number of time before it becomes OTM. Theoretically, the stock price can run up indefinitely and you'll never be able to catch up although it's rare.

 

[st_lopes]

Had to close some 850p 03/05 yesterday due to margin reqs. Crystallizing that loss wiped out some (1/3) of my YTD premium winnings.

Today’s continued bounce back was welcomed and gave me a chance to sell some 875p 04/16 (696 break even) which will make up for some of that loss if they expire OTM. I liked the break even and the fact that P&D would be out by then.

Looking forward to tomorrow... CC rolling day! I’ll also be looking for opportunities to sell a few more puts, likely in to April, to claw back some of yesterday’s loss. Essentially rolling the 850p, just doing it in separate transactions.

 

[bxr140]

For one, there's no CGT issue if a sold Put gets exercised.

The good news is there's no difference in sold put CGT vs an equivalent ITM CC--any gains/losses on the underlying are offset by gains/losses on the call. If the call was sold OTM then goes ITM and is executed, one does indeed pay CGT on the shares...but in that case one is making additional profit over an equivalent sold put so its still a net positive.

And of course, one will pay CGT on the put shares once they are sold off (assuming they're sold at a gain)...so it all ends up net zero.

Rolling a sold Put down and out is easier with a stock generally trending up whereas with a CC you're chasing an (upwards) moving target.

More good news is that there's no actual difference in strategy when rolling an OTM sold put vs a ITM covered call.

Puts also generally attract a better premium...

Agree that puts can offer higher premiums than equivalent calls, but its important to actually understand the actual numbers before jumping in. For a random example, right now a March 19 $700 put has a value [extrinsic, obviously] of $30.65 and a bid of 29.95, and would probably sell at $30.20 or so. A March 19 $700 call has an extrinsic value of $34.60 and a B/A spread of $1.25, so the worst case extrinsic value of $33.35 and a likely extrinsic value when selling of closer to $34. I can't speak for everyone here, but personally, I prefer the extra $300+ from selling the call than the put.

Finally with TSLA the shares from an exercised Put have a decent chance of being sold for a profit as TSLA rallies on a Monday more often than not, partly due to the release of Friday options expiry pressure.

This is a common perception, but there's actually not a statistically relevant percentage of Monday rallies. Mondays are up more often than not with TSLA for sure, but its not like 75% of the time or anything. I did a quick study upthread (or maybe somewhere else here?) but over time, especially when 2020 is not considered, its a bit better than a coin flip that TSLA will be up on Monday.

 

[bxr140]

I also would rather deal with covered puts than covered calls because you can roll the puts down a finite number of time before it becomes OTM.

Unfortunately, this is explicitly not true. There's no material difference in rolling equivalent strike sold puts vs covered calls.

 

[Chenkers]

The good news is there's no difference in sold put CGT vs an equivalent ITM CC--any gains/losses on the underlying are offset by gains/losses on the call. If the call was sold OTM then goes ITM and is executed, one does indeed pay CGT on the shares...but in that case one is making additional profit over an equivalent sold put so its still a net positive.
And of course, one will pay CGT on the put shares once they are sold off (assuming they're sold at a gain)...so it all ends up net zero.

We are not talking about small capital gains here. The CGT I would have to pay on some of these CC in Australia would be a serious sum of money, requiring me to liquidate more of my positions than I would like in order to pay the tax. I have different comfort levels that I'm prepared to use when choosing strikes for Puts and Calls and for me that means that I will generally favour Puts for the reasons I've outlined.

 

[samppa]

I'm still waiting to transfer my shares to interactive brokers.
Here's a question: if I sell a put that's covered by margin on my shares, and it gets exercised, can I sell that lot of shares separately?
Or will the sale be FiFo?
Is there a way to have different lots of shares on IB? I'm just starting out with TWS and it's a bit overwhelming..

 

[bxr140]

We are not talking about small capital gains here. The CGT I would have to pay on some of these CC in Australia would be a serious sum of money, requiring me to liquidate more of my positions than I would like in order to pay the tax.

Unless AU racks up CGT different for shares than contracts, the good news is that the only way you're paying more tax is if you actually earn more profit. I guess I don't want to speak for everyone, but in my experience most folks prefer to have the problem of "more gains = more taxes", regardless if they're earning $10k vs $12k or $10M vs $12M a year.

And given that its just 'new' profit, there's no liquidation element to it, so no problem there.

I have different comfort levels that I'm prepared to use when choosing strikes for Puts and Calls and for me that means that I will generally favour Puts for the reasons I've outlined.

For sure, I can get behind subjective "comfort" type approaches to trading. I'd just encourage folks to take the time to really understand the intent of those subjective strategies lest they actually prove to be objectively antithetical.