Yes if you can please tell me each time this year the stock price will reach a local peak, then I will sell CC's then and close them on a downswing.
Is that too much to ask?
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Yes if you can please tell me each time this year the stock price will reach a local peak, then I will sell CC's then and close them on a downswing.
Is that too much to ask?
How do you define Iron condor ranges? Do you use same delta/strike difference to both sides, or skew them?
Kirk from OptionsAlpha said "use volatility to determine range, not share price." I'm a certified newbie so I don't know what that means yet. "Deltas gammas thetas bollinger bands vwaps greeks etc" confuse me so bad, it's beyond belief... What i do is simply add +-$100 to whatever everyone else is saying will be the estimated Friday close.
Recently, I've had to build the 2 put legs lower (than usual) to make room for more downside movement. I think that's what skew means? The wide range makes the credit smaller but imagine 40x-50x IC. It only uses up approx $50k margin for a few days, in exchange for maybe $300k+/yr IC income. My plan is to use IC 1) to supplement CC, 2) to rescue any CC fails, 3) to pay for fees/taxes, and 4) to use as withdrawals for expenses/gifts.
Not advice, and not qualified to give advice. I'm just here to listen and learn and copy trades! And, oh, I follow this thread much more than the main one.
Do you mind sharing one or few example trades (strike, expirations) you placed recently and the premiums associated?
yikes! i should be asking you guys, not the other way around... are you serious...
Yesterday was x40 IC +p645/-p650/-c750/+c755 on Market order (ie, i am betting on 650-750 closing); approx $6800 net credit after the $200 fees; margin used was about $40k (i have no idea how they compute that); it's a single transaction on thinkorswim but the bank statement spelled out the legs:
(The 760 was my Monday CC; i moved that to 700 on Thurs; then i moved it again to 660 on Fri just before closing.) Double-dipping, triple-dipping...
IC $6k/wk x 50 wks = $300k, assuming no fails; worst case is roll to next week to prevent max loss situation.
I was feeling greedy (or stup*d) this week to do only $100 range instead of $200. Uhmm guys, you're the experts, not me. How would you build next Friday's IC? Share!!!
Thanks in advance!
So is the expectation for Q1 Production and Deliveries to be released on Good Friday the 2nd of April?
Q1 2020 was Thursday 2nd April and 2019 was Friday 3rd of April. They've generally been 2nd day of the month lately and never the 1st, so Friday the 2nd of April would make sense. However I'm not sure how the USA and particularly Tesla treats the Good Friday of Easter. I assume they would release then regardless?
With the NASDAQ being closed for Good Friday, options will expire on Thursday the 1st of April. So allowing for some build up in anticipation of P&D, I expect it will still be reasonably safe selling covered calls for the 1st. I'll only be selling weeklies with strikes selected once I can see a bit of the build up. I'm not planning on holding any covered calls into the next week.
Q1 2020 was Thursday 2nd April and 2019 was Friday 3rd of April. They've generally been 2nd day of the month lately and never the 1st, so Friday the 2nd of April would make sense. However I'm not sure how the USA and particularly Tesla treats the Good Friday of Easter. I assume they would release then regardless?
With the NASDAQ being closed for Good Friday, options will expire on Thursday the 1st of April. So allowing for some build up in anticipation of P&D, I expect it will still be reasonably safe selling covered calls for the 1st. I'll only be selling weeklies with strikes selected once I can see a bit of the build up. I'm not planning on holding any covered calls into the next week.
Newbie question, when selling a covered call against a LEAP, does the expiration date of the covered call need to be the same as the LEAP? Reason being, I tried to sell a weekly covered call against a LEAP expiring Jan 2023 and I got the error “the current trade would invalidate the original position”. This is on qtrade in Canada. Thanks!
(Firstly, I am based in US and know of only US systems. That said, the concept, and the answer to your question shouldn't be different between US, Canada)
No, the expiration can be different, earlier than the LEAP expiration.
Did you check if you picked "Sell to Open" for the weakly CC? Also make sure the CC strike is at or below the strike of your LEAP.
@Lycanthrope @adiggs @juanmedina @setipoo and others,
In a taxable account, if you had option to sell 60 covered calls, 25 against stocks, remaining against ITM LEAPS, what steps would you consider?
I would rather roll than accept assignment.
I am considering selling 25% OTM from Monday open, 2 weeks out, rather than weekly. If the Monday pop is big, I might go for weekly, or wait till Tuesday to see if the stock doesn’t seem to peak locally by closing on Monday. Thoughts?
In a taxable account, if you had option to sell 60 covered calls, 25 against stocks, remaining against ITM LEAPS, what steps would you consider?
I would rather roll than accept assignment.
I am considering selling 25% OTM from Monday open, 2 weeks out, rather than weekly. If the Monday pop is big, I might go for weekly, or wait till Tuesday to see if the stock doesn’t seem to peak locally by closing on Monday. Thoughts?
I mostly like to do weekly contracts just so I can't get out of bad trade easy. I will consider selling longer term contracts only under high IV conditions 90+. Sell half of the contracts today and half tomorrow
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Thanks for the info. Guess its a bit of a problem that the Leaps are $430 strike then.
Its is NOT a problem unless you are trying to sell weeklies at strikes lower than $430.
Sold a 4/01 c802.50 at 9:42 EDT for $4.40 when SP was about 690 (missed the AM peak of ~695). Now at 12:41 EDT, the SP is higher at 697 and that same call is only $3.10. I’m assuming that the reason is because IV was higher right at the open, but it definitely makes learning hard on this newbie.
Volatility is a very complex concept that has a bunch of layers, and so such a statement requires a bunch of supporting logic and has a number of permeations based on that logic. (I assume OA has that logic somewhere?) I'd strongly encourage anyone who's trading options and especially selling options to actually take the time to understand what's going on with volatility, as volatility is the specific thing that makes up [almost] all of the extrinsic value of a contract. The CV uncertainty due to implied volatility is literally the thing that's the seller is selling, so why wouldn't someone want to understand it, right? FTR Rho (interest rates) is the other thing that feeds the extrinsic value, but its way less of an impact and generally not all that important to consider over the life of a short term contract.
If selling options was house hunting for 4 bedrooms, 3 baths, a two car garage, and a bit of land to spread out, selling options without at least a basic understanding of volatility is kinda like like setting the Zillow filter to studio apartment in high density housing and hoping for a result. Seriously, its THAT important of a concept.
It would be a good idea figure out how your broker computes margin requirements. It shouldn't be hard; they all have some kind of page that explains margin for different position types.
Typically for an Iron Condor margin requirement is equivalent to the downside/risk of the larger of the two spreads. That make sense, because you can explicitly only get into trouble on one spread or the other, but not both...so they just make you set aside enough money to cover the worst case scenario. In your case it margin typically be calculated at [40 spreads * $5 spread * 100 shares = $20k]. Maybe there's some unique equation with your broker that adds the margin requirements from both spreads of the IC? That's not like a terrible thing, but after all its your money, why wouldn't you want to know?
Not the way you've built it.
Don't get me wrong, I'm a big fan of credit spreads and ICs...but there's a pretty steep downslide slope to them, and their time and a place isn't 'every week'.
Your 650/645 strike on the put side with underlying [then] at ~$650 is pretty ambitious, especially with just a $5 spread. That means if price lands under $645, you're ~$13k in the hole. So with your very ambitious target of $6k/week that requires at least two more weeks just to claw back to net zero. Given that agressive of a strike will likely land the spread ITM at least 30% of the time (and probably more), if you have to burn ~three weeks to return your balance to net zero 30% of the time (so, every ~3 weeks), your "best case of $300k/year" turns into a much more probable "closer to a goose egg on the year".
FWIW If you're looking to maximize return on margin, do some quick excel math on the width of the spreads. Intuitively $5 is a little too close. Last time I checked (this was probably a year or so ago) the sweet spot was more like $15-20 spread...but either way, excelifying a current options chain will give an exact answer.
If I were building short term ICs (and I'm not right now) I'd probably be looking at 550 and 800 as decent bookends and maybe a bit closer if literally just weeklies (so, selling on Thursday for next Friday). Spreads probably on the oder of $20.
Absolutely bonkers how well you have put this into ELI5 on the argument of trying to understand Volatility for your own sake.Volatility is a very complex concept that has a bunch of layers, and so such a statement requires a bunch of supporting logic and has a number of permeations based on that logic. (I assume OA has that logic somewhere?) I'd strongly encourage anyone who's trading options and especially selling options to actually take the time to understand what's going on with volatility, as volatility is the specific thing that makes up [almost] all of the extrinsic value of a contract. The CV uncertainty due to implied volatility is literally the thing that's the seller is selling, so why wouldn't someone want to understand it, right? FTR Rho (interest rates) is the other thing that feeds the extrinsic value, but its way less of an impact and generally not all that important to consider over the life of a short term contract.
If selling options was house hunting for 4 bedrooms, 3 baths, a two car garage, and a bit of land to spread out, selling options without at least a basic understanding of volatility is kinda like like setting the Zillow filter to studio apartment in high density housing and hoping for a result. Seriously, its THAT important of a concept.
It would be a good idea figure out how your broker computes margin requirements. It shouldn't be hard; they all have some kind of page that explains margin for different position types.
Typically for an Iron Condor margin requirement is equivalent to the downside/risk of the larger of the two spreads. That make sense, because you can explicitly only get into trouble on one spread or the other, but not both...so they just make you set aside enough money to cover the worst case scenario. In your case it margin typically be calculated at [40 spreads * $5 spread * 100 shares = $20k]. Maybe there's some unique equation with your broker that adds the margin requirements from both spreads of the IC? That's not like a terrible thing, but after all its your money, why wouldn't you want to know?
Not the way you've built it.
Don't get me wrong, I'm a big fan of credit spreads and ICs...but there's a pretty steep downslide slope to them, and their time and a place isn't 'every week'.
Your 650/645 strike on the put side with underlying [then] at ~$650 is pretty ambitious, especially with just a $5 spread. That means if price lands under $645, you're ~$13k in the hole. So with your very ambitious target of $6k/week that requires at least two more weeks just to claw back to net zero. Given that agressive of a strike will likely land the spread ITM at least 30% of the time (and probably more), if you have to burn ~three weeks to return your balance to net zero 30% of the time (so, every ~3 weeks), your "best case of $300k/year" turns into a much more probable "closer to a goose egg on the year".
FWIW If you're looking to maximize return on margin, do some quick excel math on the width of the spreads. Intuitively $5 is a little too close. Last time I checked (this was probably a year or so ago) the sweet spot was more like $15-20 spread...but either way, excelifying a current options chain will give an exact answer.
If I were building short term ICs (and I'm not right now) I'd probably be looking at 550 and 800 as decent bookends and maybe a bit closer if literally just weeklies (so, selling on Thursday for next Friday). Spreads probably on the oder of $20.
Thanks, once again lending your experience to this community.
It basically means someone bought 258 $700 calls for this week for $500k. While this is heavy speculation on the buyer's motivation, IMHO the likely scenario is a short/day trade. The buyer simply thinks there's going to be a short term spike in TSLA and wants to capital size on max ∆/$ by buying a close expiration. A spike will also likely raise IV on the contract, which would further add to the buyer's profit.
The downside of course is high theta, but over the course of a few hours the extrinsic value will only erode by a few percent and even overnight its only going to be maybe 20%. That's the price the buyer is wiling to pay, knowing a small [favorable] movement in underlying will easily cover whatever time value burns off...then the rest is upside. As a bit of a WAG, if TSLA opens at something like $720-725 the buyer would ~double their money.
Given that the price paid was conveniently almost exactly half a million dollars it is unlikely the buyer is making a short term play to grab shares at a discount, but that's the other probable scenario. If TSLA is above ~probably $710-715 at expiration, the buyer breaks even (vs just buying ~$18M of shares this morning). Maybe even lower than that, because I'm using current CVs and don't actually know when that order was placed and at what underlying price. Anyway, $725-730 could doubles the $500k and $750 might nets $1M or more. From a risk management perspective this strategy of entering shares also limits portfolio downside to $500k, which is actually a pretty reasonable tradeoff given the much MUCH larger downside potential had the buyer bought $18M worth of shares this morning and then TSLA went to *sugar* this week. For round numbers, ~$20 movement in TSLA represents ~$500k on 25.8k shares...so if the buyer bought 25.8k at, say, $680 (this morning) they'd be worse off if price was below ~$660 at the end of the week then had they just bought the 258 calls.
Updates on my positions - I now find myself with tied up capital on both legs. Was flirting with a margin call as I had converted lots of shares to LEAPs, so my maintenance excess was thinner than I should have left it. So, I currently have the following two legs:
The 900c came about after having rolled my 770c 03/19 at 96% gains, to 700 03/19c for a net $5 credit / contract. I then rolled those, for a $7 credit / contract once they were also at 90% gains, to 715c 03/26. Actually a fairly productive week of covered call selling netting over $36k last week.
However, then came the weak price action on Friday afternoon. I was getting close to a margin call, so I decided to roll the 715c 03/26 for a 30% gain on premium to 900c 06/18 for a $21 credit per contract. That cash gave me the buffer I wanted going in to the weekend and avoided the margin call.
I will look to roll that closer and down on strikes in the coming weeks, subject to price action. At least the strangle is no longer inverted... for now!
Other thing I need to keep in mind is that my tax bill comes due April 30. So, I may be selling covered calls against my LEAPs to fund that. We'll see what the price action is doing over the next month. Before anyone asks, I'm in Canada, so don't have long term capital gain considerations.
- 850p 04/16
- 900c 06/18
The 900c came about after having rolled my 770c 03/19 at 96% gains, to 700 03/19c for a net $5 credit / contract. I then rolled those, for a $7 credit / contract once they were also at 90% gains, to 715c 03/26. Actually a fairly productive week of covered call selling netting over $36k last week.
However, then came the weak price action on Friday afternoon. I was getting close to a margin call, so I decided to roll the 715c 03/26 for a 30% gain on premium to 900c 06/18 for a $21 credit per contract. That cash gave me the buffer I wanted going in to the weekend and avoided the margin call.
I will look to roll that closer and down on strikes in the coming weeks, subject to price action. At least the strangle is no longer inverted... for now!
Other thing I need to keep in mind is that my tax bill comes due April 30. So, I may be selling covered calls against my LEAPs to fund that. We'll see what the price action is doing over the next month. Before anyone asks, I'm in Canada, so don't have long term capital gain considerations.
I sold some 9x 765cc for Friday this morning between $4-2.9 they are down 64%. I might close them tomorrow morning incase we get another rally later during so I can sell some more contracts for better premiums.
gabeincal
Active Member
Sold 15 x 722.5cc for 8.43 each then repurchased them a little later for 5.15. That was a decent ride for about an hour.
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