Wiki Selling TSLA Options - Be the House

[sub]

Thing is, let's imagine you had 5160 $TSLA, why would you sell any of it? With that kind of capital (assuming the SP is a least where it is now), you can just eep selling covered calls for your living expenses. Where it becomes less obvious is when you need a large amount of cash out, like my situation, for a house, then you may have other options, like borrowing against the shares (I took a mortgage at a stupid low rate), plus I have a year or so to save up the costs of the renovations, so some planning can help there. And what's paying for the renovations, you guessed it, covered calls...

Of course selling covered calls can turn into the wheel selling puts but any given Friday

Yes, of course, and this is my plan. My thinking is, as I buy more shares, which then allows me to sell more calls, I can buy more shares faster. My other goal is that I don't end up with less shares than I had when I started selling options. I was too scared to do it for all these years, now I'm kicking myself. I've held Tesla shares since early 2013, only being out briefly to pay off some student loans etc, then got back in at almost the exact same price. Lucky. My goal is to grow my account and just live off of the option premium. I also have income producing real estate and will be adding more in the next 2-3 years. I might use a little bit of the proceeds in the next few months to do some work on my house, which I'm turning into an Airbnb next year.

 

[samppa]

IB announced that they are increasing margin requirements for TSLA concentrated portfolios, starting today after market close.. changes will be implemented in 10 days.
The requirement will work as follows:

• An alternative stress test will be run, subsequent to the margin calculation currently in place, with the greater of the two becoming the active requirement. TSLA (Tesla Inc.) stock and its derivatives will be subject to a stress test that simulates a price change in the underlying stock of -50%.

• The projected loss for TSLA, assuming a price change of -50%, will be compared to the aggregate margin requirement as determined under the alternate calculation for the aggregate portfolio and, if greater, will become the margin requirement for the portfolio.

If you're on IB and use margin, be sure to check this..

 

[Tslynk67]

I have a very similar safety-net on the upside. When I make dispensible income I cover my weekly/biweekly options trading with some LEAP buying. Gives me that warm feeling of knowing that only $20k or so can possibly end up being $200k in two years if TSLA goes up 3 to 5x.

Mine are all June 2022 and I intend to exercise the $250's and use the $700's to pay for it. If we get a pop in the SP before then, I will sell $1700's against the $700's to give some free cash to cover taxes, etc. (this account is taxable, like my other)

 

[samppa]

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.

sorry for the late reply.. was thinking about this and then kind of forgot. I'm also just learning about options, and currently selling weekly contracts, only one contract at a time. Been working ok so far. Dabbled a bit with different spreads, now I've just been selling weekly puts (covered partly by cash, partly by margin from shares, trading account is about 50% tsla/50% cash). I've been quite aggressive here since I wouldn't mind assignment or rolling, right now I have a 670p expiring this friday, which I sold last week for $31.86. I'll probably close it tonight or tomorrow. For next week I might open a less aggressive position (further OTM) because I don't want to have any open positions when p&d report comes.. or I might play it really safe and just close this and skip next week all together.

Skewed Iron condor just means that it's not balanced, when it comes to strikes.. so that say if you're skewing to upside you'd use -50+150 range compared to current strike price. just as an example. Or have more contracts on the other side etc.

A strategy of 40-50 contracts of same Iron Condor does sound quite risky to me (of course I don't know your risk profile here at all).. what's your exit plan if there is a big swing in stock price to either direction? I know IC is a limited risk strategy, but typically risk on either side is much bigger than possible profit.

 

[juanmedina]

IB announced that they are increasing margin requirements for TSLA concentrated portfolios, starting today after market close.. changes will be implemented in 10 days.
The requirement will work as follows:

• An alternative stress test will be run, subsequent to the margin calculation currently in place, with the greater of the two becoming the active requirement. TSLA (Tesla Inc.) stock and its derivatives will be subject to a stress test that simulates a price change in the underlying stock of -50%.
• The projected loss for TSLA, assuming a price change of -50%, will be compared to the aggregate margin requirement as determined under the alternate calculation for the aggregate portfolio and, if greater, will become the margin requirement for the portfolio.

If you're on IB and use margin, be sure to check this..

Why are brokerage houses doing this? There has to be a reason because is not only one brokerage house doing that . It seems strange to me.

 

[samppa]

Why are brokerage houses doing this? There has to be a reason because is not only one brokerage house doing that . It seems strange to me.

I believe it's because of last years huge volatility and rally.. they want to be prepared in case tsla crashes -50%.
Not likely, but certainly not impossible either.

 

[Yoona]

A strategy of 40-50 contracts of same Iron Condor does sound quite risky to me (of course I don't know your risk profile here at all).. what's your exit plan if there is a big swing in stock price to either direction? I know IC is a limited risk strategy, but typically risk on either side is much bigger than possible profit.

This skew happened to me a few weeks ago during a steep dive. I rolled the 2 puts further down to prevent the sp from going out of range, same expiration. The initial credit paid for the new fees. In the end, still a win but with less income. Max loss avoided.

The alternative is to roll the 4 legs to next week, but that's really painful since there's no 'one-click' choice for it on TOS.

 

[Brunel]

IB announced that they are increasing margin requirements for TSLA concentrated portfolios, starting today after market close.. changes will be implemented in 10 days.
The requirement will work as follows:

• An alternative stress test will be run, subsequent to the margin calculation currently in place, with the greater of the two becoming the active requirement. TSLA (Tesla Inc.) stock and its derivatives will be subject to a stress test that simulates a price change in the underlying stock of -50%.
• The projected loss for TSLA, assuming a price change of -50%, will be compared to the aggregate margin requirement as determined under the alternate calculation for the aggregate portfolio and, if greater, will become the margin requirement for the portfolio.

If you're on IB and use margin, be sure to check this..

I am waiting for my TSLA shares to transfer to IB to allow me to start doing covered calls. Have not even thought about using margin, but good to know. If I get stuck on usability of IB platform I might ask for some advice...unless you know of some good IB tutorials...thanks.

 

[Chenkers]

IB announced that they are increasing margin requirements for TSLA concentrated portfolios, starting today after market close.. changes will be implemented in 10 days.
The requirement will work as follows:

• An alternative stress test will be run, subsequent to the margin calculation currently in place, with the greater of the two becoming the active requirement. TSLA (Tesla Inc.) stock and its derivatives will be subject to a stress test that simulates a price change in the underlying stock of -50%.
• The projected loss for TSLA, assuming a price change of -50%, will be compared to the aggregate margin requirement as determined under the alternate calculation for the aggregate portfolio and, if greater, will become the margin requirement for the portfolio.

If you're on IB and use margin, be sure to check this..

I use IB and I haven't seen this announced anywhere yet. Perhaps this is only in some markets like the USA?
In Australia IB use a version of Portfolio margin (no Reg-T) that is already quite restrictive with margin calculations.

 

[samppa]

I use IB and I haven't seen this announced anywhere yet. Perhaps this is only in some markets like the USA?
In Australia IB use a version of Portfolio margin (no Reg-T) that is already quite restrictive with margin calculations.

I'm in europe.

 

[bxr140]

Over many many iterations, the distribution of price swings should generally match this model, and thus you would not be "beating the system".

Yes, and the big downside for selling in that context--at least when it comes to selling puts and CC's on not-B&H shares (and also credit spreads, even though they're bounded in loss)--is that one bad cycle can wipe out a ton of net positive cycles.

For me, it is easier to view this model at a longer time frame, where 1) I am totally willing to have my shares called away at those prices and 2) I "think" I have a model for when TSLA has had a significant run-up and will have a pause or dip and a good position to sell CC's with longer expiry.

Since I only want to engage in selling longer expiry CC's at the right moment, that may only happen a few times a year. Patience is virtue, lol.

FWIW, consolidation is generally a suboptimal time to open a credit position--volatility is generally at a local low, and big price movements are generally probable, both of which are unfavorable to the seller of a contract. And because volatility is low extrinsic value is low, and that baits the seller into being more agressive, which makes the situation even more risky.

The good news is that's a perfect time to buy options.

 

[bxr140]

The alternative is to roll the 4 legs to next week, but that's really painful since there's no 'one-click' choice for it on TOS.

The Man's Regulations, at least in 'murica (no idea on ROW), limit an option trade ticket to four legs. So...any position that has more than two legs requires two tickets to roll. Its not that big of a deal and really the biggest 'pain' is some basic bookkeeping to understand/control net from the two tickets. You get used to it, and in fact once you start to get into the swing of two-sided positions you'll find that position maintenance naturally ends up asymmetric anyway. If there's a dip in underlying, for instance, the top side of your position could probably use a roll anyway, and the bottom side probably wants to wait for a reversal to realize its profit potential.

 

[adiggs]

@adiggs- who is the custodian for your IRA accts?

I'm with Fidelity.

 

[st_lopes]

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!

That was short lived. With the stagnating price the last couple days, and the fact that three of our MAs are now below 680 and are likely to be resistance until we get a meaningful catalyst (P&D or Q1), I decided to roll the 900c 06/18 down to 680c 04/01. Back to an inverted strangle! I did clip about $10/contract on this roll and the roll also added $0.75/contract in remaining premium.

 

[samppa]

IB announced that they are increasing margin requirements for TSLA concentrated portfolios, starting today after market close.. changes will be implemented in 10 days.
The requirement will work as follows:

• An alternative stress test will be run, subsequent to the margin calculation currently in place, with the greater of the two becoming the active requirement. TSLA (Tesla Inc.) stock and its derivatives will be subject to a stress test that simulates a price change in the underlying stock of -50%.
• The projected loss for TSLA, assuming a price change of -50%, will be compared to the aggregate margin requirement as determined under the alternate calculation for the aggregate portfolio and, if greater, will become the margin requirement for the portfolio.

If you're on IB and use margin, be sure to check this..

IB started suddenly showing really big negative values for "post-expiry excess(predicted)".
Got scared and closed all my option positions for now, luckily for a little profit.. better to see what happens in the next 10 days.

Yeah definitely something weird going on. After closing option positions, account still shows some initial and maintenance margin. At least its not negative now. This account has now only shares and cash.
IB doesn't do margin calls, so better be careful here..

 

[juanmedina]

Yes, and the big downside for selling in that context--at least when it comes to selling puts and CC's on not-B&H shares (and also credit spreads, even though they're bounded in loss)--is that one bad cycle can wipe out a ton of net positive cycles.



FWIW, consolidation is generally a suboptimal time to open a credit position--volatility is generally at a local low, and big price movements are generally probable, both of which are unfavorable to the seller of a contract. And because volatility is low extrinsic value is low, and that baits the seller into being more agressive, which makes the situation even more risky.

The good news is that's a perfect time to buy options.

on the buying side what is your strategy? Short term options and roll them until the stock moves up big or LEAPS? or neither lol?

I am feeling really tempted about buying some right now.

 

[Runarbt]

..I "couldn't" stay on the sidelines anymore so I dipped into margin. (I am a sucker for bargins)

Bought 4x $300 Sept.calls when SP was around 650 - and when SP kept going gown and I started getting buyers remorse, I sold 4x $680 calls for next week.
At least the premium for the CC will cover 1/2 years margin interest - and if the CC end ITM, I will close out the calls at a profit to buy back the CC.

I really don't like these -5% days. ****..

 

[ReddyLeaf]

Depends on your options level and cash. You need to have enough cash or margin to buy back the first leg without the premium from the second. Or be able to sell an additional option while holding the original in your account.

My IRA doesn't allow margin but I'm able to roll options that I otherwise wouldn't be able to if done in two separate orders.

Indeed a real "roll" is as complex buy-to-sell order, but both legs happen at the same time, the benefit being that the strike can't get away from you in the time it takes to sell, then set the buy order, and also means you don't need cash or margin to close out the existing position - which separate buy and sell orders do need. In fact as I reinvest all my premiums in shares for the moment, I would have to sell som shares in order to rebuy a position that was getting uncomfortable, so I tend not to bother.

Yes, of course. I realize this thread has become a bit of a catch-all, but in general its main purpose is discussion around selling options against TSLA shares that are not meant as B&H. As such, account balance is the really the only thing that matters in context of that methodology.

B&H is a different scenario for sure, but the general point is still the same: If one is selling covered calls on B&H TSLA shares with a fixed/static strategy, one is going to be disappointed long term. Sure, with downward TSLA movement its a non-issue as the loss on the underlying is just part of long term ownership and the gain on the -C's simply softens the blow. On the upside however, maintaining a fixed strategy is going to result in materially significant gains left on the table and--as was the case for CC sellers in 2020--unavoidable dumping of otherwise B&H shares because their CC's were so underwater.

Its important for us to all accept that the above two concepts*** can exist at the same time for a trader; one does not necessarily preclude the other. Some amount of capital can be dedicated to B&H shares and some amount of capital can be dedicated to selling options. Someone who's in growth mode would want to be more conservative with CC's on their B&H shares, in an effort to realize inevitable gains from big moves. Someone who's met their financial goals might be more agressive with CC's on their B&H shares, accepting the possibility of having them called away (with or without an immediate re-buy).

***For those who wish to trade smartly and safely, one would also have capital dedicated to buying options.

As always, great advice and well-articulated. Thanks to all. My situation bolded above. This week’s recent trades highlight these points. Not wanting to lose my shares (and still years from being able to access my IRAs), I sold -c802.50s 4/1 for $4.40 and -c755s 3/25 for $4.00 during the Monday AM peak. After reviewing Max Pain over the weekend, I felt that these calls would be safe at my risk tolerance, but I still kept about 2x cash available for a buyback (just in case). Tuesday, after the SP dropped (and during what appeared to be just a minute after a local minimum), I bought them back for $1.12 & $0.72, respectively. I then quickly sold -c702.50s 3/25 for $6.62 during the following small SP rise. Again, I felt that these strikes would be safe at my risk tolerance, after the Mon/Tues SP drop. Furthermore, with the extra premiums adding to my cash cache, I felt comfortable putting in buy orders in $10 increments, eventually getting 15 shares for $632.69 to $666.75.

Since it takes me a few minutes to get the individual trades completed, and sometimes things get messed up and I must restart the process, I attempt to buy on down trends and sell on up trends. I don’t always get the best prices, but it’s the best I can do without margin, an official roll option, and being required to put in limit orders instead of market orders. As one would expect, this week has been very good for my newbie options trading, but terrible for my overall account balance. Certainly, more premium could have been obtained by trading closer to the SP, but I’m very happy with my results and should generate over $10k this week.

 

[samppa]

sold a -595p/-702.5c short strangle for 4/1. Looking at max pain and call/put walls on 600 and 700, this should be safe..
Hindsight: might be worth it to do these kind of strategies as separate legs.. sell the put leg on a downtrend, and call leg on uptrend..

 

[bkp_duke]

I had some 725 CC's expiring on 3/26 that I rolled down yesterday to 675 CCs on 3/26. Free premium, used it to pick up a few more shares.

I'm not selling any calls for expiration on 4/1 for 2 reasons:
1) I'm going on vacation and won't be watching the share price as closely,
2) like @Lycanthrope I don't want any open positions for the P&D report that should come out in the days following Q1 close.