I am only selling CC on 10-20% of my shares right now. If the SP climbs, I plan to sell more CC at higher strikes to pay the debit to roll the ITM CC way up. So I am making very little right now, but staying safe. I'm also planning on going back to work at this point so I can buy more TSLA shares and replace some of the ones I lost this year.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
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I don't have ATM's, I've got 26x 12/30 -c150, but I cannot imagine a +22% rally in 4 trading days, not with the current sentiment
Also holding 10x 1/6 -c115, these are more in play, IMO, I'm planning to straddle them with 4x -p115, just waiting for a bit more down from here to do that. Will roll them up and out if ITM, it's only 10x contracts, so easy to manage
Edit: should maybe say that I think it's more likely -p115's get exercised than -c115's, by selling 4x -p115 straddled with 10x -c115 I can get 400 TSLA for a net price of $25k, which seems like a good deal to me, if not, then I was going to roll the calls anyway so the put premium is for free
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Pretty much my strategy too, take 50c - $1 per week on 120x contracts, after 5 years will have recuperated the loss
It's either DOTM calls or ITM calls on very small 10x positions, or ATM 20x - 30x, will play it week by week...
EVNow
Well-Known Member
I'm only selling spreads now - not pure CCs. That way if the SP goes up - I can just roll (with wider spreads). Will work for 3 or 4 weeks of continuous SP shooting up. I'm also selling only a spread of 5 ... which, obviously limits premium.
The made up example isn't a good one for understanding a somewhat typical circumstance.
A better way to look at it is, as @Chenkers put it, is that position is worth $99 (rounding). On a $100 wide spread you've got a 99% loss. But the entry was probably worth a $4 (4% of spread width) credit, so you're actually only at a 95% loss with 1 more point available to lose (at expiration when time value reaches 0).
You would buy this loss out in order to save that final 1% and avoid the thrash and incremental loss available on the 400 strike put assignment followed by your own sale / exercise of the 300 strike put. B/A spreads being what they are, you could easily add several extra $ of loss, and turn a $95 net loss into a $105 net loss (on the $100 wide spread).
If you're close enough to expiration you could roll that spread out in time, and probably to worse strikes, for a small debit or credit. The worse strikes though means that you'll have to wait longer for a good close to show up, as well as having a short leg that is that much more susceptible to early assignment.
Basically - as long as the short leg isn't in danger of early assignment you'll be able to hold your max loss (little opportunity to lose further) to expiration (and assuming the spreads are cash backed, not margin backed). Margin or early assignment are the triggers that shortens your shot clock.
If you're looking for a share price move of that magnitude a credit put spread is a bad way to make use of the move.
Also in the particular example you might find that you can roll that 300/400 put spread to something more like 200/300 and a small debit. The loss is still nearly max loss on the 200/300 and you only need to pay the different in the 2 max losses. Sadly the likelihood of early assignment continues to haunt you with that $300 put strike, but at least recovery is a lot easier and faster at the 300 strike than the 400.
A more personal example that I'm in and that I think is more representative of BPS grief - I had 170/155 put spreads that I rolled into 170/150 for a small credit. Total credit about $2. Then rolled out to Jan '25 175/150s for about a $2 debit. The $15 wide spread (and $15 max loss) has now opened up to $25 and is currently worth about $18, with roughly $0 net credit on the position. So I've managed a 120% realized loss so far on the original $15 wide spread, with an opportunity to earn that all back. The difference in the various available rolls wasn't much different between a week or month roll and the 2 year roll - I feel very comfortable about the 2 year roll eventually recovering that, current, $18/share loss, a feeling that I don't have on any earlier expiration. $18/share or 70% of the $25.
My primary concern about the position is that the share price keeps going down to the point that the 175 strike put time value decays close enough to 0 for early assignment. Early assignment will cause realization of that $25 (maybe $24) loss, where I'm looking for time to heal this wound. My back is up against the wall with this position - nowhere else to go that doesn't involve throwing more cash into the fire without decreasing the max loss; there is little or nothing left that I can do to improve it and avoid the max loss (can't go any further out in time, and if the short put is far enough ITM to have no time value, then there isn't another strike I can go to; this is why spreads behave so very differently from naked puts).
But the current share price of $125 isn't an issue - I'm about $50 ITM on the 175s with an option value of $71. That's about $20 worth of time value and nobody is going to give that to me. Heck - I'd love early assign on these 175s right now - I'd promptly sell the shares and score that $20 worth of time value, as well as be able to sell the long puts for their value, and come out way way ahead on the current position. Like turn a -$18 unrealized position into a $70 realized position (the $20 time value on the short leg, plus $50 current value for the long leg) for a net $88/share gain on a $25 max loss position.
A more likely scenario that one would go through. The reason to buy out the current mess is that I can pay the $18 loss and 'save" the remaining $7 that's on the table and available to be lost (I like my Jan '25 $25 wide spread better). I took the "buy out the loss" choice a year ago when I had a $150 wide spread turn into a $130 valued spread. I bought out the loss in order to save the remaining $20. That was a 333/283 spread. Turns out that rolling it would have spent some money and would involve options being assigned; might have turned that $130 loss into more like $150 or more by now.
The downside to a 2 year spread is that the value of the spread is going to be moving slowly as the share price goes up. The move from 125 to 165 is going to lower the spread value to about $12. That's the midpoint of the spread when time value on both legs is about the same, leaving the spread valued at 1/2 spread width. At a $200 share price, my max dated spreads will probably be worth about $6 - maybe a big enough improvement to be worth buying out at that point (still eating a $6 or 25% loss on the position), but relative to now - "saving" 3x what I can save right now. I'll probably find a different mechanism to closing out / earning that final $6.
Whatever I do my position is 100% dependent on a significant move in the share price back to my spread strikes.
Another current put spread example of mine - I had 135/120 put spread that I opened for Friday expiration. With the shares down to $123 I decided to roll all the way out to Jan '25, widen the spread to $20 for a small net credit. Now I'm in 135/115 and 2 years to expiration.
Why the 2 year roll instead of the more typical 1-4 week roll? Well the credit / debit is about the same as the share price is close to (just below) the current share price, so time value is balanced across all expirations. I'm concerned and wanted to prepare for a whole year of macro mayhem / recession, plus concerted FUD, plus average or poor Tesla execution leading to trading in an 80-120 share price band. A 1 week roll plus a $10 down week would put this into a max loss situation, and leave me with really bad roll options (probably widen the spread and worse the short strike).
I don't think we're going to spend a year trading around $100 - I just really really didn't want to find myself rolling a 135/115 put spread when the share price is $95 just because we might have some more capitulating to do.
The upside - this position only needs to get above $135 to be OTM again. The downside is that I probably need more like a $175 share price to be able to unwind for a total net gain, where if I'd rolled to end of Jan, it would be reasonable for the position to finished then simply because OTM and out of time.
The other downside is that the cash backing the spreads won't be earning any income for awhile. Good thing I keep a year's worth of living money separate - now I wish that was 2 year's worth. Call sales aren't going to cover income generation on their own.
This is the first time that I've handled a put spread roll this way - usually I roll a week or 2 at a time. But this only works when I'm collecting a credit each time, and when the share price is staying inside of, or nearby, the spread. I'm just too worried about what happens if we're going to touch on double digit share price in the next week or 2 - I don't want another max loss spread that is far ITM to develop.
My plan of the moment on all of these 2 year put spreads is that as they go OTM, I'll start monitoring possibilities for rolling them back to low DTE options (current or next week). To do so I figure that I'll be rolling closer to the money and/or widening the spread and/or adding spreads when I make the roll. The theme there is that I'll increase the available max loss (even more leverage) in order to quickly earn back the remaining value in the spread. I don't have 2x the capital available to do a simple double on the spread count, so this will be a few at a time situation.
Why the 2 year roll instead of the more typical 1-4 week roll? Well the credit / debit is about the same as the share price is close to (just below) the current share price, so time value is balanced across all expirations. I'm concerned and wanted to prepare for a whole year of macro mayhem / recession, plus concerted FUD, plus average or poor Tesla execution leading to trading in an 80-120 share price band. A 1 week roll plus a $10 down week would put this into a max loss situation, and leave me with really bad roll options (probably widen the spread and worse the short strike).
I don't think we're going to spend a year trading around $100 - I just really really didn't want to find myself rolling a 135/115 put spread when the share price is $95 just because we might have some more capitulating to do.
The upside - this position only needs to get above $135 to be OTM again. The downside is that I probably need more like a $175 share price to be able to unwind for a total net gain, where if I'd rolled to end of Jan, it would be reasonable for the position to finished then simply because OTM and out of time.
The other downside is that the cash backing the spreads won't be earning any income for awhile. Good thing I keep a year's worth of living money separate - now I wish that was 2 year's worth. Call sales aren't going to cover income generation on their own.
This is the first time that I've handled a put spread roll this way - usually I roll a week or 2 at a time. But this only works when I'm collecting a credit each time, and when the share price is staying inside of, or nearby, the spread. I'm just too worried about what happens if we're going to touch on double digit share price in the next week or 2 - I don't want another max loss spread that is far ITM to develop.
My plan of the moment on all of these 2 year put spreads is that as they go OTM, I'll start monitoring possibilities for rolling them back to low DTE options (current or next week). To do so I figure that I'll be rolling closer to the money and/or widening the spread and/or adding spreads when I make the roll. The theme there is that I'll increase the available max loss (even more leverage) in order to quickly earn back the remaining value in the spread. I don't have 2x the capital available to do a simple double on the spread count, so this will be a few at a time situation.
Good info from others already so this may not be very helpful. You are backed into a corner, and that makes any moves more difficult. My ATM CCs are straddled with CSPs, so not as much risk, but I’m still worried about the SP taking off and leaving me behind. I plan on closing all CCs on Friday for whatever loss/gain. I will NOT roll the CCs forward, no matter what the loss situation. My biggest problems have come from rolling out and the SP keeps going and the future buyout gets more expensive (everyone’s 2022 BPSs and my CSPs). I “might” roll my CSPs forward, like yesterday, but I’m still trying to decide if $2-$5/wk is premium is better than achieving my share goal at EOY.
Due to annual retirement buying, I expect a sustained bounce Jan 3rd (short week), probably even an intraday bump on 4th, so I’m NOT selling CCs until the 4th at the earliest, and even then only 10-15% OTM. Last year there was a $50 jump 12/31-1/3, small bump intraday 1/4 above $400 and then a sustained drop until now. I’m buying calls this week, hopefully at the low, and will unload them late 1/3 or early 1/4.
Look at the lack of 1/6, 1/13 puts, compared to the past month. This suggests that the forces that have been driving down the SP in 2022 are finally taking a pause (however brief it may be, we don’t know). It’s possible that vehicle sales numbers disappoint or surprise, and the SP reaction can go either way (even counter-intuitive), so watch for the break. Maybe the sales numbers will be massive and Wall Street finally realizes that the upcoming financials will generate a stupidly low P/E ratio that even Warren Buffett would buy (doubtful, but we can dream). In any case, expect volatility, and very likely a walk down into the Jan 20th monthly. Hopefully, massive profits and forward guidance reported and a sustained bounce after financials..
Hopefully this is helpful. GLTA.
Like others I've got lots of rolled out DITM BPS and trying to decide how to handle these. The big decision is take the loss now, or keep trying to roll them out, usually by having to put in a bit more cash and increase possible future losses.
We are starting to look through our BPS and decide which ones are more likely to expire vs future max loss, or early assignment, and deal with the worst first.
So a question I've got, is if I close out a BPS for max loss, how does this affect my account values. Assuming I have the cash and don't have to sell shares to close a BPS). I believe my Net Account Value would remain unchanged since it already accounts for max loss? What would happen to my Non-Margin Buying power, would this also remain pretty much unchanged or go up or down? And are there any other values I need to be aware of the are positively or negatively affected by closing a BPS?
And if I'm looking to close a BPS that could get assigned shortly, is it better to do it myself, or wait until assignment to do it?
We are starting to look through our BPS and decide which ones are more likely to expire vs future max loss, or early assignment, and deal with the worst first.
So a question I've got, is if I close out a BPS for max loss, how does this affect my account values. Assuming I have the cash and don't have to sell shares to close a BPS). I believe my Net Account Value would remain unchanged since it already accounts for max loss? What would happen to my Non-Margin Buying power, would this also remain pretty much unchanged or go up or down? And are there any other values I need to be aware of the are positively or negatively affected by closing a BPS?
And if I'm looking to close a BPS that could get assigned shortly, is it better to do it myself, or wait until assignment to do it?
BPS closed for max loss - assuming its fully cash backed, then cash flow is negative by the amount of the loss. Account value is unchanged. Example - you have a $100k put spread (say qty 100 x $10 wide spread) currently worth $9.50. You will spend $95k of cash to buy that out. Cash is reduced by $95k.
Meanwhile account value is the $100k cash on hand minus the $95k negative value of the position, whether you spend $95k or not (Account value $5k either way).
No idea on non-margin buying power -- my guess is no change.
My personal view - I would rather close out the BPS myself rather than take an unexpected assignment on the short leg. The unexpected short assignment is a great big coin flip that could be worth -$10. If its a $20 wide spread, an extra $10 loss on top of ~max loss would be, at least for me, devastating. Of course it could work in your favor - shares get assigned, and you wake up the next morning to a $10 share price move in your favor, thereby being able to sell for $10 better than you bought.
The bigger issue - the unexpected assignment is probably on WAY more contracts than you can afford to buy. You'll be in an emergency margin call position that is probably resolved via a first-thing-in-the-morning market sale on those shares. I figure the share price is probably down in that brief time period while immediate market sale is something you do, or your broker helps you out with. Might be a good time to also sell the long insurance puts - they'll be a bit better off, but won't offset the share price drop. Unfortunately there won't be automatic help on selling the long puts, and by the time you wake up / log in, the share price might be up, harming the insurance puts and enabling losses in both directions magnified by the huge leverage in the position.
Just too much risk of an immediate $ for $ drop in value on a way, way too many shares. A $9.50 loss (in my made up example) might double ($10 move against, first thing in the morning).
Ah, ok I didn't think of it that way.
So I will try to rephrase what you said, maybe to make it clearer for me or in case I got it wrong:
If you get assigned, and you decide to close the position, you would need to sell the shares and long puts, to do so with no additional loss over max-loss, the SP would need to be unchanged from the previous day. If SP is dropping then the long puts go up a bit and you might come out ahead some, but if SP is rising you will lose more on the put sale. Well, that's what I just wrote, but now that I think about it, I don't see the difference, if you can time the share sale and long put sales at the right time you could still come out ahead?
So it seems if you got assigned before you had a chance to close the position yourself, you might be better off re-establishing the position first, which gives you a chance to make some extra profit if you time the stock and put sales correctly. Then you could close out the position later in the day. But that is risky also. So lowest risk of extra loss is just close them out yourself if you can.
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EVNow
Well-Known Member
Wow .... 2 years out for basically the same short put.
I've some 165 puts I've rolled twice. That $40 deficit means even to get to $160 strike, I've to roll 4 months !
Yes thanks for the help!
One thing I am searching for is the rolling option that will cause the least increase in the value of the CC with a raising stock price. If I expect the stock to rally up for example to 155 or 168 before reversing and going to restest the low then I’d prefer to roll my 129 CCs 6/1worth $6.40 to 400 CCs Jan2025, let the stock rally 10-15 or 20% and then in 1-2 weeks when we see a reversal of the counter trend to roll them back in close ATM while the stock goes back to retest the lows.
I’m trying to find the way how to mitigate the risk of an upcoming stock rally when I can’t close the CCs because of margin requirements and that the best way I see how to avoid getting deep ITM.
Does that make any sense to anybody?
Merry Christmas everyone and wishing you all a magnificent happy new stock rally year.
I think 1/25 610s will be hit the least in a rally - by absolute value per contract, not percentage.
I doesn't quite work like that because when the P- is assigned you have the shares that were assigned to you and you also still have the P+ from the BPS. The shares and the P+ work in tandem so if the shares go up in value overnight, the P+ will go down in value by roughly an equivalent amount, leaving you about even overall. Share price movement only comes into effect when you sell either the shares or the P+. If the share price goes down after selling the shares, the P+ will appreciate in value resulting in additional gain when the P+ is sold. Vice versa if the share price goes up after selling shares, the P+ wll lose value resulting in a larger loss.
It is risky, particularly with a large number of BPS assigned. I've had instances where my account locks up trying to sell shares and P+ from say 20 assignments because it's too much for the margin calculator to handle. For me the margin has been OK with the shares and P+ in place but goes haywire as soon as too many of either are sold at once. It can be better to do it in bite size junks to keep everything stable.
Best to think about the two pieces of the spread separately.
If you get assigned...
The shares are just shares - if you happen to sell them at a higher share price than the price when they were assigned then you'll be ahead. That's because when somebody exercises early, the premium in the put is handed over to you for free. All of it. It shows up in the shares you purchase as a reduction in the cost basis.
If the share price goes down and you sell immediately, then you'll get the incremental loss between your assignment price (strike - put value at assignment).
Meanwhile on the insurance put, since you own it, you have to exercise it. There is no automatic exercise to help you out and offset the short put. If the share price is going down, then the value of the insurance put is going up. This will offset the loss in the shares that comes from the price going down. But the shares have a delta of 1.00 and the insurance put delta will be less than 1.00. If you're far enough ITM then its delta may be close to 1.00, so it will reduce the incremental loss. But there will still be incremental loss as the shares go down.
Should the share price go up, then its the same thing in reverse. The insurance put will be losing value as the share price goes up, but again delta is 1.00 on the shares. So the shares will be gaining in value faster than the insurance put is losing in value.
With CSP the effect isn't so dramatic. I had 275 strike csp that finally got early exercised. Those went into the book at a ~$200 cost basis because I was "given" the $75 value of the put that was exercised. I still spent $275 per share - the $75 loss down to the share price at the moment showed up in the lower cost basis (pay $275 for a $200 cost basis share - ouch).
If I'd tried and succeeded at selling immediately at $200/share, on the $200 cost basis shares, then there wouldn't have been any incremental loss or gain. Whatever slippage, in either direction, there's no way that slippage could double or halve that loss.
But with spreads, where the max loss is the spread width, you have 2 positions with slippage and a relatively small window ($20 on a $20 wide spread instead of $275 on a 275 strike csp), slippage from an early and unexpected assignment can dwarf the ~max loss otherwise accumulated.
So yes - if you have the incremental cash or margin so that you don't need to emergency sell, you can absolutely improve things a lot with a better share sale and long put sale. Maybe even more than the spread loss. But its really an independent pair of transactions from what got you there, and you're trying to time share movements in your favor for those two closes. If you're wrong, you can also magnify a max loss 2x or more in an eyeblink.
This is one of the ways in which spreads are dramatically different, and frankly independent / completely different from naked puts. Whether 2 weeks, 2 months, or 2 years - it was about the same credit because my starting point was very close to the midpoint of the spread.
Logically - whatever the DTE, the time value from the midpoint of the spread in either direction is equal. With bid / ask spread it won't be quite zero, but it'll be in that neighborhood. Now a spread that is OTM and expiring this week, is a position that is a week from realizing whatever level of profit you desire.
However a spread that is 2 years from expiration won't be anywhere close.
A dramatic example to emphasize this - the Dec 30 100/75 BPS ($23 OTM) is priced at .23 - .03 at this moment, for a net spread price of .20. That's probably already cheap enough for an early close and no surprise to anybody if/when that finishes OTM.
Meanwhile that Jan '25 100/75 BPS is 25.60 - 15; still 9.40 and has a long ways to go for an early close at a high % gain. Long ways can either be time or share price move (up), but its a long ways still to go. Heck if it were a 75/50 then I'm $15 - $7 or $8 spread value.
Rolling that 135/120 out 2 years to 135/115 instead of say last week in Jan 135/115 didn't get me any extra credit (maybe a dime or something - might even have cost me extra). And it has DEFINITELY cost me an opportunity for closing early. I don't expect I'll need 2 years to clean it up, but it might take most of the next year. Even when the share price recovers to 160 I'll still have a $9-10 spread premium. A $200 share price probably still doesn't provide all that much of an early close opportunity.
That'll be a recovery of about 1/2 of my current loss, but still only half. My hope is that somewhere around there I'll be able to roll a few of the spreads back into a 1-2 week expiration for a credit and have those spreads expire for a gain. I might have to roll 135/115 up to 150/130 to get close enough for the spread value to be high enough. I might also need to expand the spread width - mostly I expect I'll need to add some spreads to bring the total up to a net credit.
Taking on all that extra pain - why make that 135/120 roll go so far out in time? I'm getting a lot more conservative all of a sudden, and the macro is bad enough that one reasonable outcome in 2023 is a year of recession / misery, with a share price of say 80-120. The real problem is if I rolled out to Jan 6 so I'm the other side of P&D and then we get a report that can be used to generate FUD (there will be something FUD worthy), I might find myself close to Jan 6 and a $90 share price - now I'm rolling a max loss BPS, thus paying a debit on a widened spread to get some time for the share price to recover.
I decided to take the high quality roll available now and buy myself all the time in the world for the position to recover. And OMG has that bought me peace of mind!
I don't know when the recovery will happen - only that I consider it to be inevitable on a 2 year time scale.
I'm going with the likely worst case is I lose income for as much as 18-21 months (opportunity cost) but I recover from the max loss spreads. Recovering from the max loss spreads, in my case, will be the equivalent of a year or two of income. An amount that I pretty much can't generate by taking the loss and rebuilding from there.
Recently I’ve been wondering if doing 6-month CC at $175-$200 would deliver a good premium, but also allow enough time for the expected early year spurt and eventual retrenchment (closing for a good gain). Not sure about price and duration, but the idea seems to have value for people concerned about getting caught out on short-term early year sales.
This might be best done in January where many are expecting a sharp recovery in TSLA related to expiring puts and reversing highly oversold price.
I have also seen predictions of continued sell off so it depends on your expectations and risk tolerance
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