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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Ok, what the ‘ell happened yesterday? I go on a day trip to my local service center (350 mi RT) for the annual service and you guys go and destroy the options market.
Well, I have a confession to make: On Monday I sold 4/30 -800/805c against all of my shares for $6.85-$8.50. I didn’t hit the peak because I got up late, but finally realized that I had some protection in each account. If the SP jumped, I could buyback my -670p, thereby releasing the covering cash which would be available to buyback the calls. In other accounts, I had bought some YOLO +790c with the last few $$$, so could sell for profit.
Anyway, everything dumped, so this AM, BTC@$0.20 and STO -755c @$0.80, again not at the optimal time, unlike that beast @Lycanthrope. I was able to pick up another 15 shares so far, with still enough buffer cash left for the SP to run a bit by Friday. I’m not declaring victory yet for this week, but so far it’s looking good.
Well, I have a confession to make: On Monday I sold 4/30 -800/805c against all of my shares for $6.85-$8.50. I didn’t hit the peak because I got up late, but finally realized that I had some protection in each account. If the SP jumped, I could buyback my -670p, thereby releasing the covering cash which would be available to buyback the calls. In other accounts, I had bought some YOLO +790c with the last few $$$, so could sell for profit.
Anyway, everything dumped, so this AM, BTC@$0.20 and STO -755c @$0.80, again not at the optimal time, unlike that beast @Lycanthrope. I was able to pick up another 15 shares so far, with still enough buffer cash left for the SP to run a bit by Friday. I’m not declaring victory yet for this week, but so far it’s looking good.
You were able to get that price because the IV was so high on monday pre-earnings call? What was SP then? 738?
Monday around 11:15EDT or so, certainly I could have done better in the 9:30-10:30 hour. I’m on the west coast, so 6:30am is difficult sometimes. Yes, pre-earnings, so lots of anticipation.
FWIW, my Jan2023 +1100c dropped 18% today, almost to the price that I bought it back in November, so yes, it’s probably a decent time to buy LEAPS. Don’t rush in. Put in a lower offer and let them come to you. I think we will see SP malaise until the next quarter run up, so you probably have at least 3 mo, maybe 6 mo, to pick up cheaper LEAPS. Good luck.
I won't be do this yet... I still think Leaps are what you do over puddles... but I'm studying. I think the hard thing to understand is how selling calls against them would work.... if it's an extra step or has some other limitations besides not letting get ITM?
I'm going to wait to see what happens to VIX and QQQ after Powell speaks... please let me know if this is dumb. I think we are going to see surge in price before end of week, I just don't know how high. Right now I'm guessing 745 (which probably means 645).
No, no, no. This is a longer term hold. I bought it back when I was just learning about options and LEAPS and now have a $400 sell price on it. I bought at $136 late last November. I should have sold it back in January for nearly $300, but decided to wait until after GF4&5 are running.
That's very much opposite of true. At the 'statistical' broad brush level, the P/L of a covered call and an equivalent cash covered put are all but the same.
Of course, those who are familiar with my approach know I'd rather have a CC than a cash covered put...but that's based in nuance, not a first order comparison.
I wouldn't go that far on selling options (for credit) and I'd expand then statement such that if one is good at reading charts one should very much be buying options. But really, it boils up to a combination of The Right Analysis and applying that to The Right Position. Position types (shares, sold options, multi-leg options, shorts vs longs, etc.) are all tools on the same tool belt; they all serve a purpose.
Despite the popularity of this thread, selling options is (or at least should be) generally low on the priority list for anyone involved in the market due to its low return, high capital requirement, and high Risk:Reward...but of course there's certainly a time and place for selling and so it shouldn't be completely removed from one's tool belt.
What's really is important for folks to understand how a position (Any position) returns profit, the corollary risk of that position, and how that position might fit an individual's bigger picture market strategy. For options, the two major upsides over shares are 1) Leverage and 2) Volatility. (Those two are also equivalent downsides FTR). Leverage allows a trader to make (or lose) multiple times on the options vs shares--that one is pretty straightforward. Volatility enables a trader to earn profit at a more favorable rate (with lower risk) than an ~equivalent share position. This one can go both ways--for a bought option, a decreasing volatility environment will work against profit relative to shares and an increasing volatility environment will work for profit.
The bummer for selling options is that leverage is much less...leveragable, if not eliminated vs shares (which I think is your overall point) so one basically ~halves the benefit of options over shares.
So circling back to a trader's analysis skillset, if one is good at reading price charts, one should be directional trading, either via shares or [primarily] buying options. If one is also competent at understanding volatility, one should be layering that logic into their position as well. As a random real world implementation of this logic, maybe a strategy is to only buy options at low volatility, only sell options at high volatility, and only trade shares at mid-volatility.
What I meant was, since as you stated - the premium earned on CC is pretty much the same as a CP. by holding shares you also reap the reward from owning an appreciating asset compared to just holding cash. I could have been be more clear.
So question here... at first I said, holy moly that's a low strike point! But I'm wondering if the reason you aren't concerned is you ability to time the roll? Are you going to roll it up if stock surges before it hits 715? And that's why it doesn't concern you? Right into the teeth of the Max Pain!
Just picking up the part I've highlighted, which TBH I don't agree with, but perhaps don't understand where you're coming from either
Using myself as an example, I have 3253 $TSLA - that's up 353 shares, roughly 12% since December due to call selling and reinvesting the bulk of the premiums in more shares
As I don't have cash to buy more shares, what would you propose that's better for increasing my portfolio than what I'm doing?
Edit: to add that I don't have a margin account to play with, my broker only offers based on a "loan application" which is laughable in my situation
I'm on the same boat. I can boost my yearly return in this stock by 50-75% on top of price appreciation. Having followed events, max pain, volume, together with some light chart reading, I have a pretty good idea of how the stock performs outside of an event reaction window. But I don't buy options, perhaps due to my personality?
The way I look at it: you can't always buy options but you can always sell options, although for a lower return at times. I like a predictable stream of income.
Having all my capital tied up in the stock also matters to me. Perhaps I'm too bullish on the stock?
Look around
. Nah, can't be.FYI If you have short contracts on the account and try to get loan/credit line on E-trade they will not give you one even if is just one contract.
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I'm coming from the perspective of account balance. I prefer to maximize the return of my account balance for the minimum amount of risk, for the purpose of having the minimum amount of money when I retire early.
That explicitly means I'm using more tools than simply putting the blinders around a relentless pursuit of TSLA shares.
Its a bit of a trick question. You've boxed yourself into reinvesting sold contract premiums into TSLA shares as the only tool on your belt, so the defacto answer is "there's no better solution".
For the answer that you don't want to hear, but which will significantly improve your account balance growth and ultimately your TSLA share count: Liquidate some of your shares and use the capital to buy options at the appropriate times. Because of the aforementioned leverage that you get from buying options, one reasonable trade (= not a once a year big win) can easily match months or more of gains (including the additional underlying growth) from reinvested credit, at lower risk to you. Then with the winnings from those buying opportunities...maybe you invest half back into shares? Maybe you build up a nice cash balance and buy on big pullbacks? Plenty of ways to skin that cat, and plenty of ways to come out way ahead.
Nobody is saying don't sell options (again, I do it all the time), the point is to be a little more open minded about methods that may be confusing or otherwise not intuitive.
To wit, if you like desert, you should probably try ice cream instead of insisting on Chips Ahoy every night.
alterac000
Member
I think you got it, at least that is my reasoning following what I think @Lycanthrope has been posting too. It has taken me a while to be comfortable with this idea but I am thinking two things at the moment - Recent price action not swinging as much as in weeks past so perhaps less chance of a big surprise; this seems to be confirmed by both recent implied and historical volatility charts, and second even if I am wrong by the end of the week, can always roll to subsequent contracts that expire at a future date.
Not an expert but looking back a year it appears we are at a relative low point for TSLA volatility. I am guessing volatility could begin increasing in the not too distant future...unless this is somehow the market moving us into a 'new normal' volatility range for TSLA. As others have mentioned the profit potential for options are higher when volatility is higher, but perhaps that also comes with increased risk of being wrong on either strike or expiration or both too.
You prefer lower returns for higher risk and more work?
Some people prefer to eat at Mickey Dees every day, others prefer to hit the Michelin star once a month.
I know which path my body prefers...
You've had several other responses. The reason I would do something like this (which in fact, I have effectively done) is that I have an income focus. And its the one reason I can think of for doing this.
The reason why the income focus matters is that if you're selling both puts and calls at the same time (short strangle) then one leg or the other will be earning money. With the income focus I can still handle some degree of variation in monthly results but not nearly the same level of variation as I've experienced in owning shares. That lower variation in income results from selling both puts and calls at the same time is probably my primary reason for doing this.
When the shares end up somewhere between the 2 strikes, then both legs are earning income. My early experience is that in practice, one leg or the other is earning in a given time period - not both. Fortunately for my own results 1 leg earning at a time is plenty, and I wouldn't count on this approach earning income on both legs.
Clearly he caused the price drop.
I'm very responsive to changes so maybe it is what I prefer only at this stage in my trading career, if you can even call it that...You prefer lower returns for higher risk and more work?
Some people prefer to eat at Mickey Dees every day, others prefer to hit the Michelin star once a month.
I know which path my body prefers...
I like structures and it seems selling provides me with that. I know that, at a bare minimum, selling calls can provide me with SOME income. That income can increase the more I stay in tune with the stock price. When things go wrong, I can roll it out while my long position benefits. When I buy options, it's the complete opposite. I don't have the same conviction in my buys as I do with my shares. I might be rambling here but I'm also learning everyday, hoping to pick up new ideas. I have lots of friends who do a decent job at TA but I just am not nearly enthusiastic about it as they are. Maybe that's the reason I have no conviction when buying options? With selling, I can give myself a cushion that I'm comfortable with. I think, maybe deep down, I'm just not cut out to be a trader.
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