Wiki Selling TSLA Options - Be the House

[Chenkers]

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.

My perspective is that I fundamentally see myself as an investor in Tesla who sells options as a way to improve my investment position over time. I see my core share position as representative of my support for the mission of the company and want to increase this implied support (and my resulting account balance) over time. If I was soley focussed on my account balance then I would take a more of a traders attitude focussed on leverage and cash returns. But this doesn't appeal to me that much. I appreciate your advice in this thread and have learned a lot but still filter it back through my perspective to decide what best applies for me.

 

[adiggs]

And it looks like I'm going to have some ~$30 ITM positions to roll this week - I haven't had experience that far ITM to see strike improvement / credit. I'll have a better idea later in the week at this closer level and I'll post those position rolls when I do them.

I posted this earlier - with the drop to $700ish these positions were about $50 ITM and on a 2 week roll were good for a minimal net credit and a $10 strike improvement (770 to 760; 760 to 750).

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!

I'm sure that the ability to roll is part of @Lycanthrope calculation.

Something I did back in January, as a result of reading about the general idea from others, is that I somewhat intentionally put myself into a reasonably deep ITM contract, to get some experience with rolling one of these. How well did it work? What were the strike improvement and credit dynamics?

With a single contract the actual gains or losses were always small and I like putting myself into learning situations like that. What I learned at the beginning of the year was that 10% / $80 ITM wasn't a thing. It was deep ITM in the sense that I wasn't going to roll right back to ATM, but I was still generating some cash flow and time while waiting for things to turn around (that was a put, and I'm confident that ITM puts are ALWAYS going to turn around).

I've since learned I can be >$150 ITM on a put leg and, for myself, sleep soundly at night. I've used a 4 week roll in one instance when it was particularly deep ITM and mostly 2 week rolls to buy time, a bit of strike improvement, and waiting for the share price and strike to come back together. So far this has gone from $820 down to $760. Still fairly deep ITM, but for my purposes, 2 months of little cash generation from this position is just fine. It generated a lot of income the month or two before that, and the call side has generated a lot of cash while this one has been performing badly.

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.

One piece of not-advice advice (for anybody) - if you believe you'll be rolling frequently, then I'd suggest putting yourself into a situation where you have 1 contract that you need to be rolling to keep the position alive. This is for accounts and financial situations where a single contract is a reasonably minor part of your overall portfolio.

The purpose is to gain some experience with rolling to keep a position alive. Then you can avoid finding yourself in a position with a significant option position and needing to figure out a roll on the fly (ask me how I know).

It's the trivial stuff - the mechanics of entering a roll ticket with your broker. Its the less trivial stuff of identifying when to roll and when not to. When rolling for longer timeframes over shorter timeframes is a good idea. Etc..

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...

An observation here - something that I believe bxr already realizes, but I think will be valuable to others; possibly helping y'all generate your own 3rd way of evaluating progress. bxr and I measure success and our portfolio differently. They are focusing on account / porfolio value as the measure of success and objective. That was my own measure of success as I was deciding whether I was ready to retire or not.

Today I track my primary account in terms of number of shares, and amount of cash. I would like shares to be flat (maybe slightly up) and cash to be flat to up. If cash is flat to up and shares are flat (most months), then we're effectively living for free. I really focus on this at the quarterly and annual level - if shares and cash are flat to up, then we've lived for free for that longer period of time.


I also fully realize that I am making use of a small sliver of the available trade types, and not optimizing my trading for the environment at any point in time. The good news for me is that I don't need to do that optimization. For me the choice is between doing something now (option sales for income) that is beneficial and waiting until sometime later when I've had more time to study and learn more ways of doing things. I prefer doing something profitable now, and then take my time about learning more stuff.

And make no mistake - I will be learning more stuff, and continuing to evolve my approach. Everything else being equal, if I am hitting 2x paycheck replacement today and I can hit 3x by learning more, then I'll get around to that. Even if the extra money earned is all given away - I think I'm going to enjoy giving away that much money

 

[adiggs]

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...
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.

Reading my mind!

 

[bxr140]

My perspective is that I fundamentally see myself as an investor in Tesla who sells options as a way to improve my investment position over time. I see my core share position as representative of my support for the mission of the company and want to increase this implied support (and my resulting account balance) over time.

I can buy the logic of a devout TSLA investor.

What doesn't make sense is why someone focused on improving their position over time wouldn't be receptive to improving their position even more over time, especially when it can be done faster AND at lower risk.

I guess the meta question here is: Why is there so much FUD surrounding buying options?

 

[adiggs]

In the spirit of learning and doing more, while still also staying close to what I already know and am doing, I've been reading about "poor man covered calls" recently.

Poor Mans Covered Call: Ultimate Guide

Covered calls are a great place for beginners to start with options. In this articles we're going to take things to the next level with a strategy know as the Poor Mans Covered Call. With this strategy

optionstradingiq.com

There are plenty of other links out there. The basic idea for me is I would still sell covered calls. However I would use long dated calls as the backing rather than shares. My initial thoughts about this is that I might buy 3 leaps to provide the benefits of 100 shares. But then I can write 3 short expiration calls against those 3 long dated options.

I'm still at the reading and education stage - not yet ready to take this for a spin, but I do have some new cash arriving in an IRA soon that I'm thinking about trying this out in.

I'm not clear if the more formal / technical name for these are calendar spread, diagonal spread, or something else. I HAVE done a test ticket on Fidelity, in my IRA, and discovered that I can enter the order as a spread and it doesn't immediately complain about my option level not supporting the trade. I didn't submit though, so the Not Supported error may still be in front of me.


One thing that is immediately clear to me - it will be important to never take assignment on those short expiration calls. Or at least only take assignment on those when I'm also ready to exercise the long dated options (or sell the long dated options and buy the shares to deliver on the short call assignment).

I figure in practice I'm looking at the leaps to provide leverage on the upside in the shares. I will probably also plan to own them for >1 year for long term capital gains purposes, but also probably looking to roll them when the are still relatively far out in time when time value is still decaying slowly. I.e. - minimize time decay on the long option while maximizing covered call income.


So my question - anybody doing this? Any resources you found to be particularly helpful in understanding the idea? Any experiences pro/con to relate?


I haven't done any particular study of which option expirations to use, or what delta on the long options to aim for. My first guess thinking was roughly ATM (.67 delta) longest dated options for the purchase. It seems like that delta option provides me with 3 contracts for the cost of 100 shares, yielding 2x leverage in exchange for the same cash as the share purchase, and putting myself on a clock for that bullish exposure.

Then selling 1-4 week calls using the same pattern as the calls I sell today.

The long call options are share replacement / leverage and are approached like an investment.

The short dated call sales are income / trading.

 

[Tslynk67]

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.

I bought plenty of options in the last year - >1000x my one account on calls and LEAPS in 2020. But I find them incredibly stressful. I still hold June 2022's 20x $250, 15x $700, likely the $250's will be fine, but a year of wandering around $700 is not at all impossible, then unless I sell those $700's sooner rather than later, they'll get killed

For me, buying calls is a lottery, yes you buy them when the stock is super low and IV is totally crushed, that's how I made a killing on them, but you just need another unforeseen event and they can lose all their value very quickly indeed.

I had monthlies last year, bought in May & June for October and November - to take account of P&D's, earnings and likely S&P - despite great earnings, the stock went nowhere, it's took the split for it to happen. Then the S&P snub destroyed the value again and I had an agonising wait for the SP to recover to get some of the value back - in the end I was roughly 4x up, which was OK, but had I taken a strike date a couple of week later, it would have been after S&P inclusion announcement and I would have made another $1M

I also sold off 100 shares (in my trading account, not core account) at the bottom of the C19 dip, bought calls and sold them three weeks later 3x already - seemed like a good deal, bit if I'd held those, another couple of $M - it's frustrating IMO

So very time, environmental and event driven, out of our control and stressful

Selling calls on the other hand is super reliable. You know exactly what you signed up for, you get your cash up front and can then adapt the position to react to the SP and the time to the strike date. Much more predictable and in control, they don't keep me awake at nights the way bought calls can

Anyway, that's my experience. With this methodology I can double my $TSLA in 15 months, which I'm very happy with, given that I already have more net worth than I ever imagined

 

[ZeApelido]

Buy low (price and volatility)

Sell high (price and volatility)

 

[adiggs]

I guess the meta question here is: Why is there so much FUD surrounding buying options?

For me at least the answer is two-fold:
1) The first has to do with the timing / trading aspect. With a sold option, even with capped upside, I also have a known expiration that is working to my benefit, rather than being a known expiration where I need to make a close decision before then. For me at least, selling options works well within my overall investment mindset relative to Tesla. Multiple experiences has proven to me that my investment mindset is antithetical to buying options, at least of the few month and shorter variety.

2) Selling options is where I've started learning about option trading. My education and experience is focused here, so this is what I do.


#1 doesn't mean that I can't learn and get better at buying options. I see lots of possibilities there and that means both opportunity (benefit), along with investment in learning and doing (cost).

#2 doesn't mean that I won't be expanding my knowledge and experiences to try out new trade types and new ways of evaluating the short term market. I will be. In the meantime though, selling options IS improving my overall situation relative to not doing anything. Improving even further is also interesting to me - more in a game sort of way than a need sort of way, so my personal timeline is awfully flexible.

And when optimizing for improving my overall situation, that is a combination of financial results, my time and energy invested into learning and doing more optimal stuff, plus how much stomach churn comes along for the ride.

 

[juanmedina]

Buy low (price and volatility)

Sell high (price and volatility)

I wish it was that simple lol.

 

[blckdmp]

I can buy the logic of a devout TSLA investor.

What doesn't make sense is why someone focused on improving their position over time wouldn't be receptive to improving their position even more over time, especially when it can be done faster AND at lower risk.

I guess the meta question here is: Why is there so much FUD surrounding buying options?

Psychologically, I find buying options to be as stressful as day trading! There's the obvious stress over whether the SP moves before the option decays to nothing, but, honestly, I find timing the sell to be more painful. That tug-of-war between "sell when you're ahead" and "oh, no, sold too early and lost a ton of gains" makes it a lose-lose psychologically for me. Not to say it isn't sometimes financially a win, but somehow it always leaves me exhausted emotionally. But I do understand your larger point and still keep option buying as part of the repertoire.

 

[bxr140]

I'm not clear if the more formal / technical name for these are calendar spread, diagonal spread, or something else. I HAVE done a test ticket on Fidelity, in my IRA, and discovered that I can enter the order as a spread and it doesn't immediately complain about my option level not supporting the trade. I didn't submit though, so the Not Supported error may still be in front of me.

We've hit this one a few times upthread--what you're talking about is a calendar spread (calendar refers to two different expirations), and depending on the strikes it will be a horizontal or diagonal. X Axis = Time, Y axis = Price, each option is a point on the graph, and horizontal/diagonal (and vertical) refers to the line you draw between the two options. So...same expiration but different strike is vertical, same strike but different expiration is horizontal, and different strikes and expirations is diagonal.

Fidelity will not let you do any of these kinds of spreads in your IRA, near as I know. (Would be stoked if that's not true)

So my question - anybody doing this? Any resources you found to be particularly helpful in understanding the idea? Any experiences pro/con to relate?

Yes, all the time, calendars are my go-to. (I usually don't have LEAPS on the long but rather something closer, like 6-9 months on the +C). Resources are whatever you're most comfortable using--but its mostly the same basic understanding you need for how the greeks of any contract affect the position. Typically you'd want to buy the LEAP at low volatility, and then do short expirations (like you noted) on the short leg at strikes based on your price analysis and agressive/conservative posture. You'll be selling the calls into a rising volatility market, so that's something you need to manage, but other than that there's really nothing to them over a covered call except that "the greeks" of the 100 shares in a covered call are fixed, whereas they're variable in the calendar.

 

[MikeC]

I can buy the logic of a devout TSLA investor.

What doesn't make sense is why someone focused on improving their position over time wouldn't be receptive to improving their position even more over time, especially when it can be done faster AND at lower risk.

I guess the meta question here is: Why is there so much FUD surrounding buying options?

Sold options can always be rolled if the SP moves against you, bought options just slowly dry up with no recourse, which is much more painful.

Also keep in mind, a lot of us TSLA investors here may have started learning about options by buying calls in late 2013 or 2014 and watched the stock go nowhere for 5 years. I've done well buying LEAPs on panic dips but otherwise I'm very averse to buying.

Another way I think about it - I'd rather be selling options with the market makers than buying them like other retail chumps.

 

[buttershrimp]

We've hit this one a few times upthread--what you're talking about is a calendar spread (calendar refers to two different expirations), and depending on the strikes it will be a horizontal or diagonal. X Axis = Time, Y axis = Price, each option is a point on the graph, and horizontal/diagonal (and vertical) refers to the line you draw between the two options. So...same expiration but different strike is vertical, same strike but different expiration is horizontal, and different strikes and expirations is diagonal.

Fidelity will not let you do any of these kinds of spreads in your IRA, near as I know. (Would be stoked if that's not true)



Yes, all the time, calendars are my go-to. (I usually don't have LEAPS on the long but rather something closer, like 6-9 months on the +C). Resources are whatever you're most comfortable using--but its mostly the same basic understanding you need for how the greeks of any contract affect the position. Typically you'd want to buy the LEAP at low volatility, and then do short expirations (like you noted) on the short leg at strikes based on your price analysis and agressive/conservative posture. You'll be selling the calls into a rising volatility market, so that's something you need to manage, but other than that there's really nothing to them over a covered call except that "the greeks" of the 100 shares in a covered call are fixed, whereas they're variable in the calendar.

@bxr140 @adiggs @Lycanthrope .... I now know enough the style of of kung fu you are all using.... but when I attempt the same moves, I inadvertently dislocate my pelvis....

 

[bxr140]

Psychologically, I find buying options to be as stressful as day trading! There's the obvious stress over whether the SP moves before the option decays to nothing, but, honestly, I find timing the sell to be more painful. That tug-of-war between "sell when you're ahead" and "oh, no, sold too early and lost a ton of gains" makes it a lose-lose psychologically for me.

I admit its really hard for me to reconcile FUD of buying options, but I appreciate that I'm able to disconnect the emotional element of trading.

Just to hit some points to counter the serious misunderstanding folks have here:

--There's no stress from time decay when properly buying options, because when properly buying options there's very little time decay.
--There's no stress with timing the sale of an owned option. When one hits their profit target they either a) sell, or b) put on a trailing loss for The Gravy.
--"Oh no I sold too early and lost out on a ton of gains" is an completely invalid reason for not buying options. Missing out on potential gains is literally the thing a trader does when opening a sold position.
--If one does not have stress when selling options because of the lack of control over timing (e.g, the contract needs time to burn off value), one should fundamentally re-validate their basic understanding of risk/reward.

I'd rather be selling options with the market makers than buying them like other retail chumps.

That doesn’t make sense.

MM's profit off the bid/ask spread. Regardless if they buy or sell you an option they're (more or less) entering an opposite position to manage their exposure.

 

[buttershrimp]

I admit its really hard for me to reconcile FUD of buying options, but I appreciate that I'm able to disconnect the emotional element of trading.

Just to hit some points to counter the serious misunderstanding folks have here:

--There's no stress from time decay when properly buying options, because when properly buying options there's very little time decay.
--There's no stress with timing the sale of an owned option. When one hits their profit target they either a) sell, or b) put on a trailing loss for The Gravy.
--"Oh no I sold too early and lost out on a ton of gains" is an completely invalid reason for not buying options. Missing out on potential gains is literally the thing a trader does when opening a sold position.
--If one does not have stress when selling options because of the lack of control over timing (e.g, the contract needs time to burn off value), one should fundamentally re-validate their basic understanding of risk/reward.



That doesn’t make sense.

MM's profit off the bid/ask spread. Regardless if they buy or sell you an option they're (more or less) entering an opposite position to manage their exposure.

Can you explain the last two pints you made more? Regarding time burning and MM profit?

 

[MikeC]

I admit its really hard for me to reconcile FUD of buying options, but I appreciate that I'm able to disconnect the emotional element of trading.

Just to hit some points to counter the serious misunderstanding folks have here:

--There's no stress from time decay when properly buying options, because when properly buying options there's very little time decay.
--There's no stress with timing the sale of an owned option. When one hits their profit target they either a) sell, or b) put on a trailing loss for The Gravy.
--"Oh no I sold too early and lost out on a ton of gains" is an completely invalid reason for not buying options. Missing out on potential gains is literally the thing a trader does when opening a sold position.
--If one does not have stress when selling options because of the lack of control over timing (e.g, the contract needs time to burn off value), one should fundamentally re-validate their basic understanding of risk/reward.



That doesn’t make sense.

MM's profit off the bid/ask spread. Regardless if they buy or sell you an option they're (more or less) entering an opposite position to manage their exposure.

Okay, I’m convinced. Can you let us know when it’s time to buy a no stress option and what to buy?

 

[buttershrimp]

Watching Biden speech I’m starting to be thankful I didn’t sell calls this week... I haven’t yet rolled something and basically everything he’s saying is a massive shoutout to Tesla.... starting to make me wonder if he leaked capital gains comments last week so market wouldn’t tank day after. Either way, hope I can eeek some premium out when/if prices rise.

 

[ReddyLeaf]

My perspective is that I fundamentally see myself as an investor in Tesla who sells options as a way to improve my investment position over time. I see my core share position as representative of my support for the mission of the company and want to increase this implied support (and my resulting account balance) over time. If I was soley focussed on my account balance then I would take a more of a traders attitude focussed on leverage and cash returns. But this doesn't appeal to me that much. I appreciate your advice in this thread and have learned a lot but still filter it back through my perspective to decide what best applies for me.

Wow, did I write that? Great discussion that you’re having with @bxr140. I’m trying to learn techniques from everyone, all the while also learning about my similar behavioral issues. I’ve done ok buying calls, but not great, as I seem to hold them too long. From my experience, well-timed bought calls do appreciate, maybe 2x, then rapidly decay to an overall loss. For example, I bought 4/30 790c for $9.00 on 4/7, which is now worth pennies. It reached something like $15-20, before the earnings announcement, but I failed to sell for a profit and now sit on essentially a 100% loss. Looks stupid and greedy for those with knowledge and experience, but I just couldn’t sell before earnings. Now I definitely understand @adiggs comments at the start of this thread about buy-n-hold mentality just doesn’t work well when BUYING options, but sell-n-hold mentality works better when SELLING options. So, moving forward: What’s the target SELL point for this buying options? 50% gain? 100%?

 

[buttershrimp]

Wow, did I write that? Great discussion that you’re having with @bxr140. I’m trying to learn techniques from everyone, all the while also learning about my similar behavioral issues. I’ve done ok buying calls, but not great, as I seem to hold them too long. From my experience, well-timed bought calls do appreciate, maybe 2x, then rapidly decay to an overall loss. For example, I bought 4/30 790c for $9.00 on 4/7, which is now worth pennies. It reached something like $15-20, before the earnings announcement, but I failed to sell for a profit and now sit on essentially a 100% loss. Looks stupid and greedy for those with knowledge and experience, but I just couldn’t sell before earnings. Now I definitely understand @adiggs comments at the start of this thread about buy-n-hold mentality just doesn’t work well when BUYING options, but sell-n-hold mentality works better when SELLING options. So, moving forward: What’s the target SELL point for this buying options? 50% gain? 100%?

Hey don’t give up on that contract just yet, let’s see if Biden’s speech gets you some value before Friday. Probably not, but listening in real time all I heard was TSLA TSLA and buy TSLA. Of course I hear that when anyone talks

 

[MrMoo]

Watching Biden speech I’m starting to be thankful I didn’t sell calls this week... I haven’t yet rolled something and basically everything he’s saying is a massive shoutout to Tesla.... starting to make me wonder if he leaked capital gains comments last week so market wouldn’t tank day after. Either way, hope I can eeek some premium out when/if prices rise.

The problem here is that he hasn't really said anything new. His talked about this before. Any price action today will purely be because of Macro. Futures are up almost 1% Right now. Hopefully we just keep holding above this 700. But it's flat trading for a while until something new comes out I think. Which is good for options writers.