Wiki Selling TSLA Options - Be the House

[Criscmt]

Yes, i do. I find that i am successful if I sell IC on Wednesdays. Mon/Tue is used to "feel" what is the Friday close going to be.

After determining the "safe" range, i decide how much I want to earn from the IC because the IC pays for the taxes of the Covered Calls/Spreads/etc. This week i want $20k. (That's $10k i am reserving for IC tax and $10k for the other taxes + cash flow.) I build the legs on thinkorswim and it tells me i need 110+ contracts. Then, i look at my resulting Buying Power to see if I like the room + extra, and will it be good enough to last until Friday. I decided my risk tolerance was 100 contracts.

This week is a mistake. I have no discipline and sold on Mon instead of Wed. This means I didn't get the chance to first see the Mon/Tue falls, so I am 4 days ITM since my Monday range was wrong.

Fridays are always reserved to babysit IC to make sure SP stays inside the range, coz the Maximum Loss is dramatically larger compared to the initial credit.

If the Friday SP close is virtually guaranteed and deep inside the range, I either sell a 2nd IC or a new CC, depending on what is less risk.

*** I am a newbie and this is not advice!***

Thanks for the information.

> This week i want $20k...i need 110+ contracts...my risk tolerance was 100 contracts
Again my interest in on margin against which these are done against. In this case, are these against 200k margin?
May I know what the risk reward was? Assuming $15 spread * 100 = $150k at risk, was the reward 20k from the 100 contracts?

> Fridays are always reserved to babysit IC
Do you have another job, a full-time one?

> *** I am a newbie and this is not advice!***
IMHO, you are doing great for a newbie

 

[Tslynk67]

Yes, i do. I find that i am successful if I sell IC on Wednesdays. Mon/Tue is used to "feel" what is the Friday close going to be.

After determining the "safe" range, i decide how much I want to earn from the IC because the IC pays for the taxes of the Covered Calls/Spreads/etc. This week i want $20k. (That's $10k i am reserving for IC tax and $10k for the other taxes + cash flow.) I build the legs on thinkorswim and it tells me i need 110+ contracts. Then, i look at my resulting Buying Power to see if I like the room + extra, and will it be good enough to last until Friday. I decided my risk tolerance was 100 contracts.

This week is a mistake. I have no discipline and sold on Mon instead of Wed. This means I didn't get the chance to first see the Mon/Tue falls, so I am 4 days ITM since my Monday range was wrong.

Fridays are always reserved to babysit IC to make sure SP stays inside the range, coz the Maximum Loss is dramatically larger compared to the initial credit.

If the Friday SP close is virtually guaranteed and deep inside the range, I either sell a 2nd IC or a new CC, depending on what is less risk.

*** I am a newbie and this is not advice!***

Sounds so complicated, I just pick a call or put strike with a premium I like to look of, then sell the maximum amount I can get away with

 

[Yoona]

> This week i want $20k...i need 110+ contracts...my risk tolerance was 100 contracts
Again my interest in on margin against which these are done against. In this case, are these against 200k margin?
May I know what the risk reward was? Assuming $15 spread * 100 = $150k at risk, was the reward 20k from the 100 contracts?

Credit=19k. Margin of left side is 150k. Margin of right side is 100k. Total margin is 250k. Even though it's a single "one-click" transaction, my broker treats my IC as 2 spreads and requires 2 margins. It is treated as 2 positions. This explains why.

 

[Yoona]

Sounds so complicated, I just pick a call or put strike with a premium I like to look of, then sell the maximum amount I can get away with

... because i use the IC as my weekly "top up" income if i have already tied up all my shares on CC. And it sells more contracts than Puts alone. I also find that I can maximize profits if i build the 2 spreads separately, instead of "one click" IC.

 

[jeewee3000]

... because i use the IC as my weekly "top up" income if i have already tied up all my shares on CC. And it sells more contracts than Puts alone. I also find that I can maximize profits if i build the 2 spreads separately, instead of "one click" IC.

So wait, you first tie up your shares by selling (covered) calls and then you add an Iron Condor play on top?

 

[Yoona]

So wait, you first tie up your shares by selling (covered) calls and then you add an Iron Condor play on top?

yes, the existing shares all go to CC.

then, decide what is another source of income - IC or Bull Put Spread or CSP or Short Strangle or daytrade the stock. Those are the only ones I know. I am most comfortable with the IC. The trick is "knowing" the approximate range by Wednesday. Mondays are too early to tell. Fridays i can sell IC but premiums are too low, if any left - sometimes the fees will eat up most of the credit.

Newbie alert: Not advice!

 

[ReddyLeaf]

Ok, this may age poorly, but I’ve jumped and done something that I’ve never done. After learning from Adiggs & that S3XY old dude that extra cash and puts can be a wonderful hedge to allow rolling calls forward, even in a rising SP environment, I’ve rolled everything to next week. First time selling calls on a Friday, which usually is a bad idea because of the Monday jump. However, the SP action has seemed backwards for a while as the MMs pushed down too hard during the week, have to push it back up on Friday (thereby needing to sell on Monday). Even trying to explain it seems upside down.

Edit: it seemed very clear the MMs wanted the SP to close ~680 this week, so I took advantage of this and rolled calls on the upward trend, while rolling the puts on a downward trend after the SP reached ~680. Since each trade is separate, and in three separate accounts, it takes me several minutes to complete. I get better premiums this way, though not as optimal if I was able to buy/sell at a specific SP trigger. I could also wait and try to time the local peaks or valleys to get better prices, but then I risk missing the roll and the added weekly theta benefits.

So, anyway this week was newbie crazy, but quite profitable:
5/3 STO 5/7 -p700 $20.00 5/6 BTC $38.91 (loss, but roll for $1)
5/6 STO 5/14 -p690 $39.91 5/7 BTC $25.91 (close $13 profits)
5/7 STO 5/14 -p680 $22.77 (rolled down $10 strike)
5/3 STO 5/7 -c722 $6.00. 5/4 BTC $0.28
5/3 STO 5/7 -c722 $6.00. 5/6 BTC $1.60
5/4 STO 5/7 -c700 $4.20 5/7 BTC $0.99
5/4 STO 5/7 -c702.50 $4.65 5/7 BTC $0.58
5/7 STO 5/14 -c702.50 $11.00, $11.62, & $10.20

I cleared >2x my target weekly profits and now, my accounts have decent cash for buybacks. I plan to NOT buy any stock for awhile (unless the SP drops below 650) and continue to build a cash buffer. As long as Elon doesn’t announce FSD, everything should be fine.

Thinking about a future FSD or split announcement and a weekly $200+ SP rise, here’s a hypothetical scenario:
SP@650. STO -c700 @ $6.00. SP1000. Now -c700=$300
Same time STO -p650@$10.00 SP 1000. Now -p650=$0.01 buyback
Thus, CSP buyback frees up $650/shr to pay for $300/shr call roll.
So, for each CSP, one should be able to sell ~2 calls and still have enough cash to roll even with a $350 (+50%) SP rise in one week!!! I haven’t done an exhaustive spreadsheet analysis, but this feels like my best hedge option. Furthermore, buy selling both each week, I’m more comfortable selling strikes closer to the SP for higher premiums. I’ll still target calls $20-$50 OTM and above a round numbered call wall (next week $702.50), but definitely less worried about temporarily losing shares.

 

[Yoona]

Credit=19k. Margin of left side is 150k. Margin of right side is 100k. Total margin is 250k. Even though it's a single "one-click" transaction, my broker treats my IC as 2 spreads and requires 2 margins. It is treated as 2 positions. This explains why.

typo, sorry!

credit is 49k

 

[bxr140]

That said, I think I should've phrased the question differently, something like, "how to calculate the margin one should use for selling spreads", which gives you the right number of spreads to sell if you are relying purely by margin.

I'm not sure I understand...it still comes back to the same equation: [Margin Requirement] = [$ value of spread] * [100 shares] * [# of contracts]

Am I missing something in your question?

 

[dl003]

Roll: btc 17x 5/7 cc680 $3.09 / sto 17x 7/14 cc702.50 $10

Loving this price action today so far, killing my puts nicely...

Did you just stop caring at some point or have you always been this bold?

 

[ReddyLeaf]

Roll: btc 17x 5/7 cc680 $3.09 / sto 17x 7/14 cc702.50 $10

Loving this price action today so far, killing my puts nicely...

Oh no. I’m starting to copy your trades. BTW, I think meant 5/14.

 

[adiggs]

I too think this year will be a consolidation period for the stock price. But how much of that is being priced in the options market? IV seems to continue to drop and options at strike prices that are 5% away are no longer returning any significant credit. In order to net the desired amount of income, have you been selling your options closer to the stock price?

I'm sticking to the .20 (ish) delta for the calls I'm selling, even with the premium dropping. Turns out that $5 per week on the call premium is plenty for me. Now I just need the puts to catch up - if they can contribute another $5 per week then I'll be stylin' in a big way (and fine with no contribution which is what I've been getting for a couple of months now - I'm still digging out from that big drop out of the 800s to the 600s).

I also consider 2 week options - not only the weeklies. Actually I just started doing weeklies again in April for the legs that are OTM. The ITM legs are continuing to be 2-4 week rolls. I think my 2 deep ITM put positions are about to get a 3 or 4 week roll tomorrow, even though they have 1 week to expiration. They're getting too deep ITM for a 1 or 2 week roll to move the strike much, and I want to improve the strike while I'm also buying time.

For the puts I have that ARE OTM I'm thinking I'll use more like the .30 delta. My thinking is that I'd like a particularly high level of income from the put side so that if the shares take off upwards, then I'll have that incremental premium available to keep the call strike in range of the share price.

After learning from Adiggs & that S3XY old dude that extra cash and puts can be a wonderful hedge to allow rolling calls forward, even in a rising SP environment, I’ve rolled everything to next week.

I've learned one especially important lesson from this idea of using more aggressive delta option sales as an additional hedge against moves against. Well two I suppose, though the second was something I'd already planned for, but is worth emphasizing.

#2 is that if the put and call strike get too close together then you'll find that the week to week (or every other week to every other week) cash flow will come from 1 leg, while the other leg is really just rolling for time and minimal credits. Make sure that 1 leg is sufficient (given that my other constraints and context are reasonably similar to your own).

#1 and something I've learned from the big move down (that I'm stilling digging my way out of). It is relatively easy to get into an inverted strangle from the strangle. An inverted strangle is where the put strike is higher than the call strike. When the strike to strike difference is small enough then the weekly (or every other week) rolls will still get back into a strangle and from my experience, ok. Small enough window is something like $50 for an absolute number and best measured by whether at least one of the legs will roll to the OTM target delta.

HOWEVER as that window grows larger you want to be cognizant of the possibility of landing deeply ITM on both legs (which is what's happened to me). In my case the put leg got something like $150 or $200 ITM and I chased too aggressively on the call side. I received some really nice premiums on the call leg, and then the shares reversed and I found myself about $100 ITM on both sides.

Not advice of course, but an education that I've received that hopefully you can avoid

Did you just stop caring at some point or have you always been this bold?

Nah - he's always been this bold. Possibly slightly more bold recently, but only in a minor way. He's been one of the original contributors from the beginning. I think it was last summer where I was having approximately your reaction

I can also cheerfully say that his example is one thing that inspired me to consider higher delta options, especially on the put side. I'm still leery on the call side (always managing for the big move upwards) but I'm taking on more delta on the put side (in the one position that is current ATM / OTM).


In that spirit I've rolled my one remaining 5/7 position, a 680 put, out to 5/14 and 655 strike with a $3 net credit this morning. The previous position was still profitable though not by a lot. I chose the 655 strike as its the .35 delta.

I think I'll be using .20 or .25 delta on the call side - much less aggressive and skews my strangle so its above the share price somewhat.

 

[Flehmenlips]

Hello All,
Can anyone give advice or point to advice on selling long dated ATM or close to the money covered calls as a means of drawing a large amount of cash out of your account without selling shares? Specifically what all of the risks and drawbacks might be and what would be best strategy for managing such a trade over the life of the option. Thanks.

 

[bxr140]

Hello All,
Can anyone give advice or point to advice on selling long dated ATM or close to the money covered calls as a means of drawing a large amount of cash out of your account without selling shares? Specifically what all of the risks and drawbacks might be and what would be best strategy for managing such a trade over the life of the option. Thanks.

Downsides:

1. Most importantly, an ATM CC will box the shares out of any underlying growth. (Obviously, you keep the premium)
2. If TSLA goes up significantly, you will pretty much have to let those shares be called away. You won't be able to roll out it very efficiently, if ever, and keeping the calls open by rolling will put future underlying gains at risk as well. Buying back in this scenario is a shitty option too, as you will likely have to pay most, all, or even more than the originally collected premium to do so.
3. The calls will not burn down value very quickly so your liability is going to stay high for a while, and 3a. The shares will be locked into the CC position so you won't be able to do anything else with them. (Both of these may be a non issue if you were planning on holding the shares anyway)
4. You'll likely pay higher gains taxes on the value of the contract than if you sold long term shares for equivalent value.

Strategy:
1. Set and forget. Chasing underlying and volatility by adjusting strikes and expirations is going to be a nightmare.
2. Reduce liability on big underlying drawbacks by rolling the expiration in (or even closing).
3. Hope real hard TSLA doesn't have another 2020.

 

[UltradoomY]

Hello All,
Can anyone give advice or point to advice on selling long dated ATM or close to the money covered calls as a means of drawing a large amount of cash out of your account without selling shares? Specifically what all of the risks and drawbacks might be and what would be best strategy for managing such a trade over the life of the option. Thanks.

Maybe consider a non ATM strike - say something you would be comfortable selling at today - and then sell the CC at that strike - you get the premium today and the share price you want if they are ever called away.

 

[Flehmenlips]

Downsides:

1. Most importantly, an ATM CC will box the shares out of any underlying growth. (Obviously, you keep the premium)
2. If TSLA goes up significantly, you will pretty much have to let those shares be called away. You won't be able to roll out it very efficiently, if ever, and keeping the calls open by rolling will put future underlying gains at risk as well. Buying back in this scenario is a shitty option too, as you will likely have to pay most, all, or even more than the originally collected premium to do so.
3. The calls will not burn down value very quickly so your liability is going to stay high for a while, and 3a. The shares will be locked into the CC position so you won't be able to do anything else with them. (Both of these may be a non issue if you were planning on holding the shares anyway)
4. You'll likely pay higher gains taxes on the value of the contract than if you sold long term shares for equivalent value.

Strategy:
1. Set and forget. Chasing underlying and volatility by adjusting strikes and expirations is going to be a nightmare.
2. Reduce liability on big underlying drawbacks by rolling the expiration in (or even closing).
3. Hope real hard TSLA doesn't have another 2020.

Thank you. This is very helpful. Here are more details on my plan:
1) I have a sum of money that I used to purchase a few contracts worth of shares. My trade price is rather high, about $640
2) I need to withdraw a substantial amount of that cash next week for a large purchase. If I were to sell enough shares for this purchase, I would be left with less than 100 shares.
3) As I was contemplating selling the shares, I thought about the possibility of selling long dated covered calls on the shares at a strike price around $750, that would generate enough cash as premium that would meet my needs for the purchase.
4) My thinking was:
a-The premium meets my cash needs,
b-My strike price still provides me with a small profit in two years or sooner when the shares will likely get called away,
c-If I get lucky and the SP goes down enough and I have future cash, I can buy to close some of the contracts, or I can use the cash to buy more shares or LEAPS.
d-If I simply sell the shares next week and make the purchase, I get no profit at all and essentially no shares.
So my thinking is that in the end, I'm better off with this plan, versus just selling the shares. I realize it's not an ideal decision from an investment standpoint, but since I need the funds anyway, isn't it a decent opportunity to stretch my funds a little further? I want to make sure I'm not missing something major.

Thanks all for your input so far. Much appreciated.

 

[UltradoomY]

Thank you. This is very helpful. Here are more details on my plan:
1) I have a sum of money that I used to purchase a few contracts worth of shares. My trade price is rather high, about $640
2) I need to withdraw a substantial amount of that cash next week for a large purchase. If I were to sell enough shares for this purchase, I would be left with less than 100 shares.
3) As I was contemplating selling the shares, I thought about the possibility of selling long dated covered calls on the shares at a strike price around $750, that would generate enough cash as premium that would meet my needs for the purchase.
4) My thinking was:
a-The premium meets my cash needs,
b-My strike price still provides me with a small profit in two years or sooner when the shares will likely get called away,
c-If I get lucky and the SP goes down enough and I have future cash, I can buy to close some of the contracts, or I can use the cash to buy more shares or LEAPS.
d-If I simply sell the shares next week and make the purchase, I get no profit at all and essentially no shares.
So my thinking is that in the end, I'm better off with this plan, versus just selling the shares. I realize it's not an ideal decision from an investment standpoint, but since I need the funds anyway, isn't it a decent opportunity to stretch my funds a little further? I want to make sure I'm not missing something major.

Thanks all for your input so far. Much appreciated.

Don't forget to pay the tax man - gains from selling covered calls are taxable and can quickly put you in a bad situation if you use them all.
Maybe take some of the money and buy higher strikes for the same leaps to capture upside after your CC's are ITM or DITM?
There is no magic bullet or free money, lots of risk involved on these but it can work out.

 

[Flehmenlips]

Downsides:

1. Most importantly, an ATM CC will box the shares out of any underlying growth. (Obviously, you keep the premium)
2. If TSLA goes up significantly, you will pretty much have to let those shares be called away. You won't be able to roll out it very efficiently, if ever, and keeping the calls open by rolling will put future underlying gains at risk as well. Buying back in this scenario is a shitty option too, as you will likely have to pay most, all, or even more than the originally collected premium to do so.

Yes these are both unfortunate downsides of this situation.

3. The calls will not burn down value very quickly so your liability is going to stay high for a while, and 3a. The shares will be locked into the CC position so you won't be able to do anything else with them. (Both of these may be a non issue if you were planning on holding the shares anyway)

What do you mean by "liability is going to stay high for a while"? I've thought about the fact the shares will be locked in CC position, and I don't love it, but I'm hoping it still stands a chance of being better than selling the shares.

4. You'll likely pay higher gains taxes on the value of the contract than if you sold long term shares for equivalent value.

I have not held the shares for very long, so I don't think this tax consideration should be an issue. Am I correct in that assumption?

Strategy:
1. Set and forget. Chasing underlying and volatility by adjusting strikes and expirations is going to be a nightmare.

If I understand this correctly, you are suggesting a strategy to be: "Set and forget", because "Chasing underlying and volatility by adjusting strikes and expirations is going to be a nightmare."?

2. Reduce liability on big underlying drawbacks by rolling the expiration in (or even closing).

So rolling in, rather than out, and closing if the opportunity presents itself at a reasonable cost?

3. Hope real hard TSLA doesn't have another 2020.

Yep!

 

[bxr140]

since I need the funds anyway, isn't it a decent opportunity to stretch my funds a little further? I want to make sure I'm not missing something major.

Its a bit of a deal with the devil, as an underlying much higher than $750 in two years seems pretty likely, but at least in that scenario you're not losing any money (if were to just let the shares go at that point in time).

Given that your financial need is a huge % of your account its kind of a rock/hardplace, but if its what you gotta do then so be it.

I'd consider @UltradoomY's suggestion to liquidate shares and buy LEAPs in their stead. Doesn't have to be an all or nothing either, but you may be able to find a balance between shares, sold calls, and bought LEAPs where your account balance will still realize upside with what we all assume to be a bright future for TSLA, while still giving you the cash in hand you need right now.

 

[Flehmenlips]

Don't forget to pay the tax man - gains from selling covered calls are taxable and can quickly put you in a bad situation if you use them all.
Maybe take some of the money and buy higher strikes for the same leaps to capture upside after your CC's are ITM or DITM?
There is no magic bullet or free money, lots of risk involved on these but it can work out.

Thank you for these suggestions. This input is very helpful. I will likely take your suggestion on the leaps as well. The allure of that magic bullet/free money is strong. Thanks for the reminder.