Wiki Selling TSLA Options - Be the House

[adiggs]

I chose the 400 strike and the Jan 2023 expiration for a couple of reasons. This is also a single position so my level of analysis is less than it will be in future positions.

...

I wanted the expiration to be far enough out that I can reasonably hold the contract for 12m + 1 day to get long term tax treatment. My thinking right now is that I will roll the long call in that >12m range (and well before ~18 months) in order to minimize time decay, acquire long term tax treatment (given that call is ahead - if its behind then I might roll at <12m in order to harvest some tax loss).

Update on the expiration analysis only.

The Jan 2023 400 strike closed today at $300 -- about $70 worth of time value ($400 + $300 = 700-630 share price = $70 time value).

The Jun 2022 400 (about 1 year out) strike closed today at $280 or roughly $50 in time value. I get 7 months of additional time for $20 in time value (sounds like a steal to me ).

The Jun 2023 400 (max duration contract - about 2 years) strike closed today at $325 or roughly $95 in time value. So $25 gets me an extra 5 months of time over the Jan 2023 that I chose. The extra $25 for the extra 5 month contract time sounds like an awfully good deal to me now.


And if I had reached the 12 month holding window and was looking to roll today then I would be rolling around May 2022 on an ~8 month contract. An 8 month contract today is either the Dec 2021 or the Jan 2022 contract. Maybe the Mar 2022. Those today closed at:
Dec 2021 400 strike call = $255 or $25 time value.
Jan 2022 400 strike call = $260 or $30 time value
Mar 2022 400 strike call = $265 or $35 time value.


So buy $70 time value today and sell back $25-$35 time value for a total time value cost of ~$35. I collected the first $4 of that today on a 1 week contract.


I'm sure I'm missing something and I'm certain that I am not going to convert all of my shares into long calls, but gosh this sounds .. interesting. And it seems like a particularly good time to be buying these long dated calls. Bonus!

 

[Criscmt]

minus the premium credited I assume

My bad, $100,000 debit from the account. The loss would be $50000 in this instance.

 

[bxr140]

@bxr140 asked about doing one of these in an IRA.

I'm happy to report that step 1 in my experiment with one of these succeeded today.

What broker do you use? What options level do you have? My Fidelity IRA at L2 can't go any higher (near as I know), and I can't buy calendars.

 

[Criscmt]

No, very low possibility. 600 definitely looks in play. I’m saving a bit of cash in reserve for rolling my 5/14 -p680s, so no more buying above 600 for me.

Ok.
Sold +590P/-595P, and +550P/-560P spread, need to see how that will go.
I am not optimistic about the 590/595, might have to roll, or will close if there's green sometime tomorrow.

 

[Criscmt]

...


Update on the expiration analysis only.

The Jan 2023 400 strike closed today at $300 -- about $70 worth of time value ($400 + $300 = 700-630 share price = $70 time value).

The Jun 2022 400 (about 1 year out) strike closed today at $280 or roughly $50 in time value. I get 7 months of additional time for $20 in time value (sounds like a steal to me ).

The Jun 2023 400 (max duration contract - about 2 years) strike closed today at $325 or roughly $95 in time value. So $25 gets me an extra 5 months of time over the Jan 2023 that I chose. The extra $25 for the extra 5 month contract time sounds like an awfully good deal to me now.


And if I had reached the 12 month holding window and was looking to roll today then I would be rolling around May 2022 on an ~8 month contract. An 8 month contract today is either the Dec 2021 or the Jan 2022 contract. Maybe the Mar 2022. Those today closed at:
Dec 2021 400 strike call = $255 or $25 time value.
Jan 2022 400 strike call = $260 or $30 time value
Mar 2022 400 strike call = $265 or $35 time value.


So buy $70 time value today and sell back $25-$35 time value for a total time value cost of ~$35. I collected the first $4 of that today on a 1 week contract.


I'm sure I'm missing something and I'm certain that I am not going to convert all of my shares into long calls, but gosh this sounds .. interesting. And it seems like a particularly good time to be buying these long dated calls. Bonus!

Shares will give you margin.
Did you calculate the premiums you would collect if you leverage that margin, besides the CC against the shares?
As long as you don't leverage the margin too much, holding shares is less stressful?

 

[evermore]

I've asked previously about Poor Man’s Covered Call

[...]

I wanted the expiration to be far enough out that I can reasonably hold the contract for 12m + 1 day to get long term tax treatment. My thinking right now is that I will roll the long call in that >12m range (and well before ~18 months) in order to minimize time decay, acquire long term tax treatment (given that call is ahead - if its behind then I might roll at <12m in order to harvest some tax loss).

And of course my plan is to sell covered calls against this long call option.

[...]

I know this is an unsettled question (not only around this forum, but probably IRL too as are many things related to the IRS). My understanding (after internet research and reading the tax code as a lay person) is that shares and (therefore presumably calls) that you sell covered calls against aren't subject to long-term treatment unless they were long-term before you sold the call.

The main reference I have for this is this part of the tax code.
This Fidelity page may also be useful (but is not perfectly clear in this case).
Note: The word "straddle" does not mean the same thing to the IRS as it does to us.

I'm not a lawyer, accountant, or tax advisor, and I have not talked to any of those about this. I would love to be wrong about this, but I haven't found any sources with good citations that say the opposite.

This is all regarding your plans for your brokerage account. Naturally, this doesn't apply to your current transaction in the IRA.

 

[bxr140]

Regardless if i have room or not, I will roll the losing BPS to next week because it is expensive to BTC.

Also consider splitting the roll (into more spreads with more favorable strikes), flipping the roll (From Ps to Cs or vice versa, which is most useful if you can catch a big underlying move before its over), or split-flipping the roll (which is usually most useful when you end up with some quantity of 'new' ICs.)

 

[Yoona]

Also consider splitting the roll (into more spreads with more favorable strikes), flipping the roll (From Ps to Cs or vice versa, which is most useful if you can catch a big underlying move before its over), or split-flipping the roll (which is usually most useful when you end up with some quantity of 'new' ICs.)

wait, what??? newbie alert!!!!!!! these are 3 new concepts to me.... are you ok to give an example?
PLEASE, i would really, really, really, really love to know...
For ex: a +p660/-p675 is in danger...

I have read this forum from cover to cover, including the cover, and I've never heard of change a P to a C ??!!? "split-flip" ????!!? split roll into more favorable strike (what is the cost of this, etc)...

THANKS IN ADVANCE!!!

 

[Criscmt]

wait, what??? newbie alert!!!!!!! these are 3 new concepts to me.... are you ok to give an example?
PLEASE, i would really, really, really, really love to know...
For ex: a +p660/-p675 is in danger...

I have read this forum from cover to cover, including the cover, and I've never heard of change a P to a C ??!!? "split-flip" ????!!? split roll into more favorable strike (what is the cost of this, etc)...

THANKS IN ADVANCE!!!

A tangent to your question here.
Did you open a +p660/-p675 for 05/14? When? May I know the thought process?
I thought you went with +p595/-p600/-c675/+c680

 

[Yoona]

A tangent to your question here.
Did you open a +p660/-p675 for 05/14? When? May I know the thought process?
I thought you went with +p595/-p600/-c675/+c680

oh, it's an example question... if i have a +p660/-p675 problem or an IC problem, what are those 3 suggested fixes?

 

[Chenkers]

I got the Bulliten from IB last night saying they would re-evaluate my initial margin on 12 May against the lowest 20 day moving average price over the last year (around $165). I have a decent margin buffer now but this could wipe out all available initial margin given the ITM -P's I've been rolling plus LEAPS. The result is I may not be able to withdraw any cash (needed for upcoming taxes) or take out any positions that can increase margin (much of my options selling). When they decide to move on maintenance margin (as hinted) it would likely result in liquidation of numerous positions that I would have otherwise held till a recovery or rolled up and out.

I get the distinct impression that IBKR don't want me as a client anymore. It also puts a severe dent on any plans for early retirement funded by option sales. Unfortunately in Australia there are very few brokers with direct access to US options equivalent to IB. The only one I've found that's comparible is Tastyworks but I don't know a whole lot about them. Is anyone else in a similar position of contemplating a change in broker or strategy given this move by IB?

 

[adiggs]

What broker do you use? What options level do you have? My Fidelity IRA at L2 can't go any higher (near as I know), and I can't buy calendars.

Also Fidelity - I have L2 with 'margin' (use proceeds same day).

I opened the position so far - I may be attempting the role tomorrow (already up 50%)

 

[adiggs]

Shares will give you margin.
Did you calculate the premiums you would collect if you leverage that margin, besides the CC against the shares?
As long as you don't leverage the margin too much, holding shares is less stressful?

I haven't done any margin calcs. I'm in an IRA right now and even if not I use very little margin (don't need, and don't want the risk).

I know this is an unsettled question (not only around this forum, but probably IRL too as are many things related to the IRS). My understanding (after internet research and reading the tax code as a lay person) is that shares and (therefore presumably calls) that you sell covered calls against aren't subject to long-term treatment unless they were long-term before you sold the call.

My understanding is that none of the sold calls will be long term. The long +C though once held for a year is long term.

Whether I'm right or wrong though won't change the overall approach for me (i.e. each of us needs to do our own due diligence).

 

[buttershrimp]

I got the Bulliten from IB last night saying they would re-evaluate my initial margin on 12 May against the lowest 20 day moving average price over the last year (around $165). I have a decent margin buffer now but this could wipe out all available initial margin given the ITM -P's I've been rolling plus LEAPS. The result is I may not be able to withdraw any cash (needed for upcoming taxes) or take out any positions that can increase margin (much of my options selling). When they decide to move on maintenance margin (as hinted) it would likely result in liquidation of numerous positions that I would have otherwise held till a recovery or rolled up and out.

I get the distinct impression that IBKR don't want me as a client anymore. It also puts a severe dent on any plans for early retirement funded by option sales. Unfortunately in Australia there are very few brokers with direct access to US options equivalent to IB. The only one I've found that's comparible is Tastyworks but I don't know a whole lot about them. Is anyone else in a similar position of contemplating a change in broker or strategy given this move by IB?

Well I was just about to inform the thread of how I was taken to the “noob woodshed” today. Taking a pretty predictable situation into an astoundingly worse situation. PM me if you want to hear all about being a moron at a very high level.

TLDR. I received 2 gifts this evening: 1) a margin call (not to worry, I expect that sort of thing)…. 2). The Schwab Algos picked up on “newb moron” trading patterns in my ultra concentrated position, which resulted in a maintenance % change of 40–>50 % effective May 24th. I can handle the first mistake, but the second mistake? Not so sure. If I have to liquidate my position and crawl my way out of this mess because of my enormous blunder, I’m going to punch myself in the peen.

in the interim, I can’t sell stock on my positions because if I do, I will lose the ability to rebuy shares while prices are low.

Dammit!

 

[adiggs]

in the interim, I’m can’t sell stock on my positions because if I do, I will lose the ability to rebuy shares while prices are low.

Dammit!

If this is as bad as it gets, it sounds like a first world problem. That's what I'm hoping anyway - first world problems are good ones.

 

[buttershrimp]

If this is as bad as it gets, it sounds like a first world problem. That's what I'm hoping anyway - first world problems are good ones.

Sure but I need a first world creative solution that buys me time to learn. Basically they want 63k more. Perhaps I could liquidate 100 shares even at a loss and buy itm leaps to get these shares back in the future when I’m more smarter and edjumacated? Is that even a reasonable thing?

 

[adiggs]

Update on the expiration analysis only.

The Jan 2023 400 strike closed today at $300 -- about $70 worth of time value ($400 + $300 = 700-630 share price = $70 time value).

The Jun 2022 400 (about 1 year out) strike closed today at $280 or roughly $50 in time value. I get 7 months of additional time for $20 in time value (sounds like a steal to me ).

The Jun 2023 400 (max duration contract - about 2 years) strike closed today at $325 or roughly $95 in time value. So $25 gets me an extra 5 months of time over the Jan 2023 that I chose. The extra $25 for the extra 5 month contract time sounds like an awfully good deal to me now.

Upon further review I've spent some more time with the Jun '23 options. I've settled on the $300 strikes.

What I found:
300 strike. .91 delta, $380 cost, $50 time value, $76k for 2 contracts (~20% more than buying 100 shares)

350 strike. .88 delta, $350 cost, $70 time value. $70k for 2 contracts

400 strike. .84 delta, $325 cost, $95 time value. $65k for 2 contracts.


The small bit of incremental cost is well worth the incremental delta and even lower strike. I'm not looking for capital efficiency. And buying a second cc contract for $50 over the next 13-25 months is entirely worth it to me. No margin and therefore more cash for stuff, including cash secured puts.


I just got the primary missing rollover IRA money today. I'll be calculating the # of call and put contracts I can write in that account given that I can also perform roll transactions when using the leap as the contract backing. Assuming yes then I also think that its a good time to be buying LEAPs

 

[bxr140]

Also Fidelity - I have L2 with 'margin' (use proceeds same day).

I opened the position so far - I may be attempting the role tomorrow (already up 50%)

What were your trade tickets?

 

[adiggs]

Sure but I need a first world creative solution that buys me time to learn. Basically they want 63k more. Perhaps I could liquidate 100 shares even at a loss and buy itm leaps to get these shares back in the future when I’m more smarter and edjumacated? Is that even a reasonable thing?

It makes sense. Heck I've just figured out how to use long leaps as fake shares. So selling 100 shares can be turned into 2 of these long leap calls (or get closer but still ITM and get 3!).

My input on creative solutions is weak though.


I'll be thinking about this more but I see myself shifting some shares over to leaps - free up some cash and get an account closer to balanced between shares and cash.

 

[buttershrimp]

It makes sense. Heck I've just figured out how to use long leaps as fake shares. So selling 100 shares can be turned into 2 of these long leap calls (or get closer but still ITM and get 3!).

My input on creative solutions is weak though.


I'll be thinking about this more but I see myself shifting some shares over to leaps - free up some cash and get an account closer to balanced between shares and cash.

@adiggs I know hope isn’t supposed to be a strategy but you gave me some real hope anyway … thanks