Wiki Selling TSLA Options - Be the House

[bxr140]

Looks like on Fidelity I will need to use the Custom trade ticket

Yeah, you'll always need to use a custom trade ticket for this kind of thing. Not a big deal--I always use custom trade tickets. The major benefit of the custom trade ticket is that there are no selection bounds on any of the legs' quantity, C/P, expiration, or strike, other than what the capital in your account can support of course. "Common" strategy trade tickets are fine if you're just opening an IC or whatever, but they're just a short-cut instance of an open, four legged trade ticket.

So I BTC the -760p with 5/21 expiration
and STO the -440c with 5/28 expiration and collect a roughly $1 credit.

The $160 ITM put is transformed into a $160 ITM call.

This is my first question - do I have this part right?

Yep, that's correct. And it should intuitively make sense that the amount ITM you are stays basically the ~same, for the ~same expiration date. (The big difference is eating the bid/ask spread, which is why you push out a week)

Assuming yes, then the first observation is that clearly I would make this flip as I expect the shares to keep moving down and I would rather be ITM in the direction the shares are going, rather than ITM and opposite the direction the shares are moving. Of course I could be wrong, but I do think we're more down than up for awhile.

Exactly. And of course, your thesis doesn't require price to go down to 440. If price goes down to $500, for instance, and you think that's the bottom, you can flip the ~$60ITM -C @440 back to a -P@560 or so. Now you're X weeks in the future with a -P that's $200 more favorable than it was.

OR I can do a flip on a call at the same time.

Yes. You can combine the shitty value of your -P with the favorable value of one or many of your -C's and then re-allocate that summed value across a higher strike -P and a lower strike -C (or multiple -C's, or multiple -P's, or any combination of them). That would improve your portfolio theta, at the expense of putting the -C at higher risk since its going closer to the money (and potentially, ITM).

Anything I'm missing? If I'm wrong about direction then I have a deep ITM call - the thing I am most worried about.

Eh, its kind of the same risk as a DITM put. Just keep an eye on extrinsic value and definitely DO NOT push it till Roll Thursday. I'd keep expiration out at least a full week. Theta will be so small that you're primarily going to be burning off unfavorable contract value via underlying movement.

Last question for you (or anybody). Given a $160 ITM put (5/21 expiration currently), outside of straight rolls that I've been doing, what other trade types / setups would you consider? At $160 ITM

If you have capital, you could split the one -p into four -625p's (give or take). That increases risk significantly, of course, but reduces time to recover, if price were to run up over the next week.

 

[buttershrimp]

Sounds like a risk reversal? Sell put, buy call.

What about a week reversal?

 

[adiggs]

Eh, its kind of the same risk as a DITM put. Just keep an eye on extrinsic value and definitely DO NOT push it till Roll Thursday. I'd keep expiration out at least a full week. Theta will be so small that you're primarily going to be burning off unfavorable contract value via underlying movement.

Just replying to this bit, though I appreciate all of the response - I'm finding it all helpful. The idea of splitting up a single -p into many -p to get that closer to ATM / ITM makes a lot of sense to me. I even do have enough cash (and margin) that I can probably do one of these at a time to "fix them up" (my term), while continuing the rolls for time on the rest.

With the understood risk of more puts going deep ITM, leaving me with EVEN MOAR deep ITM puts than I started with. This by the way is also an important reason why I stick with no margin (used, or potentially used), or at least I keep my margin usage down to a rounding error (I consider 5% of an account to be close to a rounding error, I tend to use even less; it's at least not much at risk of turning into a margin call without a really big move against).


The point you're making in the quoted bit makes complete sense to me and is something I've already been doing. This far ITM I don't get much time value, even rolling straight out. So I've been tending to roll with more like a week to go when I see time value has (again) shrunk to dimes from small $ (something like $2 or 3, down to $0.50). I don't wait for time value to be <0.10 or anything like that - I really REALLY prefer rolling for time (and better strikes) than assignment.


One problem I see with my current inverted straddle is that it puts me into an effectively bullish directional position. I earn money on the deep ITM puts nearly $ for $ and a slow enough rise leaves the calls OTM and highly profitable. With my largely flat to down view of things having a delta neutral account setup with a bullish bias is .. not ideal. So a benefit of a flip roll is that'll turn some of that directional position upside down and better position my overall delta to be more balanced.


For others - I'll be constructing something along these lines (when I get done with taxes and I know where I stand after the tax man is satisfied) and I'll pass along what I do and my thinking as I do it. I can tell y'all right up front - being $160 ITM on this put is not to my liking. And I figure that finding alternatives to the standard roll to correct this problem will be come good training wheels in the future should I find myself with a deeply ITM call position (which I really REALLY want to avoid).

 

[adiggs]

Are you really able to get $5 per contract a week? I remember back in the day in this thread we used to talk that getting $2 per week was good.

Yeah and I'm around the .20 delta. Then again I tend to sell next week's covered calls (for example) on Wed-Fri this week.

I rolled a mixture of calls around the 700 level down to 655 yesterday. I've already earned about $8 for this week's expiration with very little contract value left this morning. I'm probably rolling this week's calls out to May 21 and do that tomorrow morning, though I might try snagging another dollar or two using this week's expiration (usually not though). I would also stick with my current 655 strike at the .15 delta - more conservative than I usually am with calls, but we've gone down far and fast enough that I tend to think a bounce is coming soon. Heck - I might even go crazy and just close the current position for around $0.50 and then wait a day or two for that bounce and sell the .15 to .20 delta calls at that point.

The .20 delta calls for May 21 are currently around $8.


Others will need to share their experience. Somehow I think @Lycanthrope is mostly beating $5/contract/week like a drum.

 

[adiggs]

If you have capital, you could split the one -p into four -625p's (give or take). That increases risk significantly, of course, but reduces time to recover, if price were to run up over the next week.

Building on this idea, I put together a trade ticket based on today's closing prices. It looks like I turn the 1 -760p for 5/21 expiration into 4 -610p with 5/28 expiration. I don't yet know if I've got the cash backing for this - it'll go from $76k to $244k but I am already wanting to have more puts open so this particular idea doesn't give me heartburn.

An interesting observation about this - sticking with the idea that I'd be trading an ITM position for 4 ITM positions a first order approximation is I would be taking the $170 ITM I am at now and turning that into 4 ~$40 ITM puts. Turns out though that its better than that. Four of the -610p will get me a $4-9 credit here at the $590 share price, or about $15 ITM on these 4 new puts. Getting closer ATM is a big improvement in the quality of position that can be established (which is like, duh, but still).


I find that I'm liking this method of improving the overall situation significantly better than the deeply ITM call for a couple of reasons.
1) I really don't like being deeply ITM on the call side. I think it's emotional more than rational and there are good reasons to not be irrational about these things. But I'm where I'm at and I don't want to fight this too hard.

2) I want some additional puts anyway - that'll provide me with a better contract balance between calls and puts (I would like to be directionally balanced between the two).

The downside is that this doesn't add to my flat to down view of things, where the deep ITM call WILL better address the flat to down expectation that I have.


I setup the flip transaction and it looks like I can improve the 410 strike call all the way to 440 and a $6 net credit (using the call to OTM put flip to pay for most of that strike improvement).


Ah heck - I think I'll do one of each of these - get experience with both approaches more quickly. I may well followup on that deep ITM call with its OWN split roll as well. So many moving parts, so many things to try, so many things to calculate. This may finally be my forcing function to get my primary account into my desired balance (shares / cash, calls / puts). I'll probably mix some shares -> long duration ITM +C changes into the mix.


I appreciate all the extra insight and thoughts @bxr140 . I'm still deciding whether I'm better off or not (/s).

 

[Yoona]

Building on this idea, I put together a trade ticket based on today's closing prices. It looks like I turn the 1 -760p for 5/21 expiration into 4 -610p with 5/28 expiration. I don't yet know if I've got the cash backing for this - it'll go from $76k to $244k but I am already wanting to have more puts open so this particular idea doesn't give me heartburn.

That is very interesting because I'm on the same dilemma: -p760 May 28. So, in theory, i can roll-split that into 4 -p610 Jun 4.

Please do continue to share so I can copy/paste the fix!

Thanks in advance...

 

[Yoona]

That is very interesting because I'm on the same dilemma: -p760 May 28. So, in theory, i can roll-split that into 4 -p610 Jun 4.

Please do continue to share so I can copy/paste the fix!

Thanks in advance...

I think i understand now this roll-split strategy...

Wait for Thur/Fri and:
BTC -p760x1 May 28 $17k debit
STO -p610x4 Jun 4 $19k credit

Profit=$2k and higher chance of escaping the problem since I am significantly closer to SP and more time to burn. Only works if I have room of $610x400=$250k cash or $125k margin.

The alternative is to just flip -p760 from week to week for a small credit each time. May take forever before this expires.

 

[MrMoo]

I think i understand now this roll-split strategy...

Wait for Thur/Fri and:
BTC -p760x1 May 28 $17k debit
STO -p610x4 Jun 4 $19k credit

Profit=$2k and higher chance of escaping the problem since I am significantly closer to SP and more time to burn. Only works if I have room of $610x400=$250k cash or $125k margin.

The alternative is to just flip -p760 from week to week for a small credit each time. May take forever before this expires.

If you are flipping P760 week to week for a small credit each time. Isn't it easier to just get assigned and sell covered calls on them?

 

[Yoona]

I think i understand now this roll-split strategy...

Wait for Thur/Fri and:
BTC -p760x1 May 28 $17k debit
STO -p610x4 Jun 4 $19k credit

Profit=$2k and higher chance of escaping the problem since I am significantly closer to SP and more time to burn. Only works if I have room of $610x400=$250k cash or $125k margin.

The alternative is to just flip -p760 from week to week for a small credit each time. May take forever before this expires.

I found another way to escape my -p760 May 28 problem, and the headache is fixed 2 days from now. No need to wait 3 weeks.

Wait for Thur/Fri and:
BTC -p760x1 May 28 $17k debit
STO 100 Iron Condors +p575/-p580/-c640/+c645 May 14 $19k credit

Profit=$2k and Houdini escape is complete. Needs 5x100x100=$50k margin for 2 days.

Not advice!

 

[Yoona]

If you are flipping P760 week to week for a small credit each time. Isn't it easier to just get assigned and sell covered calls on them?

No, because I am too deep 760-580=180 ITM. It will take forever to escape. Plus the stress of managing this weekly until fixed.

 

[juanmedina]

Yeah and I'm around the .20 delta. Then again I tend to sell next week's covered calls (for example) on Wed-Fri this week.

I rolled a mixture of calls around the 700 level down to 655 yesterday. I've already earned about $8 for this week's expiration with very little contract value left this morning. I'm probably rolling this week's calls out to May 21 and do that tomorrow morning, though I might try snagging another dollar or two using this week's expiration (usually not though). I would also stick with my current 655 strike at the .15 delta - more conservative than I usually am with calls, but we've gone down far and fast enough that I tend to think a bounce is coming soon. Heck - I might even go crazy and just close the current position for around $0.50 and then wait a day or two for that bounce and sell the .15 to .20 delta calls at that point.

The .20 delta calls for May 21 are currently around $8.


Others will need to share their experience. Somehow I think @Lycanthrope is mostly beating $5/contract/week like a drum.

45-40% return a year sounds good to me . For the year my average is at around $214 per contract per week; I need to step it up lol.

 

[bxr140]

The idea of splitting up a single -p into many -p to get that closer to ATM / ITM makes a lot of sense to me. I even do have enough cash (and margin) that I can probably do one of these at a time to "fix them up" (my term), while continuing the rolls for time on the rest.

Nice, that's most important when splitting--you need capital. And then of course you need to accept the deal with the devil, which is more favorable recovery potential at the expense of more unfavorable downside. The big bummer is that a full win is to, over time, simply recover from The Bad Place.

Somewhat related, It occurred to me that a different way to describe the use case for splits and flips is:
--Splits enable recovery through improvement in time value
--Flips enable recovery through alignment with underlying movement
--A combination of splits and flips tailors recovery time, recovery risk, and any additional risk I'm taking on by adding more contracts.

FWIW, while I don't usually get myself into these situations anymore, I'll almost ALWAYS split a shitty sold contract into a two sided position, so I can leverage 'double' time value and provide some mitigation against unfavorable underlying movement. For a simple example of your -p760, you could roll that down to 750 and out a week for a small credit by taking on a -c660. I'd end up teasing that one out a little more into an even more complex solution (and I prefer spreads rather than nakeds), but you get the idea. But for the simple example, the three leg ticket would be:

 

[ReddyLeaf]

Interesting to read and learn about @bxr140 , @adiggs and @setipoo methods to get out of far ITM puts. Thanks. I’m in a similar situation with 5/21 -p680s, which I’ve been rolling from 700->690->685. It sounds like many here are in a similar situation. With my IRA constraints, I’ll just continue to wait until Thu/Fri and roll each week, even if it’s only down $5 on the strike, it still frees up $500 cash. Having the puts and some extra cash for the buyback definitely allows me to sell closer ATM calls. Last Friday I started with [email protected], Monday rolled to -c652.50s, today rolled to -c635s. I would have never done that without the puts & cash as backup. The week isn’t over and I haven’t done all the math, but I’ve cleared over $10/shr so far (not counting the “accrued losses” on the puts), plus I’ve bought 25 shares. Normal weeks I’m lucky to get $5/shr because I’m scared to have my shares called away. My goal has been to avg 5 shr/wk for two years, and pick up another 500 shares. While the SP drop from 900 has killed my overall account balance in $$$, my share count is up dramatically and my share goal is much closer than expected. I’ll just keep plugging along selling OTM calls, increasing my cash buffer for the inevitable SP rise. Thanks again everyone for your advice.

 

[asburgers]

This is my fav thread by far. Thanks to everyone for your contributions.

 

[phantasms]

Hey all! Anyone familiar with the Blue Collar Investor's Portfolio Overwriting Calculator? I was hoping it could possibly help me with my covered call selling. I hit my goal # of TSLA shares today and plan to stop trading and just write out of the money covered calls. This is in a taxable account so I wish not to lose the shares. I still struggle with trying to find the best balance of 99% safe while also getting in more than a few bucks. Weeklies vs monthlies.....etc. Thanks!

Thanks!

Portfolio Overwriting Calculator | The Blue Collar Investor

thebluecollarinvestor.com

 

[buttershrimp]

Hey everyone! My massive failure has an actual name, “the synthetic long put”.

Worst part? It was the right strategy for the right reasons at the right time. And it would have been a straight up brilliant had i not blown the execution.

It’s amazing how simple it can look on paper only fail due to execution. Never sell the cash covered put AFTER buying the protective call component.

Remember kids, always pay yourself first.

I hate my life this week.

 

[Yoona]

Interesting to read and learn about @bxr140 , @adiggs and @setipoo methods to get out of far ITM puts. Thanks. I’m in a similar situation with 5/21 -p680s, which I’ve been rolling from 700->690->685. It sounds like many here are in a similar situation. With my IRA constraints, I’ll just continue to wait until Thu/Fri and roll each week, even if it’s only down $5 on the strike, it still frees up $500 cash. Having the puts and some extra cash for the buyback definitely allows me to sell closer ATM calls. Last Friday I started with [email protected], Monday rolled to -c652.50s, today rolled to -c635s. I would have never done that without the puts & cash as backup. The week isn’t over and I haven’t done all the math, but I’ve cleared over $10/shr so far (not counting the “accrued losses” on the puts), plus I’ve bought 25 shares. Normal weeks I’m lucky to get $5/shr because I’m scared to have my shares called away. My goal has been to avg 5 shr/wk for two years, and pick up another 500 shares. While the SP drop from 900 has killed my overall account balance in $$$, my share count is up dramatically and my share goal is much closer than expected. I’ll just keep plugging along selling OTM calls, increasing my cash buffer for the inevitable SP rise. Thanks again everyone for your advice.

Newbie here trying to learn what a "puts & cash as backup" risk protection means...

How does a "put backup" work if SP close is >635? The CC -c635 is this week but -p685 is next week. Isn't it a 50x100=$5k loss?

Thanks in advance!

 

[ReddyLeaf]

Newbie here trying to learn what a "puts & cash as backup" risk protection means...

How does a "put backup" work if SP close is >635? The CC -c635 is this week but -p685 is next week. Isn't it a 50x100=$5k loss?

Thanks in advance!

Sorry, maybe not very clear.

No margin available in my accounts, so to roll, must keep cash in each account to buyback before reselling, even if the net is a credit. Also, I have multiple accounts and the puts are in the biggest account, which is also the one I’m most worried about. The smaller accounts have a bit of cash in case I need to buyback, but it’s at a higher risk, and I’m less worried about losing shares.

Anyway, the big account has calls and cash secured puts plus enough cash to buyback as needed. These have both been rolled to 5/21. If the SP goes down, calls expire worthless and I’m happy, though I might need to let the puts give me shares. If the SP goes above 635, then the buyback value of the puts goes down and there’s plenty of cash for that. If I buyback a put, it releases the full value of the put in cash to my account (e.g., >$68,000/contract), which I can then use to buyback the calls as needed. I haven’t done a full spreadsheet analysis of all SP values, but it feels pretty intuitive to me. SP up, then put buyback down, releasing a cascade of cash to buyback and roll calls as needed. SP down, then no call buyback needed and I can decide whether to roll puts or accept shares at put strike.

In the smaller accounts, I’m accepting a bit more risk because I sold the same 635 calls, and don’t have enough cash to sell a put. though I do have 5x the current CC value available in cash ready for a buyback if needed. All of this is done without margin, so I must keep enough cash available, in case the SP exceeds 635 by Friday.

In the end, I want to keep my shares. I’m willing to have the shares put to me at 680 (cash secured), even though the SP might be 580. No, it’s not great and I will roll out one week and down $5-10/shr if I can, but it’s a risk that I’m willing to accept to keep my CC shares. I’m in this for the long haul (10+ years), and use the Options Wheel to generate cash for buying more shares (and practice for eventual retirement selling of covered calls for living expenses). I don’t need the money and can’t access my IRAs at this point anyway, so this is all about adding TSLA shares and learning options at this point. Definitely not recommending this strategy for others at different points in their life or investing career.

Edit: I like to think of this like @bxr140 said, selling both sides of the puts and calls to double up on the theta decay, though I’m willing to “lose” on the put side more than the call side.

 

[adiggs]

45-40% return a year sounds good to me . For the year my average is at around $214 per contract per week; I need to step it up lol.

I'm quite happy at 12% and really happy at 24%. I'd like 48% of course and I'll enjoy giving all of that extra money away too

 

[adiggs]

No margin available in my accounts, so to roll, must keep cash in each account to buyback before reselling, even if the net is a credit. Also, I have multiple accounts and the puts are in the biggest account, which is also the one I’m most worried about. The smaller accounts have a bit of cash in case I need to buyback, but it’s at a higher risk, and I’m less worried about losing shares.

If it helps, I use roll tickets all the time in my retirement accounts, which also don't have margin. This includes situations where I don't have the cash to buy back options first and then sell the new options. It's arguably the primary purpose of a roll - setting up a transaction so it can be filled based only on the net result of all of the legs together.