Wiki Selling TSLA Options - Be the House

[buttershrimp]

"Winning" and "losing" are very simple to define--no need to complicate a simple concept with things like opportunity cost. Return on Capital and risk/reward are for sure important metrics, but they are most certainly separate.

Rolling an underwater position is explicitly realizing the loss of that position. It just happens to be also simultaneously opening up a new position. While some of us prefer that new position offset the loss of the previous one (so, roll for net even or credit) not treating them as separate positions from a tracking perspective is, at best, inefficient for the trader. In the context of tracking one's trades, abstracting the losing trade into some multi-cycle position is really more akin to cooking the books, which of course doesn't make sense if you're the one that wants 'the books' in the first place.

Trade trackers are not simply an accounting exercise, because everyone can get that just by looking at their broker's basic performance tools. A tracker's primary function is to capture a trader's logic/criteria used to enter/exit the position, explicitly for the purpose of generating a statistical, quantifiable data set from which the trader can evolve their overall strategy. The accounting rack up is simply the metric by which the trader's strategy is assessed.

Trade trackers are the only reliable method by which a trader can objectively assess whether or not a losing trade was a bad trade or simply a statistical eventuality.

I think you are saying the same thing (in general). Because I certainly agree with your last paragraph in particular.

“Cooking the books” is a pejorative phrase… I’d argue that “rolling” is more often intended to be “using all parts of the Buffalo” but on accident.

How else can people convince themselves how an end of year “tax refund” is awesome?

edit—- I also want to clarify I do regard rolling as being wrong

 

[vwman111]

Yeah, that's because they're not covered calls. They're calendar spreads, and since the CV of the long is higher than the short, its a debit spread.

Does it take margin to sell a calendar spread?

if i have 10 leap contracts with a .5 delta, can I sell 5 "covered calls"

 

[bxr140]

Does it take margin to sell a calendar spread?

Technically yes, but that’s only because semantically ‘selling’ a calendar spread is a credit spread, where the short leg would necessarily be closer to the money and/or a farther expiration than the long. The result is the short is basically naked, with corollary margin.

The good news is that’s an unlikely scenario as it is a shitty position. Senisible spreads are all long legs with farther expirations than the short legs.

if i have 10 leap contracts with a .5 delta, can I sell 5 "covered calls"

Regardless the type of spread, margin is not about ∆ (in general ∆ is a bad way to identify/compare options), it’s all about strikes. If the short leg is closer to the money than the long leg, the difference in strikes is the margin required.

For your situation, at least in the US with a normal broker, you can sell 10x calls against your leaps for zero margin, as long as a) the expiration of the -Cs is closer and b) the strike of the -C’s is equal or greater than the leaps.

Mind, I would strongly recommend a bit of price analysis to determine a good strike/expiry of the -C’s. Like covered calls you can totally screw over the big upside of the leaps by being too aggressive with the -C’s.

 

[vwman111]

Technically yes, but that’s only because semantically ‘selling’ a calendar spread is a credit spread, where the short leg would necessarily be closer to the money and/or a farther expiration than the long. The result is the short is basically naked, with corollary margin.

The good news is that’s an unlikely scenario as it is a shitty position. Senisible spreads are all long legs with farther expirations than the short legs.



Regardless the type of spread, margin is not about ∆ (in general ∆ is a bad way to identify/compare options), it’s all about strikes. If the short leg is closer to the money than the long leg, the difference in strikes is the margin required.

For your situation, at least in the US with a normal broker, you can sell 10x calls against your leaps for zero margin, as long as a) the expiration of the -Cs is closer and b) the strike of the -C’s is equal or greater than the leaps.

Mind, I would strongly recommend a bit of price analysis to determine a good strike/expiry of the -C’s. Like covered calls you can totally screw over the big upside of the leaps by being too aggressive with the -C’s.

Thanks @bxr140 I think i understand. If i have 500c leaps it would be "easy" to find a strike to sell a short dated call that has a greater strike. For more aggressive leaps such as 1500c, it sounds like selling calls against that is a moot point for short term "covered calls".

 

[buttershrimp]

Technically yes, but that’s only because semantically ‘selling’ a calendar spread is a credit spread, where the short leg would necessarily be closer to the money and/or a farther expiration than the long. The result is the short is basically naked, with corollary margin.

The good news is that’s an unlikely scenario as it is a shitty position. Senisible spreads are all long legs with farther expirations than the short legs.



Regardless the type of spread, margin is not about ∆ (in general ∆ is a bad way to identify/compare options), it’s all about strikes. If the short leg is closer to the money than the long leg, the difference in strikes is the margin required.

For your situation, at least in the US with a normal broker, you can sell 10x calls against your leaps for zero margin, as long as a) the expiration of the -Cs is closer and b) the strike of the -C’s is equal or greater than the leaps.

Mind, I would strongly recommend a bit of price analysis to determine a good strike/expiry of the -C’s. Like covered calls you can totally screw over the big upside of the leaps by being too aggressive with the -C’s.

Interesting, so if a person buys a Jun 23 800 LEAP and then turns around sells a 850 covered call expiring March 23…. Would this be considered a Poor Man’s covered call on a feeding tube? PMCCFT?

 

[Chenkers]

STO 25 x IC 550/575 640/665 @ $8.45 for $21,000 total credit. Currently up $4k so hopefully it continues to pay out.

I also converted 1 x DITM 755P- into 10x 595/550BPS. These are losing value much faster than the DITM Put so going OK so far. Unfortunately I wasn't in time to do the same with the 2 x 780P- but then there's always the next dip.

A bit of an update on these positions:
The IC's are currently sitting at a bit over 50% profit after todays run up. It's looking good and will remain profitable with a run up as high as $644.

The split roll of the DITM Put into 10xBPS has worked extremely well so far. The new BPS have reduced in value by 63% so far whereas the original Put would have only gone down by 12%. A close on Friday above $595 will see this position disappear completely (much better than a $0 credit roll to next week). If there's a pull back from here I expect the MM's will aim to keep it just under $600 ($595 chosen for this reason), but either way this appears a much better outcome than a straight roll.

 

[bxr140]

Interesting, so if a person buys a Jun 23 800 LEAP and then turns around sells a 850 covered call expiring March 23…. Would this be considered a Poor Man’s covered call on a feeding tube? PMCCFT?

It would be a diagonal. You'd be spending $2600 to ~double your money over the course of a year or so, which is great, but that's only in the case where the bull thesis of TSLA takes it into four digits. There's also the really random chance that you hold for longer and TSLA magically lands at 850 in 22 months, in which case you make ~3x.

 

[Yoona]

A bit of an update on these positions:
The IC's are currently sitting at a bit over 50% profit after todays run up. It's looking good and will remain profitable with a run up as high as $644.

The split roll of the DITM Put into 10xBPS has worked extremely well so far. The new BPS have reduced in value by 63% so far whereas the original Put would have only gone down by 12%. A close on Friday above $595 will see this position disappear completely (much better than a $0 credit roll to next week). If there's a pull back from here I expect the MM's will aim to keep it just under $600 ($595 chosen for this reason), but either way this appears a much better outcome than a straight roll.

I'm jealous of the 8.45 IC credit. I could only get half of that.

Is this a single trade, or did the legs get built separately (if yes, mind sharing your technique)?

Thanks in advance!

 

[Chenkers]

I'm jealous of the 8.45 IC credit. I could only get half of that.

Is this a single trade, or did the legs get built separately (if yes, mind sharing your technique)?

Thanks in advance!

It's all in a single trade. I use the strategy builder in IB that has a specific tool to build an IC (and most other option types). I select the four option legs, limit and place the order. This one actually filled almost instantly as the depth of the opening dip caught me by surprise. I could have got $9.30 if I'd timed it perfectly.

Here's a generic image of what it looks like:

 

[corduroy]

We've hit this one a few times upthread.
IV is only low if you don't analyze IV before 2020.

If you believe the bananas action since the start of 2020 is the new norm, then yes, IV is low.

Indeed, my time frame was 2020 until now. Now we are at 0% (49.0), the lowest in a year.

 

[buttershrimp]

All is quiet on the western front

 

[ReddyLeaf]

All is quiet on the western front

The fight for 600/605 seems pretty uneventful. This suits my -p597.50s and -c635s just fine. I’ll take shares if they force me, but probably will roll out to next week for additional premium on Friday.

 

[buttershrimp]

The fight for 600/605 seems pretty uneventful. This suits my -p597.50s and -c635s just fine. I’ll take shares if they force me, but probably will roll out to next week for additional premium on Friday.

I like your style

 

[jeewee3000]

As a holder of -c600s I'm loving this price action.

In doubt to BTO some of them to be safe, but I guess I'll just let the theta decay some more.

 

[Yoona]

***newbie alert***

I decided to try 1x Iron Butterfly because:
- large initial credit
- curious what is the final credit (will know on Friday close)

5/28 +p575/-p600/-c600/+c650, credit $2k, margin $720, max loss $2900, breakeven 579/620

 

[adiggs]

I would ordinarily post this in the main thread, but I'm not spending much time there these days.

I realized today that there is a possible negative catalyst out there that is new for me - something that could move the shares by a lot. One of my positive catalysts would be significant visible progress on FSD / autonomous driving.

The thing I realized today is the reverse of that, and it comes in two parts. The first is if the widespread release of city NOA continues to push out. I've recently realized that I haven't been seeing many of those Youtube videos of people letting their Model 3 drive them all over town. That is likely a function of me not visiting the main thread much these days, but it might also be an indicator that there hasn't been much new to show for awhile.

Also city NOA has been in the any-day-now space for more general release, and it hasn't happened. Delayed with the 3D world view, it's not as easy as some make it sound, etc.. I worked vaguely in that field (data science) and I've got a sense of how hard it is.

Anyway, the negative catalyst would be an announcement and/or an increasing view by the investing community that Tesla isn't on the cusp of a significant step forward in the self driving space as has been discussed. Many people have FSD as a significant component in their investment thesis - word that it isn't progressing as expected and might be seriously delayed may draw significant sellers.


Related to that I have seen reports of Tesla evaluating lidar. It doesn't matter if these are true or if this will turn into a modification to each car to include lidar for the investing community. That community will see the possibility of the need for lidar as a significant delay for city NOA and later autonomy and that will negatively influence valuation for many of them. We can be confident of the short media exaggerating this effect.

I can't put numbers on this possibility, but I see it as significant. I don't put much autonomy into my own valuation but I know that many do. And that's what will matter to the share price.

 

[st_lopes]

I haven't been posting here lately, mainly because I haven't been entering weekly positions, but I've been lurking. Truly appreciate the thoughtful write ups from so many of you, and getting perspective on everyone's balance between work/life/options was really enlightening!

Here are some updates on my positions:

• The continued drawdowns pushed my margin requirements again, so the -1000cc 06/2023 have all moved to -850cc 06/2023. This was rolled at a profit and a significant net credit to give me some breathing room on a margin call.
  • These are green as of writing this and as maintenance excess starts to free up I will start unwinding that leg by paying debits to bring the strike and expiration dates back in line with something I actually want.
  • Again, these were purely margin call settlement techniques and not positions I entered with intention of having them expire worthless.
    
• I have rounded out my target contract count for purchased leaps. LEAPs are now 15% of my core position relative to shares. I now hold the following, with the majority (60%) being the 850c:
  • 700c 03/2023
  • 800c 03/2023
  • 850c 03/2023
  • 900c 03/2023
    
• I continue to hold -840p 09/2021. These have been rolling for credits since February. I hadn't been rolling far enough out to get strike price improvements until recently.
  
  
• Still no update to MR% requirement on TSLA at Questrade. I'm still hopeful that they will follow suit with eTrade and IBKR (minus the stress tests IBKR introduced, those are nasty) in the near term. That should let me unwind the covered calls, or pull some cash out for home renos, depending on what comes first (@Lycanthrope I'm pretty sure we're living the same lives in alternate universes).

These last 3 months have been an exercise in margin and position/sizing management. Lots learned that I look forward to applying once I have a chance to unwind the covered call side of my positions.

 

[buttershrimp]

***newbie alert***

I decided to try 1x Iron Butterfly because:
- large initial credit
- curious what is the final credit (will know on Friday close)

5/28 +p575/-p600/-c600/+c650, credit $2k, margin $720, max loss $2900, breakeven 579/620

Wild man! Fly butterfly fly!

 

[buttershrimp]

I haven't been posting here lately, mainly because I haven't been entering weekly positions, but I've been lurking. Truly appreciate the thoughtful write ups from so many of you, and getting perspective on everyone's balance between work/life/options was really enlightening!

Here are some updates on my positions:

• The continued drawdowns pushed my margin requirements again, so the -1000cc 06/2023 have all moved to -850cc 06/2023. This was rolled at a profit and a significant net credit to give me some breathing room on a margin call.
  • These are green as of writing this and as maintenance excess starts to free up I will start unwinding that leg by paying debits to bring the strike and expiration dates back in line with something I actually want.
  • Again, these were purely margin call settlement techniques and not positions I entered with intention of having them expire worthless.
• I have rounded out my target contract count for purchased leaps. LEAPs are now 15% of my core position relative to shares. I now hold the following, with the majority (60%) being the 850c:
  • 700c 03/2023
  • 800c 03/2023
  • 850c 03/2023
  • 900c 03/2023
• I continue to hold -840p 09/2021. These have been rolling for credits since February. I hadn't been rolling far enough out to get strike price improvements until recently.
  
  
• Still no update to MR% requirement on TSLA at Questrade. I'm still hopeful that they will follow suit with eTrade and IBKR (minus the stress tests IBKR introduced, those are nasty) in the near term. That should let me unwind the covered calls, or pull some cash out for home renos, depending on what comes first (@Lycanthrope I'm pretty sure we're living the same lives in alternate universes).

These last 3 months have been an exercise in margin and position/sizing management. Lots learned that I look forward to applying once I have a chance to unwind the covered call side of my positions.

First of all, what is this work/life/options balance you speak of? I am unfamiliar.
Second, sounds like you and I had a similar stress test. I have become converted to the anti-margin dogma.... though I plan to draw it down slowly.
Thirdly, these DITM puts I keep reading about that stay dead for so long is certainly giving me nightmares. Do you have any do-over wishes once that let went ITM?

 

[ReddyLeaf]

all my covered calls are still not making any money. Do you guys think we will have a big run up to the Model S Plaid delivery event on the 3rd? I am not feeling that confortable with the $617.5s.

My only profitable trade is a call credit spread 5x -550c/+575c that I sold yesterday for $1.2.

Patience Grasshopper. It’s just the market shaking out the various call holders. Don’t worry, Friday will soon be here. Just wait. Even @Lycanthrope got spooked.