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Wiki Selling TSLA Options - Be the House

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***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

By my math your margin is $2.5k on the low side + $5k on the high side (since IIRC your broker doesn't let you double dip margin), and potentially minus the $2k credit you received (that's not how American brokers typically work but I dunno about Canadia) for a total of maybe $5.5k. Am I missing something?

In any event...Its definitely a good idea to open an IB with a wide spread on the longs, kinda like you have (Especially your ~10% width on the call side). The longs are what control the slope of the butterfly's 'body', and following the area-under-the-curve profit logic from upthread somewhere, the P/L of a wide body sacrifices peak profit for a wider break even range. Conversely, If you were building an inverse IB you might want a narrower spread on the longs, making max loss worse but bringing in your break even points.

Yours is also an asymmetric butterfly, with more risk on the upside than the downside, and it also happens to be a specific instance called a skip strike iron butterfly. If that asymmetry was on purpose, you may also want to consider asymmetric evolutions like the Christmas tree and ratio spreads (sometimes called front or back spreads) for really tailoring P/L (including inverse instances of those strategies).

Note that you can also do 'regular' condors and butterflies (= all calls or all puts) which sometimes actually nets you a better premium than the irons because of the slight variances in prices on either side of the options chain. In some cases they may also reduce the margin requirement of the position because one side of the position actually is a debit spread (so potentially no margin required, just initial capital). You can even take this concept one step farther and make both sides debit spreads (so, puts on the top and calls on the bottom) landing you in zero-margin land for the whole position...though its possible the pretty high price of that ticket might end up equaling the margin requirements of the 'traditional' IB anyway. Just doing a quick run through the options chain your IB with the same strikes just inverted calls and puts would cost you ~$5600.

I've contemplated a number of recurring strategies in my struggles to find the holy grail of selling options, and one of the ones that resonates the most starts with a butterfly. Basically, you sell the weekly butterfly (or IB) and then you take however long you need to take to close it via the flip/split methodology. In that concept you max your time value (and thus your sale of volatility) on the initial IB, and then it just takes you N number of weeks to fully realize that profit. Sometimes you get lucky and N=1, sometimes it could take weeks or even months. Then you just start over with the next IB. Annually that is near guaranteed profit on a fixed amount of capital; the variable is simply how much profit.

Since I'm chatty again, you'll probably evolve to my fave multi-leg ticket, the double calendar. It is any of the above mentioned multi-leg strategies, just with farther expirations on the longs. It can be really effective at catching agnostic directional movement, especially if you can close out the 'losing' long leg early.

Of course, bow tying all of this together, at some point you'll realize that any kind of recurring options selling strategy still requires pretty mature price and volatility analysis to actually play out in the long run (so, more than just TSLA 2020) and then you'll realize that its far less work and far more profitable to simply wait for your analysis to identify strong entry positions rather than stress out staring at stonk prices all day long in an effort to scrape out peanuts in profit by selling recurring short positions. :p

Mind, sometimes we get bored and can't help ourselves. Friday my only position in this account was the TSLA CC. I ran my quick volatility scanner yesterday and, combined with a basic price analysis, opened up a *sugar* ton of ICs. :rolleyes:;)
1621961712827.png
 
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?

I would not have changed the selected strike prices or timing, but I would have sized my exposure much differently. Rather than using all available margin to sell margin-covered puts, would now do smaller tranches of margin to provide more flexibility to adjust the position or to "buy the dip".
 
I would not have changed the selected strike prices or timing, but I would have sized my exposure much differently. Rather than using all available margin to sell margin-covered puts, would now do smaller tranches of margin to provide more flexibility to adjust the position or to "buy the dip".

That's a really important concept to adopt.

Its easy to get roped into using more and more of your capital to sell options due to the terrible capital-to-profit ratio, because its human nature to want more profit. The rub is that when those sold positions get into their worst place, that's often, if not almost always the best time to enter long. The more capital that is tied up with those now-shitty sold positions (which started as profit-capped positions), the less capital is available to go long on unlimited profit positions.
 
That's a really important concept to adopt.

Its easy to get roped into using more and more of your capital to sell options due to the terrible capital-to-profit ratio, because its human nature to want more profit. The rub is that when those sold positions get into their worst place, that's often, if not almost always the best time to enter long. The more capital that is tied up with those now-shitty sold positions (which started as profit-capped positions), the less capital is available to go long on unlimited profit positions.
Bang on.
 
By my math your margin is $2.5k on the low side + $5k on the high side (since IIRC your broker doesn't let you double dip margin), and potentially minus the $2k credit you received (that's not how American brokers typically work but I dunno about Canadia) for a total of maybe $5.5k. Am I missing something?

In any event...Its definitely a good idea to open an IB with a wide spread on the longs, kinda like you have (Especially your ~10% width on the call side). The longs are what control the slope of the butterfly's 'body', and following the area-under-the-curve profit logic from upthread somewhere, the P/L of a wide body sacrifices peak profit for a wider break even range. Conversely, If you were building an inverse IB you might want a narrower spread on the longs, making max loss worse but bringing in your break even points.

Yours is also an asymmetric butterfly, with more risk on the upside than the downside, and it also happens to be a specific instance called a skip strike iron butterfly. If that asymmetry was on purpose, you may also want to consider asymmetric evolutions like the Christmas tree and ratio spreads (sometimes called front or back spreads) for really tailoring P/L (including inverse instances of those strategies).

Note that you can also do 'regular' condors and butterflies (= all calls or all puts) which sometimes actually nets you a better premium than the irons because of the slight variances in prices on either side of the options chain. In some cases they may also reduce the margin requirement of the position because one side of the position actually is a debit spread (so potentially no margin required, just initial capital). You can even take this concept one step farther and make both sides debit spreads (so, puts on the top and calls on the bottom) landing you in zero-margin land for the whole position...though its possible the pretty high price of that ticket might end up equaling the margin requirements of the 'traditional' IB anyway. Just doing a quick run through the options chain your IB with the same strikes just inverted calls and puts would cost you ~$5600.

I've contemplated a number of recurring strategies in my struggles to find the holy grail of selling options, and one of the ones that resonates the most starts with a butterfly. Basically, you sell the weekly butterfly (or IB) and then you take however long you need to take to close it via the flip/split methodology. In that concept you max your time value (and thus your sale of volatility) on the initial IB, and then it just takes you N number of weeks to fully realize that profit. Sometimes you get lucky and N=1, sometimes it could take weeks or even months. Then you just start over with the next IB. Annually that is near guaranteed profit on a fixed amount of capital; the variable is simply how much profit.

Since I'm chatty again, you'll probably evolve to my fave multi-leg ticket, the double calendar. It is any of the above mentioned multi-leg strategies, just with farther expirations on the longs. It can be really effective at catching agnostic directional movement, especially if you can close out the 'losing' long leg early.

Of course, bow tying all of this together, at some point you'll realize that any kind of recurring options selling strategy still requires pretty mature price and volatility analysis to actually play out in the long run (so, more than just TSLA 2020) and then you'll realize that its far less work and far more profitable to simply wait for your analysis to identify strong entry positions rather than stress out staring at stonk prices all day long in an effort to scrape out peanuts in profit by selling recurring short positions. :p

Mind, sometimes we get bored and can't help ourselves. Friday my only position in this account was the TSLA CC. I ran my quick volatility scanner yesterday and, combined with a basic price analysis, opened up a *sugar* ton of ICs. :rolleyes:;)
View attachment 666036
You are right about the margin. TD says $5k and thinkorswim says $720. On my nightly downloads, i have never seen them have the exact value. I am thinking each has its own margin computation? At one point, TD had me at MINUS 950k margin and, of course, i lost sleep that night. Next day I called thinkorswim and they said "ignore the TD margins since you don't trade there, and we have better pairing formula to optimize your account". Nowadays i routinely see -500k margin at TD and i'm like "whatever".

But OMG this is a boatload of gems - there are multiple kinds of butterflies? And some words I can't even pronounce haha. You got my attention and double-take at "Annually that is near guaranteed profit on a fixed amount of capital; the variable is simply how much profit."

I also tried to open another IC an hour ago, but is it my imagination - prems dropped a LOT compared to yesterday. I'm struggling to "click this to duplicate the order" to double my credits.

Printed for more analysis and note-taking. Thanks!!!!
 
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:
tws-op-chn-mos-03-Strategy-Builder.png
Is Interactive calculating the margin on the IC as sum of both sides or max of the two sides?
In this specific case, I see that they are equal, $62500 each side. Was the margin impact $62500 or $62500*2?
 
Is Interactive calculating the margin on the IC as sum of both sides or max of the two sides?
In this specific case, I see that they are equal, $62500 each side. Was the margin impact $62500 or $62500*2?
The maintenance margin impact for that particular IC is shown at the bottom of the image - $100US. IB doesn't use a set formula for portfolio margin, rather a complicated risk based algorithm. I find it too difficult to predict so just run various scenarios to find a margin position I'm happy with. Note that the margin will change over time with the value and risk profile of the position. For example the margin on my 25x 550/575 640/665 IC is currently $71k but was around $68k last night.
 
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Do you guys sell any put today/this week? What SP would you suggest?
I think you are going to have a hard time finding advice here with questions like this and the one previous. We are specifically mentioning over and over and over again - "not advice" for a reason.
You should be coming up with your own investment thesis and if options are a part of that, there are great examples and back and forth examinations and deeper dives into what has already been put out there.
We are trying to post what we have already done, or are about to do in an attempt to "think out loud" for others to gain some confirmation bias on our own investment thesis against others here.
Read up
Paper trade
Start small
Good luck with whatever you do.
 
Im holding -565p but only because I'm naked on those. In my IRA im going with some -580p
I'm balls-deep with puts too:

12x 6/4 p620
5x 6/18 p585
5x 7/16 p545

That's enough exposure for now... If I were selling for this week it would be 597.50's - which is the strike I had until I rolled to the 620's

But only write covered puts, that's my real advice, don't leave yourself open to margin calls in case of another big drop
 
I STO a dozen 625CC either side of $7, a few 630CC for $6 and a heap of 650CC at $2. So around $35k in premiums for this week plus rolls, not too bad provided we don't run a lot further.

Edit: Hmmm maybe a bit premature on the 625CC's but then MM's will have plenty of opportunity between now and Friday. Overall I'm happy if we continue to run up.
 
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My trades from beginning of week:
5/28 -c602.5, -c610, -c617.5, -c620
IC p525 | -p550 | -c620 | c625

Depending on today's price action I may open -cc635 or -c650 as well

It feels like by Friday I'll need to be rolling the CCs and the call arm of the IC, a GOOD problem to have finally!! (although max pain still at 600 at time of this writing)
 
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My trades from beginning of week:
5/28 -c602.5, -c610, -c617.5, -c620
IC p525 | -p550 | -c620 | c625

Depending on today's price action I may open -cc635 or -c650 as well

It feels like by Friday I'll need to be rolling the CCs and the call arm of the IC, a GOOD problem to have finally!! (although max pain still at 600 at time of this writing)
i watched this last night about adjusting IC

 
There is a mechanical component of spreads and iron condors that sort of gets glossed over in all of the education material I've been reading. I'm curious if anybody has had experience with this in general, and more specifically interested in the mechanics for those with Fidelity (where I'm doing these).

Given a call credit spread of 620/650 (made up example) if the shares finish at 630 then I am $10 ITM on the short call, and $20 OTM on the long call.

My question is what happens if I allow the entire spread go to expiration?


What I WANT to happen is for my broker to net out my short ITM position against my long OTM position and take the $10 I owe out of the margin I / they have been holding against the position, possibly resulting in a margin loan should my account equity be too low. Since I will always have adequate cash for this, they just collect the $1000 per contract and we're done.

What I DON'T want to happen is for them to automatically exercise the short ITM position and automatically expire worthless the long OTM position. That would result in me selling 100 shares per contract (I don't want to sell the shares in the account, and I don't want the incremental cost of short shares). And I really don't want a market buy to close for the short shares on Monday. I sort of expect they don't want that either.


This dynamic is important - if it works the way that I want then the various commentary on how things work are just fine. But if it's the latter then there are big holes in the education side of this.

Heck I want to use the first dynamic to easily take my losses and focus more on the win rate and the size of the credits so that they work out over time.

TIA