Wiki Selling TSLA Options - Be the House

[st_lopes]

You can always close the -C's and reopen cash covered puts at net-zero $. That would reduce ∆ exposure but probably wouldn't do much for time decay, since you're so far out in expiry.

Potentially more useful, consider the value of all the -C's as a collective number. Consider breaking off a small number of contracts (like 5% of the total # of contracts) and roll them/it to a close expiration and reasonable strike such that you can expire that single contract. To enable this, roll the rest of the contracts out/up to accomodate.

Say you do that by bringing in one of 20 CCs. At the end of a few weeks or a month or whatever it takes to expire that one contract you're left with 2000 shares but only 19 -C's. So then you split the 19 -C's into one expire-able contract plus a new [ostensibly less favorable] strike/expiry set of 19 contracts. And so on. Over time you may be able to reduce the number of unfavorable rolls required to get one expire-able contract per cycle.

Another alternative--and mind that I haven't fully vetted this concept so its worth doing your own diligence--but you can move around contracts based on where we are on the volatility spectrum. In general, the closer the expiration, the better Vega/$. And in general, the higher the strike, the better Vega/$. So, theoretically, you would move the lot of -C's around (and this can be in conjunction with the 1 for 19 concept above) based on whether volatility is high or low. If volatility spikes, you'd want to find a strike/expiry combo that is as close and as high as possible, as that will burn off the most volatility. Then if volatility dips you roll to a strike/expiry combo that's as far and as low as possible, wait for volatility climb up again, and then roll back to close/high.

***I think. Happy for a logic check on that one...

I had started digging in to that vega curve concept recently, as I’ve watched it play out when I had the -CCs be closer in expiry than purchased leaps at lower strikes. It was maddening to see near term -CC with lower deltas run up against me while the leaps weren’t moving anywhere near as quickly.

I do like the idea of moving some of the contracts more aggressively. The concept of uncovering some of the lots of shares (so as to be able to start selling nearer term credits again for instance) is interesting.

 

[bxr140]

I had started digging in to that vega curve concept recently, as I’ve watched it play out when I had the -CCs be closer in expiry than purchased leaps at lower strikes.

Its definitely a difficult thing to analyze the Vega effect because of the huge impact ∆ has on contract value. And...from practical perspective the rolling-for-vega exercise needs to factor in some underlying price analysis anyway; this kind of rolling optimization game is always going to be a two variable problem to solve.

I don't have any positions in this place right now so its hasn't been on the top of my mind, but maybe I should think more about it...

I do like the idea of moving some of the contracts more aggressively. The concept of uncovering some of the lots of shares (so as to be able to start selling nearer term credits again for instance) is interesting.

Exactly. Its a process that starts pretty slow and picks up steam as you work your way through the contracts. Once you get deep enough into it to breathe you can decide if you want to keep riding the accelerating curve or break away some shares for a different trading strategy.

 

[bxr140]

Does $632 represents material credit potential + underlying potential?

Basically, yes. To be fair it was very napkin math and really could use a more thorough analysis to identify the right number, but the general point is that I'm going to earn guaranteed profit on the -C over the next few days due to time decay, and if that profit is going to cover the potential loss from underlying going up, then its better to stick with the current contract for a bit longer.

"in my experience Roll Thursday is less of a sure thing when you're close to the money."

Clarifying... are you implying that Roll Friday is better? or Roll Wednesday is better? Because I'm assuming you mean the former.

Its a generalization, but yes, the closer your strike is to the money the better it is to hold on for longer due the high theta.

 

[buttershrimp]

Basically, yes. To be fair it was very napkin math and really could use a more thorough analysis to identify the right number, but the general point is that I'm going to earn guaranteed profit on the -C over the next few days due to time decay, and if that profit is going to cover the potential loss from underlying going up, then its better to stick with the current contract for a bit longer.



Its a generalization, but yes, the closer your strike is to the money the better it is to hold on for longer due the high theta.

thanks, I guess I did understand after all, we are just talking breakeven points. fantastic.

My trading platform is letting me see active roll credit calculations by strike . since I’m new to such realtime information, much to my surprise, the roll strike price wasn’t improving today as it got closer and closer to my strike… in fact it was getting worse… like my current strike was exerting gravitational pull on the strike the following week! I was thinking it would be the opposite! But makes sense that this week’s price was going up more sensitively as we approached. Is this gamma? That would be helpful way for me to understand greek! Please let this be gamma.

When price was at 618, I was looking at my 622.5 strike and thinking “surely I would be able to roll one week ahead to a strike of 650”, but it was not happening! Best I could do was 640-645 the following week for a credit. I know you’ll be tempted to say the strike is less important. But as a beginner, I was thinking, “well if I’m wrong on Friday, then at least you don’t screw your underlying stock gaining by rolling”.

this experience today was helpful fail without failing yet…. I identify 628 as my roll point but it sucks to roll to 645 next week. Too low of a strike and a haphazard choice at that!

then I looked one week down the line and saw, I could roll 2 weeks for more strike distance! And then it hit me, I started to understand the lost opportunity next week and week after for very little return!

Such is the lesson of my first roll contemplation. Rolling sucks even if it buys you time…. Try not to have to roll!

@bxr140 I’m noodling this around but what I don’t understand is why waiting for the strike to go DITM is even more problematic for rolling purposes? What Greek letter explains that phenomenon?

thanks again for the driver’s Ed

 

[juanmedina]

thanks, I guess I did understand after all, we are just talking breakeven points. fantastic.

My trading platform is letting me see active roll credit calculations by strike . since I’m new to such realtime information, much to my surprise, the roll strike price wasn’t improving today as it got closer and closer to my strike… in fact it was getting worse… like my current strike was exerting gravitational pull on the strike the following week! I was thinking it would be the opposite! But makes sense that this week’s price was going up more sensitively as we approached. Is this gamma? That would be helpful way for me to understand greek! Please let this be gamma.

When price was at 618, I was looking at my 622.5 strike and thinking “surely I would be able to roll one week ahead to a strike of 650”, but it was not happening! Best I could do was 640-645 the following week for a credit. I know you’ll be tempted to say the strike is less important. But as a beginner, I was thinking, “well if I’m wrong on Friday, then at least you don’t screw your underlying stock gaining by rolling”.

this experience today was helpful fail without failing yet…. I identify 628 as my roll point but it sucks to roll to 645 next week. Too low of a strike and a haphazard choice at that!

then I looked one week down the line and saw, I could roll 2 weeks for more strike distance! And then it hit me, I started to understand the lost opportunity next week and week after for very little return!

Such is the lesson of my first roll contemplation. Rolling sucks even if it buys you time…. Try not to have to roll!

@bxr140 I’m noodling this around but what I don’t understand is why waiting for the strike to go DITM is even more problematic for rolling purposes? What Greek letter explains that phenomenon?

thanks again for the driver’s Ed

You should be able to roll the $622.5 to $650's for small debit while keeping the majority of the original credit that you received when you sold the $622.5s.... at least that's what I am seeing on my side.

Like you I never had a call finish ITM and I been selling calls for while. First week that I decide to sell a 0.2 delta call and this happens lol. I guess the week is not over

 

[buttershrimp]

https://twitter.com/x/status/1397594353015590916

I copied this from the main thread… but it speaks to the idea of creative solutions. Let’s assume Cramer is right (this time)… I could buy back my calls assuming no huge premarket rise… and lose 3k. I’d have to pounce quick! Or alternatively, I could BUY 2 day calls at strike of 630 and through some weird Greek phenomenon (if I had knowledge of such things), maybe I could profit more than simply buying them back and riding my underlying!? My brain hurts. All I know is that this is a bad idea! But I want to know WHY it is a bad idea…. And not just because of the obvious idea that Jim Cramer can and is frequently wrong. My thesis is this: Memorial Day juju… model s event. I don’t understand Greeks and I know I still suck.

I’ll try to give you my crappy answer…

Wait and not move yet. After all, treasury is up, S&p Mini is slightly down , btc is down and Gary black seems to think they track lately, and I got one word for Jim Cramer: “COIN”

 

[buttershrimp]

You should be able to roll the $622.5 to $650's for small debit while keeping the majority of the original credit that you received when you sold the $622.5s.... at least that's what I am seeing on my side.

Like you I never had a call finish ITM and I been selling calls for while. First week that I decide to sell a 0.2 delta call and this happens lol. I guess the week is not over

I’m not seeing that… I see small debit as spending $7000 and selling calls worth $6000 the following week! Ack! The premium I received on that 622.5 was worth $6000 this week

 

[bxr140]

My trading platform is letting me see active roll credit calculations by strike . since I’m new to such realtime information, much to my surprise, the roll strike price wasn’t improving today as it got closer and closer to my strike… in fact it was getting worse… like my current strike was exerting gravitational pull on the strike the following week! I was thinking it would be the opposite! But makes sense that this week’s price was going up more sensitively as we approached. Is this gamma? That would be helpful way for me to understand greek! Please let this be gamma.

Indirectly yes, but primarily its ∆ that was working against you. For a sold option, "unfavorable" underlying movement (in the case of a call, upward underlying movement) results in progressively higher ∆. More movement, higher ∆. It doesn't stop going up until it asymptotes at 1.00, which is equivalent to the ∆ of the 100 shares the option itself represents. In other words, when WAY DITM, the option eventually reacts (more or less) exactly as 100 shares would to underlying movement.

Anyway, gamma is the rate of change of ∆ (so, its derivative) and gamma peaks ~ATM. So while you were generally feeling the double impact of increasing ∆ and increasing gamma, had price kept going ITM you would have still experienced the same "getting worse" phenomenon even though gamma would have started decreasing.

Such is the lesson of my first roll contemplation. Rolling sucks even if it buys you time…. Try not to have to roll!

Yeah. The name of the game when selling options is to not go ITM.

@bxr140 I’m noodling this around but what I don’t understand is why waiting for the strike to go DITM is even more problematic for rolling purposes? What Greek letter explains that phenomenon?

It is the above described ∆ impact. The further ITM a sold option, the more and more ∆ outweighs any other greek.

For a quick comparo, here's the P/L for a $620 -C expiring this week, based on price at close today, then the corollary ∆ and gamma charts.

And just for S&G, here's theta

 

[buttershrimp]

Indirectly yes, but primarily its ∆ that was working against you. For a sold option, "unfavorable" underlying movement (in the case of a call, upward underlying movement) results in progressively higher ∆. More movement, higher ∆. It doesn't stop going up until it asymptotes at 1.00, which is equivalent to the ∆ of the 100 shares the option itself represents. In other words, when WAY DITM, the option eventually reacts (more or less) exactly as 100 shares would to underlying movement.

Anyway, gamma is the rate of change of ∆ (so, its derivative) and gamma peaks ~ATM. So while you were generally feeling the double impact of increasing ∆ and increasing gamma, had price kept going ITM you would have still experienced the same "getting worse" phenomenon even though gamma would have started decreasing.



Yeah. The name of the game when selling options is to not go ITM.



It is the above described ∆ impact. The further ITM a sold option, the more and more ∆ outweighs any other greek.

For a quick comparo, here's the P/L for a $620 -C expiring this week, based on price at close today, then the corollary ∆ and gamma charts.
View attachment 666699

View attachment 666700

View attachment 666702

And just for S&G, here's theta
View attachment 666704

Oh wow , I’m not going to sleep tonight. Delta and gamma are rip tide and undertow respectively ….
There is no life raft except hope once it goes past the strike… it seems like what might be considered courage , maybe Mean reversion or Traders taking profits or end of week hedging . So For tomorrow I am armed with hope that potentially larger sharks feeding on chum at the end of the week might bypass my tiny account of i leave it be.

So where the hell does the 3% rule of thumb come in for rolling? Point of no return?

 

[adiggs]

@bxr140 I’m noodling this around but what I don’t understand is why waiting for the strike to go DITM is even more problematic for rolling purposes? What Greek letter explains that phenomenon?

One simplistic way to see this - pretend that you have sold a 760 put expiring this Friday. You can look up the premium on that - it'll be really close to $140 (760 strike put, 620 share price - very little time value, so pretty much $ for $ ITM).

Go look out 1 week from there - you'll see that the premium 1 week out is like $0.50 higher than the premium for this week is. That incremental 50c (or whatever it actually is) isn't enough to "buy" a better strike.


The further ITM you go, the less and less time value you gain by rolling, and the time value you gain is what you trade back in for a better strike. These days I'm finding that even $50 ITM can be problematic.

 

[juanmedina]

I’m not seeing that… I see small debit as spending $7000 and selling calls worth $6000 the following week! Ack! The premium I received on that 622.5 was worth $6000 this week

So you still get to keep $5k if next week the $650 call expires OTM. At close the roll would have cost you $744 net for 12 calls. That doesn't sound so terrible to me lol.

Max pain is now $610.

 

[buttershrimp]

One simplistic way to see this - pretend that you have sold a 760 put expiring this Friday. You can look up the premium on that - it'll be really close to $140 (760 strike put, 620 share price - very little time value, so pretty much $ for $ ITM).

Go look out 1 week from there - you'll see that the premium 1 week out is like $0.50 higher than the premium for this week is. That incremental 50c (or whatever it actually is) isn't enough to "buy" a better strike.


The further ITM you go, the less and less time value you gain by rolling, and the time value you gain is what you trade back in for a better strike. These days I'm finding that even $50 ITM can be problematic.

It’s so simple! Do you find the 3% itm rule to be good rule of thumb for rolling?

 

[UltradoomY]

Will be looking to roll my 6/18 $620 bought calls this morning for another week and a credit to keep them ATM -ish.
Did that on Monday from $600 6/11's to the 6/18 $620's for $5 per contract. Will be looking for $640ish and another $5 per and an extra week!

 

[Chenkers]

Max pain is now $610.

As expected the Puts have now overtaken the Calls at $600 with max pain at $610. Looking at the OI chart it looks like the MM's will be incentivised for a close somewhere between $610 and $620. I'm feeling pretty comfortable with my $625 covered calls at this stage. I also rolled the Put side of my iron condors up from 550/575 to 560/597.5 for another $3125 in credit.

 

[UltradoomY]

Will be looking to roll my 6/18 $620 bought calls this morning for another week and a credit to keep them ATM -ish.
Did that on Monday from $600 6/11's to the 6/18 $620's for $5 per contract. Will be looking for $640ish and another $5 per and an extra week!

Done - went with 6/25 $635 strike bought call on this roll to keep it ATM. Might roll again later today or tomorrow if it goes ITM again for another week of time and a credit - credit on this roll was $3.85 per contract.

I like to post my bought calls here because we focus a LOT on sold contracts but there is a lot of value to understanding the process and options to roll with bought positions.

 

[juanmedina]

for the people that rolled covered calls before, do you like to roll them a week out or two weeks out?

 

[UltradoomY]

for the people that rolled covered calls before, do you like to roll them a week out or two weeks out?

Depends on what you are looking to do, for a sold position that is going to be underwater, I prefer to roll when theta is low (tomorrow) and for a week.

 

[Yoona]

for the people that rolled covered calls before, do you like to roll them a week out or two weeks out?

i changed my CC strategy the last few weeks... sell on next week (more prem) and roll from there; it keeps me away from the stress of chasing/babysitting current week changes

for example: this friday i will roll my jun4 to jun 11 (instead of may28 to jun4)

 

[alterac000]

for the people that rolled covered calls before, do you like to roll them a week out or two weeks out?

Depends on what you are looking to do, for a sold position that is going to be underwater, I prefer to roll when theta is low (tomorrow) and for a week.

I also have been rolling on Fridays for a week. Next week will be an exception for me since I won't be able to babysit next Friday due to work, so I will be doing 2 weeks out this time.

 

[alterac000]

i changed my CC strategy the last few weeks... sell on next week (more prem) and roll from there; it keeps me away from the stress of chasing/babysitting current week changes

for example: this friday i will roll my jun4 to jun 11 (instead of may28 to jun4)

If you are rolling ahead like this how to you identify your exit points?