Wiki Selling TSLA Options - Be the House

[Yoona]

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

if i still have theta to burn, i will roll next week instead of fri. (this moves me back to the 'roll current week' mode)

if no theta to burn, roll to best guess based on maxpain and gut feel and tesla upcoming news.

that is my uneducated strategy! need to learn more as experience grows...

 

[bxr140]

There is no life raft except hope once it goes past the strike…

The good news is there's no cliff. It just gets progressively worse. Its good to start thinking about what to do as price approaches your strike, but its also valuable to maintain confidence in your initial strike selection. (That's assuming you're applying some kind of price analysis logic to strikes. If you're just selecting them based on credit or % OTM or ∆ or whatever its pretty much just gambling.)

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.

Bit meta here, but that's always the case. IMHO your goal with any kind of short term trading is to make sure you're swimming in the same direction as the sharks. Oh, and that you're behind them.

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

What's the 3% rule?

 

[bxr140]

Max pain is now $610.

Remember that the actual max pain value is pretty worthless. It identifies the exact lowest point of this road through this valley.

What can be sometimes useful, and is nicely illustrated on maxpain.com, is large open interest spikes in puts and calls. Of course, they shouldn't be used as a primary analysis tool--as noted upthread somewhere, even big spikes in options still represent just a fraction of overall TSLA cashflow--but they can definitely enhance your analysis and increase the probability of your analysis being correct.

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

I usually do weeklies, so I'm almost always rolling them just a week out. I'll usually roll on Thursday or Friday, depending on how close strike is to underlying. If the contracts are far enough ITM that I can't roll up at least a strike in just one week I'll start to look to two week rolls and so on. But...often in that case of too DITM CCs I'll just let them expire and let my shares get called. I made my profit on the sale of the call; that was the point of the covered call anyway. That I missed out on more profit from favorable underlying movement is a scenario I accepted when I sold the call.

What day to roll is dependent on how ITM or OTM you are plus your future price analysis. First, if you're DITM and have little time value, roll ASAP because you're at high risk of early execution (BTDT). Next, if you think there's going to be a spike in underlying that would be unfavorable to your currently OTM call, close the call or let it expire this week to give your shares room to run next week.

If you have a really confident price target for next week that you can roll to now for (hopefully) credit, it may be better to just roll now and lock in your analysis. Finally, and probably most likely, if you're close to the money or a little underwater, find the strike for next week that is a net-zero (or small credit) roll. Assuming that strike is below your price analysis for next week (= your roll will be suboptimal), compare your current contract's theta to that contract's theta. If next week's prospective contract has lower theta, hold. If the current contract has lower theta, roll.

 

[tradenewbie]

newbie question, if we have to roll cc, why don't we roll to a higher strike price at same expiry date (assuming we still earn some premium but not that much)? If we roll to next week (with a credit and higher strike price), isn't it too early to analyze the movement for next week.?

For example, I have a 612.5cc (expired this week) which is very likely need to roll, shouldn't I roll up to a higher strike price (eg. 630cc, expired this week, debit some money but still earn some premium) instead of rolling to 630cc (expired next week, with tiny credit)?

 

[CHGolferJim]

newbie question, if we have to roll cc, why don't we roll to a higher strike price at same expiry date (assuming we still earn some premium but not that much)? If we roll to next week (with a credit and higher strike price), isn't it too early to analyze the movement for next week.?

For example, I have a 612.5cc (expired this week) which is very likely need to roll, shouldn't I roll up to a higher strike price (eg. 630cc, expired this week, debit some money but still earn some premium) instead of rolling to 630cc (expired next week, with tiny credit)?

I believe that is entirely a matter of determining what cost/gain you’re willing to accept + of course, the extra risk of a price rise the following week.

 

[bxr140]

newbie question, if we have to roll cc, why don't we roll to a higher strike price at same expiry date (assuming we still earn some premium but not that much)?

Because you have to pay to roll up in the same week. That necessarily eats into your originally collected premium and, more often than not in the case where you'd actually contemplate such a roll (because underlying has moved unfavorably for your call), you will likely have to pay more than the originally collected premium on the call.

 

[corduroy]

That huge pop in the last 10 minutes today sure reinforces the danger of holding close call options to expiration. I imagine if that happened on a Friday it would cause some "unexpected" results.

 

[juanmedina]

The IV is so low is killing my LEAPS they are not making any money, for instance I bought one of them on 5/13 when the stock was $575 and I am up 1.7% and the stock is up 10% WTF. I think I may off load all my calls before earnings because I think it will be a while before IV trends up and I am not willing to find out.

 

[ReddyLeaf]

That huge pop in the last 10 minutes today sure reinforces the danger of holding close call options to expiration. I imagine if that happened on a Friday it would cause some "unexpected" results.

Yes, or even waiting until Friday. Damn, tomorrow will be very interesting for my -c635s. I was thinking that they were safe just a few hours ago. Happy to buy them back, even at a loss, because it means the stock has finally turned around.

 

[buttershrimp]

Yes, or even waiting until Friday. Damn, tomorrow will be very interesting for my -c635s. I was thinking that they were safe just a few hours ago. Happy to buy them back, even at a loss, because it means the stock has finally turned around.

Fascinating indeed.... I assume this was rather large ETF or fund buying just before the close? They know last 11 pre-memorial days in a row Tesla has gone up.... If that's true for facebook too, it would be interesting if that is why those two went up.

That being said, tomorrow is a shortened day. The market closes 1 hour earlier correct? Best get my roll on by noon if that is what is needed.

The fact that price can go up that dramatically that fast on a large volume stock like TSLA confuses me. How does the Bid Ask spread adapt that quickly to large clumped buy orders?

 

[buttershrimp]

Remember that the actual max pain value is pretty worthless. It identifies the exact lowest point of this road through this valley.
View attachment 666800

What can be sometimes useful, and is nicely illustrated on maxpain.com, is large open interest spikes in puts and calls. Of course, they shouldn't be used as a primary analysis tool--as noted upthread somewhere, even big spikes in options still represent just a fraction of overall TSLA cashflow--but they can definitely enhance your analysis and increase the probability of your analysis being correct.



I usually do weeklies, so I'm almost always rolling them just a week out. I'll usually roll on Thursday or Friday, depending on how close strike is to underlying. If the contracts are far enough ITM that I can't roll up at least a strike in just one week I'll start to look to two week rolls and so on. But...often in that case of too DITM CCs I'll just let them expire and let my shares get called. I made my profit on the sale of the call; that was the point of the covered call anyway. That I missed out on more profit from favorable underlying movement is a scenario I accepted when I sold the call.

What day to roll is dependent on how ITM or OTM you are plus your future price analysis. First, if you're DITM and have little time value, roll ASAP because you're at high risk of early execution (BTDT). Next, if you think there's going to be a spike in underlying that would be unfavorable to your currently OTM call, close the call or let it expire this week to give your shares room to run next week.

If you have a really confident price target for next week that you can roll to now for (hopefully) credit, it may be better to just roll now and lock in your analysis. Finally, and probably most likely, if you're close to the money or a little underwater, find the strike for next week that is a net-zero (or small credit) roll. Assuming that strike is below your price analysis for next week (= your roll will be suboptimal), compare your current contract's theta to that contract's theta. If next week's prospective contract has lower theta, hold. If the current contract has lower theta, roll.

I'm looking at theta from close at 622.50 which says -1.5 and theta next week at 625 and 645 are -.9 and -0.87 respectively... so I'm not understanding why one of these is not lower than the other? Is it becasue it's already ITM?

 

[adiggs]

I'm looking at theta from close at 622.50 which says -1.5 and theta next week at 625 and 645 are -.9 and -0.87 respectively... so I'm not understanding why one of these is not lower than the other? Is it becasue it's already ITM?

The first one says that you'll see about $1.50 decrease in option premium tomorrow due to time decay (-1.5/day). The latter two are saying option premium will decrease 90 cents and 87 cents respectively.

Actual theta will be a chunk of whatever time value is remaining, with a strong acceleration as you approach expiration. Time value is guaranteed to be 0 at expiration, so it all has to decay (theta) by then.

 

[juanmedina]

Yes, or even waiting until Friday. Damn, tomorrow will be very interesting for my -c635s. I was thinking that they were safe just a few hours ago. Happy to buy them back, even at a loss, because it means the stock has finally turned around.

I chicken out earlier today and bough back most of my CC's. I still have 2x $625 and 2x $630s and one $635 for my parents. Whenever I do something the stock goes the other way so is probably good for you guys.

I have 5x $655/675 and 10x $660/680 credit spreads that should cover most of my loss. Hopefully the spreads are safe. I am not born for this kind of stressful week .

 

[bxr140]

I'm looking at theta from close at 622.50 which says -1.5 and theta next week at 625 and 645 are -.9 and -0.87 respectively... so I'm not understanding why one of these is not lower than the other? Is it becasue it's already ITM?

Theta peaks ATM and drops off on both sides. See the last screenshot in this post, which shows what theta will be (Y axis) for that specific strike based on where underlying goes (X axis). So its really not about whether or not the contract is ITM or OTM, its about how close the strike is to underlying.

That's why the 645 for next week has a lower theta than 625. We closed today at ~631, so the 625 is ~$6 away from underlying while the 645 is ~$14 away.

As @adiggs notes, theta also generally increases as expiration gets closer.

Ah yes, here it is.

 

[buttershrimp]

Fascinating indeed.... I assume this was rather large ETF or fund buying just before the close? They know last 11 pre-memorial days in a row Tesla has gone up.... If that's true for facebook too, it would be interesting if that is why those two went up.

That being said, tomorrow is a shortened day. The market closes 1 hour earlier correct? Best get my roll on by noon if that is what is needed.

The fact that price can go up that dramatically that fast on a large volume stock like TSLA confuses me. How does the Bid Ask spread adapt that quickly to large clumped buy orders?

Anyone have opinion on likely mechanism of that fast increase in Tesla and Facebook? Last 10 min?

 

[buttershrimp]

Finally, and probably most likely, if you're close to the money or a little underwater, find the strike for next week that is a net-zero (or small credit) roll. Assuming that strike is below your price analysis for next week (= your roll will be suboptimal), compare your current contract's theta to that contract's theta. If next week's prospective contract has lower theta, hold. If the current contract has lower theta, roll.

this last paragraph is what I don’t see, -1.5 < -.8 … so I understand @adiggs explanation but I also figure you might be looking at an actual value… that’s why it didn’t make sense to me… what “ if lower theta than next week ” you say “hold”?

thanks in advance!

 

[adiggs]

The first one says that you'll see about $1.50 decrease in option premium tomorrow due to time decay (-1.5/day). The latter two are saying option premium will decrease 90 cents and 87 cents respectively.

Actual theta will be a chunk of whatever time value is remaining, with a strong acceleration as you approach expiration. Time value is guaranteed to be 0 at expiration, so it all has to decay (theta) by then.

I can even expand on this idea without getting into the math (somewhere down this rabbit hole we arrive at calculus) to inform intuition.

If there is 1 day to expiration (start of trading on the final day) then conceptually theta is equal to the time value. I.e. a $5 OTM option will have a theta around -5.

That same option 2 days to expiration will have a theta around -2.5 (2.50 today and 2.50 tomorrow). If it were 5 days to expiration then it might be something like -1.

The point here is that whatever the time value / extrinsic value are it will need to be 0 at the end of trading on expiration day. The % of that extrinsic value that decays each day will increase as the option gets closer to expiration, with that being 100% on the final day.

 

[buttershrimp]

from Twitter
“lots of names moving around end of day.
Maybe Tesla shorts are getting skittish with $AMC 50% squeeze up intraday.
$GME pushing up to $264 too

Meanwhile $AAPL sold off into close, so may be some funds that were getting squeezed having to rotate out of winners to cover losers.

 

[buttershrimp]

I can even expand on this idea without getting into the math (somewhere down this rabbit hole we arrive at calculus) to inform intuition.

If there is 1 day to expiration (start of trading on the final day) then conceptually theta is equal to the time value. I.e. a $5 OTM option will have a theta around -5.

That same option 2 days to expiration will have a theta around -2.5 (2.50 today and 2.50 tomorrow). If it were 5 days to expiration then it might be something like -1.

The point here is that whatever the time value / extrinsic value are it will need to be 0 at the end of trading on expiration day. The % of that extrinsic value that decays each day will increase as the option gets closer to expiration, with that being 100% on the final day.

I don’t understand why the number becomes more negative the closer it is to expiration … I keep thinking of it being like a Greek that can’t be bigger than 1 or -1 … or alternatively something that can be added to other numbers to make more premium … so why the heck doesn’t theta do that? I am thinking of it like a $2 itm strike should be with a premium of “$7” if it is 5 days out where in this example the theta = 5 for $5 and so the $2 is the intrinsic itm part?

 

[bballshinobi]

I don’t understand why the number becomes more negative the closer it is to expiration … I keep thinking of it being like a Greek that can’t be bigger than 1 or -1 … or alternatively something that can be added to other numbers to make more premium … so why the heck doesn’t theta do that? I am thinking of it like a $2 itm strike should be with a premium of “$7” if it is 5 days out where in this example the theta = 5 for $5 and so the $2 is the intrinsic itm part?

Think of it like a basketball game. If you are down 10 points ($10 OTM) and there are 10 mins left in the game (time left on the call option), your chance to come back and win the game goes down exponentially instead of linearly with each passing minute. The chance to win while down 10 points with 10 mins left might be 20%, but it will be something like 0.0001% if there’s only 1 min left.