Wiki Selling TSLA Options - Be the House

[adiggs]

I've been applying my personal new rule that goes in there with "roll for a net credit" today. When an OTM position is ATM or slightly ITM, then add a week and roll to the best new strike available.

In accord with this new rule I rolled some -600p for tomorrow expiration down to -580p for Jun 11 expiration.

And then rolled again just now to -565p for Jun 18 expiration.


My rationale for this rule is that I'm in this for dividend like income and these ATM rolls are way better than letting ITMness stack up and roll later. I don't know if we're going to continue down from here or not, but if we do I have a $35 better strike for these puts than I would have had otherwise.

The way I think about this 'rule' is that I am postponing the profit from the original position by a week for each roll in exchange for lower risk. If the shares keep going down like this then I can still find myself deep enough ITM that I can no longer keep up, but the strike when that happens will be a lot better.

 

[adiggs]

Same situation but with 600 strike. Thinking of rolling tomorrow to 580 or 585 for jun11, would rather not take assignment if I don't have to.

I suggest checking in on the available roll and see if 580 next week (for a credit) is still available.

 

[adiggs]

Like @adiggs I have some puts to treat for this week, 12x ccp62 & 12x ccp610 - I was monitoring these yesterday trying to decide whether, when to roll and to what strike. I observed a +$10 premium for a roll to the same strike, whereas intrinsic it should have been closer to $12, so I decided to wait-and-see, won't change much, plus this drop we've seen is totally manufactured, could reverse by close Friday

You have previously mentioned that you see the current share price as being a coiled spring (goes nicely with the current drop being manufactured point of view). Would you elaborate (when convenient) on what leads you to this position?

I ask this question seriously - not as some sort of challenge to your point of view. I would like to understand better what you're seeing - I can then decide for myself if I agree more than I disagree.


I continue to see TSLA in more of a downtrend for at least the remainder of this quarter and possibly for the rest of this year. I do see the downtrend as more of a drift down than a spike - so somewhat flattish to down. The bulk of my point of view comes from my own observation that I don't see (with 1 potential exception) any significant news this year that will draw a significant number of new owners into the stock.

The two upcoming 'events' that I believe will move the needle in a significant way are:
1) widespread availability of city NOA with functionality that is amazingly good. It has everybody going wow, especially including the car and mainstream media. I am increasingly seeing this as a next year event and not this year. Too many delays and too many changes along the way this year, along with a big drop (at least that I have witnessed) in the number of new city NOA videos from the beta testers.

My rationale for this event being such a big deal is that seeing the idea of autonomous vehicles starting to come to life will draw new investors that want to be in on the ground floor of such a society wide change.


2) Amazing financials that make the leverage and profitability obvious to the financial metrics investors. I say the financial metrics investors as I see that as the source for significant new owners of the shares, but until the financial metrics are blindingly obvious (multiple $/share earnings), they won't be involved.

I put all of the new battery tech, new product introductions, new factories coming online and ramping, into this bucket. They are all in service to more volume, more revenue, and hopefully more and increasing profitability. For the universe of non-investors I don't see any of this moving the needle for them. (As a long term investor I personally am excited about every bit of this).


In the meantime I see a new trading range being established. I don't have a strong opinion about the top and bottom of the new trading range. I guess my initial candidate is somewhere in the low 400s (share price before S&P announcement) and 695 (S&P entry price). That is kind of a big range - about $1500 in pre-split $ when the pre-split trading ranges were more like $100. Since the S&P inclusion did bring a lot of new owners into the stock I suspect that the bottom of the range is going to be closer to $500 or $550 (again - totally a guess).

Heck if we're at the start of another 5 year sideways trading window I won't be surprised (I really hope I'm wrong about that!).


(All my own opinions of course!)

 

[bxr140]

the current share price as being a coiled spring

This is probably better shown in the technical thread, but any time price starts to consolidate and volatility goes down, it is probable that at some point the price will make a strong move out of the consolidation. The trick is to identify the strength of the coiling (and corollary uncoiling) and, you know, which direction it actually moves out of the consolidation.

We're currently working on a descending triangle (which is a bullish pattern) and yesterday we broke to the downside of a strong shorter timeframe uptrend (which was a strong sell signal, hopefully everyone realized that). While 'probability' is most certainly not 'certainty', It is most probable we're now headed back to test the bottom of the triangle at ~550 or so. Should we confirm the triangle and reverse that means we're still coiling and it is most provable that macro volatility will continue to go down (so selling options, especially longer dated options, becomes a progressively worse idea). The good news is that in that confirmation-reversal scenario there's a bit of upside room to run even within the big picture consolidation. Its just unlikely that the spring will completely 'uncoil'.

On the flip side, if we break below the triangle, especially with a strong red day, we're likely headed farther down--at least to close to ~400.

That said, this is the third and largest/longest consolidation for TSLA in the post-covid days. August and then December had amazing pops, but they were also stronger consolidations. So...its also possible this triangle we're working now is not as strong and as such the "uncoiling" may not be as explosive (or definitive).

 

[buttershrimp]

I've been applying my personal new rule that goes in there with "roll for a net credit" today. When an OTM position is ATM or slightly ITM, then add a week and roll to the best new strike available.

In accord with this new rule I rolled some -600p for tomorrow expiration down to -580p for Jun 11 expiration.

And then rolled again just now to -565p for Jun 18 expiration.


My rationale for this rule is that I'm in this for dividend like income and these ATM rolls are way better than letting ITMness stack up and roll later. I don't know if we're going to continue down from here or not, but if we do I have a $35 better strike for these puts than I would have had otherwise.

The way I think about this 'rule' is that I am postponing the profit from the original position by a week for each roll in exchange for lower risk. If the shares keep going down like this then I can still find myself deep enough ITM that I can no longer keep up, but the strike when that happens will be a lot better.

Samsies! rolled to next week for credit on puts.... but the wild child within me decided to BTO 40x +c 600 6/4 for $3,800 . We'll see if we can get a pop on this total Michael Burry induced dip.

 

[Criscmt]

Looking for inputs on rolling 06/04 Put credit spreads: +670P/-675P
This was originally an IC. I closed the call side spread today.

Margin:

• I did this using my margin. My account is with Interactive Broker who don't give time to meet the margin call, instead are known to liquidate to meet margin requirements without prior notice.
• I must accommodate the possibility of the Share Price going lower from current levels potentially triggering Margin call.
• Current "Buying Power": Due to this spread, today my Buying Power is 0

Should I roll? At what level is it worth taking loss than rolling?

If I should be rolling, what is the right timing tomorrow for rolling, and the criteria to pick the roll (strike, expiry, and net debit/credit)

@bxr140 @adiggs, and others, I appreciate your help!

 

[adiggs]

Looking for inputs on rolling 06/04 Put credit spreads: +670P/-675P
This was originally an IC. I closed the call side spread today.

Margin:

• I did this using my margin. My account is with Interactive Broker who don't give time to meet the margin call, instead are known to liquidate to meet margin requirements without prior notice.
• I must accommodate the possibility of the Share Price going lower from current levels potentially triggering Margin call.
• Current "Buying Power": Due to this spread, today my Buying Power is 0

Should I roll? At what level is it worth taking loss than rolling?

If I should be rolling, what is the right timing tomorrow for rolling, and the criteria to pick the roll (strike, expiry, and net debit/credit)

@bxr140 @adiggs, and others, I appreciate your help!

Are these 675's or 575's?

I ask because if it's 675's then it sounds like taking the max loss is the thing to do. I don't see a feasible way to roll something in the upper 600s, nor does there appear to be much on the table to put in the energy.

Given 575s I don't really have much of an idea. Managing the side of an IC that is under pressure is still something I'm figuring out as well. For now I'm choosing my entries assuming that my exit strategy on the losing side is to take the loss, hopefully less than a max loss. See - not much here

 

[Criscmt]

Looking for inputs on rolling 06/04 Put credit spreads: +670P/-675P
This was originally an IC. I closed the call side spread today.

Margin:

• I did this using my margin. My account is with Interactive Broker who don't give time to meet the margin call, instead are known to liquidate to meet margin requirements without prior notice.
• I must accommodate the possibility of the Share Price going lower from current levels potentially triggering Margin call.
• Current "Buying Power": Due to this spread, today my Buying Power is 0

Should I roll? At what level is it worth taking loss than rolling?

If I should be rolling, what is the right timing tomorrow for rolling, and the criteria to pick the roll (strike, expiry, and net debit/credit)

@bxr140 @adiggs, and others, I appreciate your help!

My bad, these are 570/575P.

 

[Chenkers]

Looking for inputs on rolling 06/04 Put credit spreads: +670P/-675P
This was originally an IC. I closed the call side spread today.

Margin:

• I did this using my margin. My account is with Interactive Broker who don't give time to meet the margin call, instead are known to liquidate to meet margin requirements without prior notice.
• I must accommodate the possibility of the Share Price going lower from current levels potentially triggering Margin call.
• Current "Buying Power": Due to this spread, today my Buying Power is 0

Should I roll? At what level is it worth taking loss than rolling?

If I should be rolling, what is the right timing tomorrow for rolling, and the criteria to pick the roll (strike, expiry, and net debit/credit)

@bxr140 @adiggs, and others, I appreciate your help!

So 570/575 Put spreads remaining from an IC. If we close above $575 these will expire worthless. Given there was still a Put wall at 600 and a Call wall at 610 I'd be expecting a move up from here that would likely see these expire worthless. If not you can always decide to roll them before expiry. Looking at my IB, these Put spreads have a price around $2 each and a maintenance margin impact of just $343 each. Your buying power may be zero but it really depends what your maintenance margin is. If MM is close to zero then you could be in danger of liquidation. There's a few things you can do to overcome this. Selling some 6/4 covvered calls will only give a little MM and a bit risky going out later but can creep back buying power. Buying a cheap Put will give you the most MM boost but that depends if IB will let you purchase them.

It's also worth assessing what happens to your MM as the stock price goes lower. For me MM has been increasing as the share price drops as the bought side of the Put spread starts adding MM as it goes more in the money, similar to what buying a Put will do. So you may find you are OK with MM to just ride it out and hope for the spreads to expire worthless or else roll them out a week before close. I'm still holding 6/4 IC's with Put sides well ITM (595/620) but I won't be rolling those out a week until closer to expiry and hopefully on whatever raise we may get. I still expect us to go up from here so will keep rolling them out until they expire worthless. I also keep a decent MM buffer so I'm not in immediate danger of liquidation.

 

[MikeC]

Anyone run into Good Faith Violations when selling options? I'm trying to figure out why I got one.

If you sell an option and then buy it back in the same day - with no extra cash in the account - is that considered free riding? I guess you are technically buying it back with unsettled funds from the option sale before it is settled.

 

[UltradoomY]

Anyone run into Good Faith Violations when selling options? I'm trying to figure out why I got one.

If you sell an option and then buy it back in the same day - with no extra cash in the account - is that considered free riding? I guess you are technically buying it back with unsettled funds from the option sale before it is settled.

I have not run into that - was it a CC?
I can possibly see that if it was a naked call sold and your account value is under the threshold

 

[MikeC]

I have not run into that - was it a CC?
I can possibly see that if it was a naked call sold and your account value is under the threshold

Yes, sold a CC for $4.10, then bought it back for $2.85. I think all my cash at the time was being used for cash-secured puts.

 

[UltradoomY]

Yes, sold a CC for $4.10, then bought it back for $2.85. I think all my cash at the time was being used for cash-secured puts.

I would call your broker - a covered call should not fall under the good faith rule

 

[MP3Mike]

Anyone run into Good Faith Violations when selling options? I'm trying to figure out why I got one.

If you sell an option and then buy it back in the same day - with no extra cash in the account - is that considered free riding? I guess you are technically buying it back with unsettled funds from the option sale before it is settled.

Yes. Options take one day to settle, while normal stocks take 3 days. So if you sell an option, and then buy anything else with the proceeds you can't sell the new position until the next day without violating the good faith rule. (Unless you are in a margin enabled account.)

 

[bxr140]

@bxr140 @adiggs, and others, I appreciate your help!

Seems like this is going to work out for you anyway, but a few thoughts for next time, in no particular order:

1. Consider a wider spread. One strike apart often doesn't maximize return on margin (at least from study I did a few years ago, ~2-3 strikes apart is the sweet spot for that) and the tighter the spread, the more binary the position. I typically do 20-30$ spreads on TSLA at this price range and sometimes up to 50. A practical side benefit is you end up with fewer total contracts, which is useful if you have a hard time stomaching the kick-in-the-head commission from rolling or closing early. Its all relative (bigger position typically is bigger return), but still, it sucks to close 100x ICs or whatever at ~50 cents a contract.

2. "Timing" the market is a gamble. (I can't give advice on gambling) Instead, develop entry and exit points before you open a position....then timing becomes a non-issue. The follow on to that: if for whatever reason you make a real time decision that you need out of a bad position--including rolling to avoid ITM execution, and including superseding your entry and exit points--do it ASAP.

3. IMHO it is not worth taking a loss until you can't practically recover. The major issue here is that the casino odds of selling options means that if you always just take the loss, you will lose money. Beyond that, as no doubt opined upthread at some point, that's my own personal rule and its definitely capital inefficient, but it also provide structure to next actions in what can otherwise be a frustrating/emotional scenario. THE WORST thing a trader can do after a bad beat is to try and recover the loss on the next cycle, and by forcing myself to recover from the current bad position I pretty much box myself out of turning around that capital and doing something stupid with it. The only thing worse than losing $25k on a bad spread is turning that capital right around into another $25k loss. BTDT.

4. Broken record here on price analysis, but consider more defensible strikes. ~$550 is clearly a support price right now; that would have been a stronger anchor leg than 575.

5. Read through your IBKR terms. They're not doing anything they haven't already told you they would do.

6. NEVER let buying power get anywhere close to 0. Always have buying power in reserve for things like roll-splits and, if you're selling naked options, margin hikes. A good rule of thumb is having ~double the margin you need for the sum of the positions you're opening. If you're opening really diversified set of positions (like, ICs for 5 different tickers) you might be able to reduce that under the statistical probability that not all 5 ICs are going to go into the *sugar*.

7. Criteria for selecting future contracts is pretty well laid out upthread. I'm a strong proponent of never-for-debit. If you're going to take a debit, you close out completely. Rolling at a debit is a pretty JV play as it reduces profit (since that debit is explicitly reducing the initial credit) while maintaining the same amount of risk in what has already proven to be a bad trade.

 

[bxr140]

If you sell an option and then buy it back in the same day - with no extra cash in the account - is that considered free riding? I guess you are technically buying it back with unsettled funds from the option sale before it is settled.

Yep. That's a day trade and the good faith violation is probably because of the unsettled funds.
Doesn't matter what kind of position it is.

 

[buttershrimp]

Yay! More than doubled my money on those 40x calls…. If I had known what I was doing I would have tripled my money. But 4K isn’t bad for a lotto ticket gamble. Good times. I’m never doing that again. .

Somehow made it out of this week alive… will pick up next week with my 19 puts in place at 597.50! Time to drink heavily … what a week!
Cheers!

 

[deerfield]

Seems like this is going to work out for you anyway, but a few thoughts for next time, in no particular order:

1. Consider a wider spread. One strike apart often doesn't maximize return on margin (at least from study I did a few years ago, ~2-3 strikes apart is the sweet spot for that) and the tighter the spread, the more binary the position. I typically do 20-30$ spreads on TSLA at this price range and sometimes up to 50. A practical side benefit is you end up with fewer total contracts, which is useful if you have a hard time stomaching the kick-in-the-head commission from rolling or closing early. Its all relative (bigger position typically is bigger return), but still, it sucks to close 100x ICs or whatever at ~50 cents a contract.

2. "Timing" the market is a gamble. (I can't give advice on gambling) Instead, develop entry and exit points before you open a position....then timing becomes a non-issue. The follow on to that: if for whatever reason you make a real time decision that you need out of a bad position--including rolling to avoid ITM execution, and including superseding your entry and exit points--do it ASAP.

3. IMHO it is not worth taking a loss until you can't practically recover. The major issue here is that the casino odds of selling options means that if you always just take the loss, you will lose money. Beyond that, as no doubt opined upthread at some point, that's my own personal rule and its definitely capital inefficient, but it also provide structure to next actions in what can otherwise be a frustrating/emotional scenario. THE WORST thing a trader can do after a bad beat is to try and recover the loss on the next cycle, and by forcing myself to recover from the current bad position I pretty much box myself out of turning around that capital and doing something stupid with it. The only thing worse than losing $25k on a bad spread is turning that capital right around into another $25k loss. BTDT.

4. Broken record here on price analysis, but consider more defensible strikes. ~$550 is clearly a support price right now; that would have been a stronger anchor leg than 575.

5. Read through your IBKR terms. They're not doing anything they haven't already told you they would do.

6. NEVER let buying power get anywhere close to 0. Always have buying power in reserve for things like roll-splits and, if you're selling naked options, margin hikes. A good rule of thumb is having ~double the margin you need for the sum of the positions you're opening. If you're opening really diversified set of positions (like, ICs for 5 different tickers) you might be able to reduce that under the statistical probability that not all 5 ICs are going to go into the *sugar*.

7. Criteria for selecting future contracts is pretty well laid out upthread. I'm a strong proponent of never-for-debit. If you're going to take a debit, you close out completely. Rolling at a debit is a pretty JV play as it reduces profit (since that debit is explicitly reducing the initial credit) while maintaining the same amount of risk in what has already proven to be a bad trade.

I have -p585/p580 spread. Is #1 the reason why I can't seem to roll for credit yesterday when it was ITM no matter how many weeks I go out?

 

[bxr140]

I have -p585/p580 spread. Is #1 the reason why I can't seem to roll for credit yesterday when it was ITM no matter how many weeks I go out?

Effectively, yes (though to be clear that wasn't the intent of my #1). The B/A on the two contracts end up being so close that there's really no material value in the spread

 

[redan]

I sold 45x $642.50s this morning for $.53. I figured I'd at least try and get some premiums this week. I'll probably look to close them out today prior to close and decide whether or not to re-sell tomorrow if we can finally get a pop. Current premiums are so low I'm not willing to chase to a super-low strike (yet).

I did close those covered calls out last night for $.10 to give myself another shot at re-selling on an expected pop today. So today I tried to day-trade some covered calls on a slightly more aggressive scale to scalp some more "safe" premium (or at least what I thought to be safe!). I had targeted $605s before open, thinking (1) we'd get a morning pop carrying over from pre-market and (2) the call wall at $600 would provide support.

My plan worked great initially, but it was soon apparent I acted too quickly. I sold 45x $605s for $.72 when the stock was around $585 (around 9:45 am or so), but if I had held out for 30 more minutes (the time I expected a MMD), the same calls went for over $3 as the SP approached $595, so more than 4x what I sold them for.

It was not a leisurely Friday afternoon experience, but I felt pretty comfortable that the $600 call wall would hold - and it did. But it was a lot more nerve wracking than it could have been if I had been able to 4x my premium. I wound up closing out for $.02 a few minutes before close. However, it turned a so-so week into a better week. I made 45x $1.13 premiums for the week ($.43 and $.70) on two day trades.

Hopefully we carry this new-found momentum into next week. I did not open any positions for next week, but will watch and see how things unfold.