Wiki Selling TSLA Options - Be the House

[corduroy]

After reading more delivery projections, I decided to use that dip 10 minutes before close to BTC all my Friday $695 -Cs near the low of the day at $6.05 for about break even (very small profit). I feel much more relaxed now about the delivery numbers Friday. For me, punching out of the trade at break even, although I might have given up profits, is worth the better nights of sleep.

 

[jeewee3000]

After reading more delivery projections, I decided to use that dip 10 minutes before close to BTC all my Friday $695 -Cs near the low of the day at $6.05 for about break even (very small profit). I feel much more relaxed now about the delivery numbers Friday. For me, punching out of the trade at break even, although I might have given up profits, is worth the better nights of sleep.

I hear you. I'm not selling any CCs this week. If SP were to pop, things can move quickly. The only strikes I deem 'safe' provide lousy premiums. If numbers were to be released on friday and there's an immediate 8% pop I might consider selling ccs during the high IV of the spike. But most likely I'm waiting for next week.

 

[adiggs]

I've been thinking about covered calls as a strategy recently and there is an important problem with the strategy for me - at least emotionally (only 15 months of doing these to be able to articulate this!). To make these really work well, and this being the Wheel thread and all, I actually need to be ready to take assignment. Not just in theory but also in practice. I don't need to seek out assignment either, but I need to have a much quicker trigger on taking assignment. In particular - each time I consider rolling for credit / strike improvement / time due to being ATM, I need to think seriously about waiting for assignment over rolling.

It turns out that due to my long term buy and hold view on the world, I've got a big problem letting any shares go to assignment, so I wind up with too heavy of a bias to sticking with the short calls and rolling (which has gotten me into perma-roll territory; I don't want to revisit that again, and assignment is a mechanism to avoid that).

But I've also got a few long dated leaps in hand now, and I've discovered that I have no emotional attachment to them. Letting those go due to short call assignment is just fine for me.


I'm working through some questions about how to implement this and am looking feedback from others. Do I go really deeply ITM? How far out in time do I go? How much net time value (purchasing time value up front, getting some of it back when I sell) am I paying for, and how does that translate into the weekly / monthly earnings?

So far I have Jun '23 300 strike calls and Dec '21 500 strike calls. These are sort of the inner and outer bounds of what I think will work for me. The 300 strike was chosen as something I think will still be ITM, even if we get a serious meltdown (return to say the $400 share price). I also chose these for tax reasons - if assignment doesn't happen for 12+ months then I get long term capital gains treatment when I do sell / take assignment.

The $500 strike was chosen as being deep ITM and pretty low time value.

In both cases my intent is to roll / close these calls with 3 months to go - maybe as little as 2 months - but I want to sell them when I can hopefully still get back a lot of the time value I paid for up front.

Assuming I close at 3 months and assuming that the time value then will be the same as a 3 month option is today then the net time value per month goes down as the option gets further out in time. My initial read on this is that I'll go at least 15 months out with a bias towards the 24 month options. As the option gets further and further out, I'll also bias towards lower and lower strikes. Lower and lower strikes due to the obvious risk mitigation - I've got that much bigger of a window to be OTM, so the covered calls can continue. Also as a drag on just how much leverage I'll take on.

Make no mistake about this - using calls to back covered calls is using leverage. That means unrealized losses will accumulate faster than share ownership, just as unrealized gains accumulate faster than share ownership. But a bonus - so far the level of leverage seems to allow for a larger number of covered calls while simultaneously enabling me to stop selling any covered calls against my shares. I find that dynamic very appealing.


I -have- figured out that "assignment" really means taking a short call close to expiration (time value ~0) and then doing a BTC on the short call plus a STC on the long call its covering. That will transition a position from a long call to cash. I could choose to exercise the long dated call when the short call gets assigned, but that early exercise on the long side just means I'm giving back that time value. Thus the STC/BTC instead.

 

[stealthyc]

I've been thinking about covered calls as a strategy recently and there is an important problem with the strategy for me - at least emotionally (only 15 months of doing these to be able to articulate this!). To make these really work well, and this being the Wheel thread and all, I actually need to be ready to take assignment. Not just in theory but also in practice. I don't need to seek out assignment either, but I need to have a much quicker trigger on taking assignment. In particular - each time I consider rolling for credit / strike improvement / time due to being ATM, I need to think seriously about waiting for assignment over rolling.

It turns out that due to my long term buy and hold view on the world, I've got a big problem letting any shares go to assignment, so I wind up with too heavy of a bias to sticking with the short calls and rolling (which has gotten me into perma-roll territory; I don't want to revisit that again, and assignment is a mechanism to avoid that).

But I've also got a few long dated leaps in hand now, and I've discovered that I have no emotional attachment to them. Letting those go due to short call assignment is just fine for me.


I'm working through some questions about how to implement this and am looking feedback from others. Do I go really deeply ITM? How far out in time do I go? How much net time value (purchasing time value up front, getting some of it back when I sell) am I paying for, and how does that translate into the weekly / monthly earnings?

So far I have Jun '23 300 strike calls and Dec '21 500 strike calls. These are sort of the inner and outer bounds of what I think will work for me. The 300 strike was chosen as something I think will still be ITM, even if we get a serious meltdown (return to say the $400 share price). I also chose these for tax reasons - if assignment doesn't happen for 12+ months then I get long term capital gains treatment when I do sell / take assignment.

The $500 strike was chosen as being deep ITM and pretty low time value.

In both cases my intent is to roll / close these calls with 3 months to go - maybe as little as 2 months - but I want to sell them when I can hopefully still get back a lot of the time value I paid for up front.

Assuming I close at 3 months and assuming that the time value then will be the same as a 3 month option is today then the net time value per month goes down as the option gets further out in time. My initial read on this is that I'll go at least 15 months out with a bias towards the 24 month options. As the option gets further and further out, I'll also bias towards lower and lower strikes. Lower and lower strikes due to the obvious risk mitigation - I've got that much bigger of a window to be OTM, so the covered calls can continue. Also as a drag on just how much leverage I'll take on.

Make no mistake about this - using calls to back covered calls is using leverage. That means unrealized losses will accumulate faster than share ownership, just as unrealized gains accumulate faster than share ownership. But a bonus - so far the level of leverage seems to allow for a larger number of covered calls while simultaneously enabling me to stop selling any covered calls against my shares. I find that dynamic very appealing.


I -have- figured out that "assignment" really means taking a short call close to expiration (time value ~0) and then doing a BTC on the short call plus a STC on the long call its covering. That will transition a position from a long call to cash. I could choose to exercise the long dated call when the short call gets assigned, but that early exercise on the long side just means I'm giving back that time value. Thus the STC/BTC instead.

Start with margin covered puts, then when you get assigned, you'll be so happy when the wheel flips and your CC's get assigned

 

[UltradoomY]

BTO $700 calls at the close for $5 each for a yolo play.
feels like the funds that sold will be outpaced by funds buying tomorrow

 

[bobscof]

I've been trading options for a few years now. I especially like the TSLA stock and options. Instead of just buying TSLA stock, I'll sell a near term Put option a little above the current price and the premiums are usually very large. If TSLA goes up, I keep the premium. If it goes down, in effect, I buy TSLA , but for less than if I just purchased it up front. Once I own TSLA shares, I sell a Call option to sell them for more than my purchase price and the current price and make some more money on the transaction. If a Call or Put is approaching expiration, and I don't want to be forced to buy or sell the shares, I "roll" out of the position with a bundled transaction that buys back my Put or Call and resells for a higher price for an expiration at a future date. The TSLA premiums are so generous that I find I am making money no matter what the stock price does. My assumption, of course, is that the long term price will be up. Since buying my Model 3 a few months ago, its been paid for by TSLA stock transactions.

 

[UltradoomY]

I've been trading options for a few years now. I especially like the TSLA stock and options. Instead of just buying TSLA stock, I'll sell a near term Put option a little above the current price and the premiums are usually very large. If TSLA goes up, I keep the premium. If it goes down, in effect, I buy TSLA , but for less than if I just purchased it up front. Once I own TSLA shares, I sell a Call option to sell them for more than my purchase price and the current price and make some more money on the transaction. If a Call or Put is approaching expiration, and I don't want to be forced to buy or sell the shares, I "roll" out of the position with a bundled transaction that buys back my Put or Call and resells for a higher price for an expiration at a future date. The TSLA premiums are so generous that I find I am making money no matter what the stock price does. My assumption, of course, is that the long term price will be up. Since buying my Model 3 a few months ago, its been paid for by TSLA stock transactions.

Welcome Bobs c of (only fans?)
lol,
Glad you are rolling on the wheel. Definitely take the (now it’s a LOT of time) and read the whole thread from start to now and get a PHD in all types of options.
Looking forward to reading your stuff

 

[Yoona]

I've been trading options for a few years now. I especially like the TSLA stock and options. Instead of just buying TSLA stock, I'll sell a near term Put option a little above the current price and the premiums are usually very large. If TSLA goes up, I keep the premium. If it goes down, in effect, I buy TSLA , but for less than if I just purchased it up front. Once I own TSLA shares, I sell a Call option to sell them for more than my purchase price and the current price and make some more money on the transaction. If a Call or Put is approaching expiration, and I don't want to be forced to buy or sell the shares, I "roll" out of the position with a bundled transaction that buys back my Put or Call and resells for a higher price for an expiration at a future date. The TSLA premiums are so generous that I find I am making money no matter what the stock price does. My assumption, of course, is that the long term price will be up. Since buying my Model 3 a few months ago, its been paid for by TSLA stock transactions.

this is very interesting, i want to add it to my list of playbooks coz you got my attention at "I am making money no matter what the stock price does".

what is an example of a "bundled transaction that buys back my Put or Call and resells for a higher price"? Assume a covered call -c680 for this Friday that I decided to roll.

thanks in advance!!!

 

[juanmedina]

I did something similar. I sold 2 x 600 June 23 puts in one of my accounts. They are naked but IB sort of limits how many I can sell based on the full value of the portfolio. I got about 23k for them and bought shares with the cash. Also selling some FAR FAR OTM calls on the shares in that account. TSLA 1000's and such. That account I sort of just leave and check on monthly. I have another account i trade more actively on.

I end up selling the 1000 strike put we will see what happens in two year.

I still have my 740 CC's and the 710s, 700s that I rolled last week and a few 710s for next week, with the refreshed Model S battery fire news I will probably be able to close most of the calls tomorrow.

 

[MrMoo]

I've been trading options for a few years now. I especially like the TSLA stock and options. Instead of just buying TSLA stock, I'll sell a near term Put option a little above the current price and the premiums are usually very large. If TSLA goes up, I keep the premium. If it goes down, in effect, I buy TSLA , but for less than if I just purchased it up front. Once I own TSLA shares, I sell a Call option to sell them for more than my purchase price and the current price and make some more money on the transaction. If a Call or Put is approaching expiration, and I don't want to be forced to buy or sell the shares, I "roll" out of the position with a bundled transaction that buys back my Put or Call and resells for a higher price for an expiration at a future date. The TSLA premiums are so generous that I find I am making money no matter what the stock price does. My assumption, of course, is that the long term price will be up. Since buying my Model 3 a few months ago, its been paid for by TSLA stock transactions.

When did you start doing this? The problem here is that you may be making money now because the stock really isn't doing anything. But you almost would of certainly lost money if you started in early February since your put would be for $790 or something and you would still be trying to sell that stock with covered calls.

Alternatively last year, you would of done great, until TSLA had massive rallies where the stock price doubled. A similar example recently would be NVDA. Grabbing NVDA at $580 then selling at $600 would of seemed like a great play with options premium on top. Except now it's 800 and somehow selling a $810 put does not seem like a good idea.

Basically your strategy works until it doesn't. And while currently you make money no matter what the stock does. There are prime examples of it works until it doesn't over the last year.

 

[MrMoo]

I end up selling the 1000 strike put we will see what happens in two year.

I still have my 740 CC's and the 710s, 700s that I rolled last week and a few 710s for next week, with the refreshed Model S battery fire news I will probably be able to close most of the calls tomorrow.

On the put side of things. If the puts are naked, maybe you can help me with a thought. What is the difference between selling say 2023 1000 Puts vs selling several 2023 700 puts? Or is it just a risk thing where if the stock was under 1000 you only need to grab 100 shares, vs under 700 you need to grab several hundred?

Interesting closing the calls tomorrow. I have 2 700's which I diamond handed even as the stock price went up to 693. It is my belief that no matter what, the MM's will not let TSLA break 700 this week. Remember last quarter? They beat by a large margin and it did not break 700 until the week after. This quarter the differences and margin of error is so tiny single digit % points.

 

[juanmedina]

On the put side of things. If the puts are naked, maybe you can help me with a thought. What is the difference between selling say 2023 1000 Puts vs selling several 2023 700 puts? Or is it just a risk thing where if the stock was under 1000 you only need to grab 100 shares, vs under 700 you need to grab several hundred?

Interesting closing the calls tomorrow. I have 2 700's which I diamond handed even as the stock price went up to 693. It is my belief that no matter what, the MM's will not let TSLA break 700 this week. Remember last quarter? They beat by a large margin and it did not break 700 until the week after. This quarter the differences and margin of error is so tiny single digit % points.

2x 2023 700 puts would have given me about the same premium as one 1000 put but my margin maintenance excess would decrease by twice as much. And like you say if the trade ends up ITM I would have to pony up more cash, however there is a higher probably of profit on the 700 put but I feel like the stock should be higher than a $1000 in two years.

Yeah it seems like even good news lately are a nothing burger but you never now. Everyone risk manage their positions differently, I am probably more emotional than others but there is a lot of uncertainty for Friday. I feel bearish on the P&D report and I feel like the street expecting 205/203k deliveries is kind of steep but who knows Tesla might blow it out of the park. I rather take a small lost and sleep well at night knowing that I can make the lost the next week with hopefully a safer strike. I like to win small but consistently and I might change my mind today about closing my contracts depending on how the day goes lol.

 

[Tslynk67]

I've been thinking about covered calls as a strategy recently and there is an important problem with the strategy for me - at least emotionally (only 15 months of doing these to be able to articulate this!). To make these really work well, and this being the Wheel thread and all, I actually need to be ready to take assignment. Not just in theory but also in practice. I don't need to seek out assignment either, but I need to have a much quicker trigger on taking assignment. In particular - each time I consider rolling for credit / strike improvement / time due to being ATM, I need to think seriously about waiting for assignment over rolling.

It turns out that due to my long term buy and hold view on the world, I've got a big problem letting any shares go to assignment, so I wind up with too heavy of a bias to sticking with the short calls and rolling (which has gotten me into perma-roll territory; I don't want to revisit that again, and assignment is a mechanism to avoid that).

But I've also got a few long dated leaps in hand now, and I've discovered that I have no emotional attachment to them. Letting those go due to short call assignment is just fine for me.


I'm working through some questions about how to implement this and am looking feedback from others. Do I go really deeply ITM? How far out in time do I go? How much net time value (purchasing time value up front, getting some of it back when I sell) am I paying for, and how does that translate into the weekly / monthly earnings?

So far I have Jun '23 300 strike calls and Dec '21 500 strike calls. These are sort of the inner and outer bounds of what I think will work for me. The 300 strike was chosen as something I think will still be ITM, even if we get a serious meltdown (return to say the $400 share price). I also chose these for tax reasons - if assignment doesn't happen for 12+ months then I get long term capital gains treatment when I do sell / take assignment.

The $500 strike was chosen as being deep ITM and pretty low time value.

In both cases my intent is to roll / close these calls with 3 months to go - maybe as little as 2 months - but I want to sell them when I can hopefully still get back a lot of the time value I paid for up front.

Assuming I close at 3 months and assuming that the time value then will be the same as a 3 month option is today then the net time value per month goes down as the option gets further out in time. My initial read on this is that I'll go at least 15 months out with a bias towards the 24 month options. As the option gets further and further out, I'll also bias towards lower and lower strikes. Lower and lower strikes due to the obvious risk mitigation - I've got that much bigger of a window to be OTM, so the covered calls can continue. Also as a drag on just how much leverage I'll take on.

Make no mistake about this - using calls to back covered calls is using leverage. That means unrealized losses will accumulate faster than share ownership, just as unrealized gains accumulate faster than share ownership. But a bonus - so far the level of leverage seems to allow for a larger number of covered calls while simultaneously enabling me to stop selling any covered calls against my shares. I find that dynamic very appealing.


I -have- figured out that "assignment" really means taking a short call close to expiration (time value ~0) and then doing a BTC on the short call plus a STC on the long call its covering. That will transition a position from a long call to cash. I could choose to exercise the long dated call when the short call gets assigned, but that early exercise on the long side just means I'm giving back that time value. Thus the STC/BTC instead.

I struggled the same until 30th April when I decided to let 14x cc702.50 exercise - the SP closed $709 and it was a net profit trade, but still

But guess what, the SP tanked, hasn't hit $700 since, and this has been a very liberating experience

Furthermore, having $1M cash to hand, really facilitates selling puts, which also turned into a painful learning experience as I over-committed on the way down, had to rebut at the bottom and wiped-out a lot of gains, from which I'm now recovering - have learned how to use the roll now

Of course I do need money for my house renovation, so another part of my strategy is to keep hold of that cash rather than re-buying shares and risking the SP dropping just when I need to pay a big invoice, it's a risk-mitigation. I still have 2000 shares, plus 45x 2022/3 LEAPS, which cover the upside

 

[dl003]

Isn't it advisable to reduce one's position before a binary event? I'm wondering if I should cut my calls and puts down and reopen tomorrow once we get more clarity.

 

[pz1975]

Way OTM puts expiring tomorrow are going for much higher than equivalent OTM calls. You want “free” money? Sell some $575 puts at $0.75. I can’t see anything that could happen in that report that would drop TSLA 15%+.

I’m planning to close out my sold puts and calls before close that are nearer to the money ($645 puts and $720 calls for me - I stay well away from ATM) and will probably pad my profits selling some way OTM puts like above to use the freed-up margin.

 

[UltradoomY]

Way OTM puts expiring tomorrow are going for much higher than equivalent OTM calls. You want “free” money? Sell some $575 puts at $0.75. I can’t see anything that could happen in that report that would drop TSLA 15%+.

I’m planning to close out my sold puts and calls before close that are nearer to the money ($645 puts and $720 calls for me - I stay well away from ATM) and will probably pad my profits selling some way OTM puts like above to use the freed-up margin.

Famous last words, hedge your bets sir. I definitely think they crush but if it's a small miss, down we go, large miss and a great buying opportunity!

 

[pz1975]

Famous last words, hedge your bets sir. I definitely think they crush but if it's a small miss, down we go, large miss and a great buying opportunity!

I have been doing this successfully for years now - selling way way OTM puts and/or calls just before binary situations. I always use a small amount of my total margin and have a large core stock position that I never touch. I agree about a potential for a great buying opportunity if there is a miss, but I just cannot envision a situation (without a black swan event outside of P&D numbers) that would cause TSLA to drop 15%+. I would be way more concerned if I had, for example, sold $650 puts or $700 calls open overnight tonight.

 

[samppa]

Does p&d report usually cause IV crush?
I'm thinking it should, but iv has been kinda low lately..

 

[ZeApelido]

Way OTM puts expiring tomorrow are going for much higher than equivalent OTM calls. You want “free” money? Sell some $575 puts at $0.75. I can’t see anything that could happen in that report that would drop TSLA 15%+.

I’m planning to close out my sold puts and calls before close that are nearer to the money ($645 puts and $720 calls for me - I stay well away from ATM) and will probably pad my profits selling some way OTM puts like above to use the freed-up margin.

Done.

 

[UltradoomY]

“BTC 12x 7/2 ccp695 @$20.00 -> STO …”

What is “ccp”? “lcc”?

CCP - Cash Covered Put
LCC - Leap Covered Call