TSLA Rolling - does it work?
I have 100+ stats, and this is my 2nd most important one.
Since 2021, if your OTM weekly put/call is breached, there's a high probability of recovery if you roll instead of taking the loss. You don't need to roll for strike improvement, but you will be OTM faster if you do.
View attachment 1002630
View attachment 1002604
This is best explained using an example. Refer to the above Oct 7, 2022.
Friday Sep 30, 2022 Close = 265.25. Around 3pm, you decide you want to sell 12% OTM 7DTE for next week Oct 7. The bet is 233.42 put, 297.08 call. This could be a CC, Short Strangle, CSP, IC, whatever. (Sorry, this study isn't for Short Straddle or Iron Butterfly).
One week later, on Oct 7, stock closed at 223.07. Your call is safe, but your put is ITM. What to do?
- you can take the loss, if you want
- you can roll the put using the same strike (-p233.42) to next week; if you do that, you would be rolling for 35 weeks straight before it goes OTM (Jun 9, 2023 Fri Close 244.40). This is the best scenario because weekly ITM/ATM credits are huge, but you need a strong stomach because of the bottomless pit.
- you can roll the put on a 5-strike improvement (-p233.43 change to -p228.43) to next week; if you do that, you would be rolling for 3 weeks straight (instead of 35 weeks!) before it goes OTM (Oct 28, 2022 Fri Close 228.52).
- you can roll the put on a 10-strike improvement (-p233.43 change to -p223.43) to next week; if you do that, you would be rolling for 3 weeks straight (instead of 35 weeks!) before it goes OTM (Oct 28, 2022 Fri Close 228.52).
As you can see from the put side above, whether your 7DTE bet is 12% or 15% or my IC prediction, there is NO "max loss" situation. Maybe you don't have income during the roll weeks, but at least there is no loss. Your rolled position will go OTM eventually. And this makes sense, as the stock market is generally bullish in nature. Stocks tend to go up long-term, so your ITM put will be rescued tomorrow if not today.
Summary for
puts: In the last 155 weeks starting 2021,
- if your 7DTE put bet is 12% OTM, it will be breached only 10 times (6.45%). Of those 10, they are all rescued simply by rolling. This means max loss probability is 0/155.
- if your 7DTE put bet is 15% OTM, it will be breached only 5 times (3.23%). Of those 5, they are all rescued simply by rolling. This means max loss probability is 0/155.
- if your 7DTE put bet is my IC prediction, it will be breached only 4 times (2.58%). Of those 4, they are all rescued simply by rolling. This means max loss probability is 0/155.
- whether you decide on 0- or 5- or 10-strike improvement, they are all rescued at some point in time.
Now the calls. Same as puts except there is a max loss situation (red cells). If your call was breached on Jan 27, 2023, no amount of rolling will rescue it if your 7DTE bet was 12% or 15%. But if you used my IC prediction, it is rescued after rolling straight for 12 weeks on a 5-strike improvement.
Summary for
calls: In the last 155 weeks starting 2021,
- if your 7DTE call bet is 12% OTM, it will be breached only 10 times (6.45%). Of those 10, 9 are rescued simply by rolling. This means max loss probability is 1/155.
- if your 7DTE call bet is 15% OTM, it will be breached only 4 times (2.58%). Of those 4, 3 are rescued simply by rolling. This means max loss probability is 1/155.
- if your 7DTE call bet is my IC prediction, it will be breached only 5 times (3.23%). Of those 5, 4 are rescued simply by rolling. This means max loss probability is 1/155 if 0-strike improvement. Max loss probability is 0/155 if 5-strike improvement.
- calls are riskier than puts (there is possibility of max loss whether you bet 12% or 15% or my IC prediction)
By max loss, i mean the shorts are breached.
What is the #1 key lesson i learned from this exercise? PULLBACK. Stocks will, at some point, reverse and test TA. No one goes up or down forever in a straight line. For puts, it could be a 35-week wait before reversal comes. For calls, there is a risk of max loss (but 1/155 is tiny).
Note that this study involves only 12% OTM, 15% OTM, and my IC prediction. If you are aggressive ATM or too close to the sun, results may vary and your rolling may suck. Send me a list and I'll check.
NOT ADVICE. Nope. I am not your financial advisor. I am a newbie trader!
.
