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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Week like this have you thought about closing the 540s early? Or is the premium so low it’s not a bother ?I'm back in as well - 740cc for this Friday. After all - these are I-dare-you cc.
I'll have to look into updating my BPS as well. The 540/640s are doing really well today - raises the possibility of an early close. But I have other things to do so it is time to let them simmer a bit longer - maybe late morning it'll be time to close. THey're ahead 60% at this point and worth about $2.
Good catch - those got closed yesterday in the move up, with the 560/660s replacing them today.
The pattern I've started using last week and continuing into this week can, I think, be summed up as:
1) open CC / lcc into a move up (like yesterday). Look at closing put spreads at the same time (close put spread into a move up)
2) close CC / lcc into a move down (like today). Look at opening put spreads at the same time.
Actually in both cases it's look into the position profit changes and see if they've moved enough to be worthwhile.. So far in the last week or so, each time I look at making the change, the profit % has been high enough that I'm taking off the winnings and putting on new positions. Profit % has been 40-90% - mostly in the 50-60% range, for 1-3 day positions.
To make this work it mostly simplifies even further - if I close something today, then the soonest I open its replacement is tomorrow. Close winning positions aggressively (say 50% plus).
I'm also not sweating trying to hit high/low points during the day - just make the move when it makes sense at that moment. And so far I'm also getting awfully close to peaks and valleys, though I consider that to be by accident.
The entry strikes are chosen using my previous patterns. Pretty aggressive on the call side in the .5-1.5 week expiration range, at least for now; and pretty conservative on the put side (around .10-.15 delta, 1.5-2.5 week expirations).
corduroy
Active Member
This is where spreads start tweaking my brain a bit. Given equal short leg strikes, wouldn't a tighter spread with less risk (lower max loss) be less leverage, not more, compared to a wider spread?
The observations that lead to this point of view:
1) First up is that the ratio between the credit received and the size of the spread (range from short to long leg) decreases as the spread widens. I.e. if I want the max % credit then I want a $5 spread, over a $100 spread. The absolute value of the premium increases as the spread size increases. I associate a higher % credit with higher leverage.
2) The distance from max gain to max loss is the spread size. On a $5 spread, that is a $5 share price move. On a $100 spread, that is a $100 share price move. Shorter moves from max gain to max loss is more leverage, while longer moves is less leverage.
Or the real kicker - if you compare the margin required for a put spread to a naked put (same principle applies to calls, but puts are easier to see), then a $600 strike naked put needs $60k to be fully cash secured.
That same $60k can support 6 of the $100 spreads that I currently favor.
Or it can support 12 of some $50 spreads. These spreads will have a higher % premium, and lower absolute premium per contract, vs. the $100 spreads, for a net total premium that is higher than the $100 spreads.
OR it can support 60 of the $10 spreads that have the same characteristics of the $50 vs $100 comparison. Higher % premium per contract, lower absolute $ per contract, for a net increase in total premium because there are 60 of them instead of 6.
The thing is that as we go from a single cash secured put, to 6 of the $100 spreads, to 60 of the $10 spreads, the rate at which money is lost when the shares go down increases very quickly
. For that naked put to achieve a max loss, you need the shares to move from $600 to $0. Very difficult to achieve a max loss.For the $100 spread a max loss needs to see the shares move from $600 to $500. Much easier for a max loss vs. the naked put, but still reasonable in my estimation (which is why I'm trading those - I think I can manage them effectively).
The $10 spread is a max loss when the shares move from $600 to $590. I better be REALLY confident in that $600 short put because if I'm off by $20, then the nice gain turns into a full loss.
Of course all of these positions have management options available to lengthen the time to be right / minimize the losses which I'm largely ignoring. What IS true whichever of the three positions, the wider the spread the more room for those management choices to be available and usable.
In fact - you can view a $600 cash secured put, as a +0/-600 put spread
. That generalizes well to the idea that the wider the spread, the more that the overall position behaves like a cash secured put.I'm going with the $100 spread size as that gets me roughly 6:1 leverage over the cash secured puts I was using previously.
Cash secured puts are necessarily not naked. And for naked puts, with portfolio margin, it is not the full amount though it varies I believe based on both your portfolio and strikes. For me it tends to be about 1/3 to 1/5 of the full amount.
Yeah - I use the $60k cash secured put as the point of comparison as its easiest to see. As far as I know the margin reservation for a $100 spread is $10k - there isn't variation on that point, whether portfolio margin or not.
But at least for me, even if there was less margin being reserved, my own objectives would keep me from using that extra margin. I'm already adding a lot of leverage doing things the way I'm doing them (lot of leverage for me). There is a lot more leverage available should I want to use it, but income orientation says hands off
In particular, my leverage in action comes from selling put spreads instead of selling puts, and selling calls against purchased leaps (calendar spreads) instead of shares.
To keep the leverage under control on the call side (while still using some leverage) I've been targeting around 2 - maybe 3 - leaps per 100 shares they are replacing. I get leveraged exposure to upside moves from the leaps, and the ability to sell 2-3x as many lcc's in the meantime.
Oh for sure, I just wanted to point out that naked puts can still allow for more leverage if you have portfolio margin, as it takes into consideration that the stock will probably not just go to 0, treating it more like a spreadYeah - I use the $60k cash secured put as the point of comparison as its easiest to see. As far as I know the margin reservation for a $100 spread is $10k - there isn't variation on that point, whether portfolio margin or not.
But at least for me, even if there was less margin being reserved, my own objectives would keep me from using that extra margin. I'm already adding a lot of leverage doing things the way I'm doing them (lot of leverage for me). There is a lot more leverage available should I want to use it, but income orientation says hands off
In particular, my leverage in action comes from selling put spreads instead of selling puts, and selling calls against purchased leaps (calendar spreads) instead of shares.
To keep the leverage under control on the call side (while still using some leverage) I've been targeting around 2 - maybe 3 - leaps per 100 shares they are replacing. I get leveraged exposure to upside moves from the leaps, and the ability to sell 2-3x as many lcc's in the meantime.
Is this trading taking place in a taxable account? You must be getting whacked on wash sales.
Without intending to be pedantic, the reservation in that case is 10k - total premium, which is not important for the sake of this discussion. I only mention it because I checked just to be sure.
Actually I just checked out a silly BPS of -600/+400 and the buying power effect is only -17.4k vs the -19.9k max loss, so I don't know if portfolio margin is causing that effect, but it also is not likely to matter
Yes it is, and no I'm not. The wash sales seems to have been resolved for options to mean identical kind / strike / expiration. It also seems to be the case that the only trades I've been flagged on for wash sales were same day, but I think this is more likely a function of slightly different strikes. I.e. selling a 640 call yesterday, buying it back today, and selling a 650 call today, doesn't trigger wash sales because the 650 and 640 are different.
I did manage, by accident, to get the pattern day trader flag set on my account. I'd rather it wasn't there, but so far it doesn't seem to affect anything.
I WILL get whacked at tax time. I'm looking for options / choices to minimize the whack (such as a charitable remainder trust, but this conversation is for another thread), but its also a first world problem. The only way to pay a 50% marginal tax rate is to earn enough to get into that bracket, and that takes a lot of earning (somewhere around $600k). First world problems are the very best.
The other thing about wash sales - a trade flagged for a wash sale just moves its loss into the replacement position. At mid year like now I suppose I could use that to influence quarterly estimated tax payments, but I'm already doing those based on the safe harbor rule, so it doesn't matter this year. It'll all have come out in the wash by end of the tax year and make no difference (as I understand the wash sale rules).
Actually - the money that I'm living on for most of the next decade is happening in a taxable account. I just think of the profits as similar to the paycheck I was receiving previously. I was taxed on that, and it was getting to be a non-trivial amount. I'll get taxed on these earnings.
I'm also doing these trades in retirement accounts. Usually by exactly copying the positions - my intent here, even though I'll probably leave some gains on the table relative to buy and hold, is a larger pool within which to learn from, and be that much more confident in the approach over a 20-50 year (a guy can dream, and exercise
) window of time.
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I've noticed a similar dynamic in my taxable account, where the margin affect seems to be lower than the margin I calculate. I still use my own calculation as its more conservative, within a larger context of using leverage to juice returns.
I'm still in this for income and I don't need very large returns to hit my income target, something that is already generous compared to pre-retirement paycheck income, and that I've been beating like a drum most weeks this year (paired up with some disastrous weeks - it still comes out better than the target).
BTW - that 'silly' BPS was nearly what I used two weeks ago. Mine was a 460/660 when the shares were around 640 but it served the purpose as the shares moved above the short strike.
i think he meant more time to digest all news & extrapolate premarket to i.e. prepare for a 15:30-15:45-dip
Yes it is, and no I'm not. The wash sales seems to have been resolved for options to mean identical kind / strike / expiration. It also seems to be the case that the only trades I've been flagged on for wash sales were same day, but I think this is more likely a function of slightly different strikes. I.e. selling a 640 call yesterday, buying it back today, and selling a 650 call today, doesn't trigger wash sales because the 650 and 640 are different.
I did manage, by accident, to get the pattern day trader flag set on my account. I'd rather it wasn't there, but so far it doesn't seem to affect anything.
I WILL get whacked at tax time. I'm looking for options / choices to minimize the whack (such as a charitable remainder trust, but this conversation is for another thread), but its also a first world problem. The only way to pay a 50% marginal tax rate is to earn enough to get into that bracket, and that takes a lot of earning (somewhere around $600k). First world problems are the very best.
The other thing about wash sales - a trade flagged for a wash sale just moves its loss into the replacement position. At mid year like now I suppose I could use that to influence quarterly estimated tax payments, but I'm already doing those based on the safe harbor rule, so it doesn't matter this year. It'll all have come out in the wash by end of the tax year and make no difference (as I understand the wash sale rules).
Actually - the money that I'm living on for most of the next decade is happening in a taxable account. I just think of the profits as similar to the paycheck I was receiving previously. I was taxed on that, and it was getting to be a non-trivial amount. I'll get taxed on these earnings.
I'm also doing these trades in retirement accounts. Usually by exactly copying the positions - my intent here, even though I'll probably leave some gains on the table relative to buy and hold, is a larger pool within which to learn from, and be that much more confident in the approach over a 20-50 year (a guy can dream, and exercise
I appreciate the response. Which broker are you using, out of curiosity?
Well, I have much to learn. I've gone from my best week to what will likely be my worst week running my version of the wheel.
7/30 was so green I did not STO any puts but STO my first calls in a few weeks. 8/3 was red'sh so STO some puts but I have very little enthusiasm for this week. Would have done much better to STO 7/30.
| Date STO | Expires | Trade | Strike | SP | Delta | Proceeds | N | Total |
| Previous Month | ||||||||
| 7/23 | 7/30 | P | 600 | 630 | 0.2 | $970 | 12 | $11,640 |
| 7/23 | 7/30 | P | 615 | 640 | 0.3 | $1,370 | 7 | $9,590 |
| Total | $21,230 | |||||||
| Current Month | ||||||||
| 8/3 | 8/6 | P | 680 | 710 | 0.2 | $370 | 10 | $3,700 |
| 8/3 | 8/6 | P | 690 | 710 | 0.3 | $580 | 5 | $2,900 |
| 7/30 | 8/6 | C | 750 | 695 | 0.13 | $288 | 5 | $1,440 |
| Total | $8,040 |
7/30 was so green I did not STO any puts but STO my first calls in a few weeks. 8/3 was red'sh so STO some puts but I have very little enthusiasm for this week. Would have done much better to STO 7/30.
Well that would be the IV crush after earnings.
Sometimes a small profit or sitting on your hands and doing nothing can be a victory when things go sideways in the market
Hmmm, $8k is your worst week? I’ll take some of that.
I've been doing some very basic analysis today looking at the revenue potential from different option strategies. I didn't include CC's as I view these as a default weekly option play. I'm more interested in how to maximise revenue potential from the rest of my accounts. With each of my accounts I have a portfolio maintenance margin buffer that's about to get much bigger next week when a bunch of old puts expire. I'm planning to leave at least half of this buffer in reserve with the remainder allocated to options. So for me the amount of maintenance margin each option uses is the limiting factor when maximising premium while limiting risk. Note that this approach doesn't use any actual margin unless an option is exercised, so its largely free collateral.
In the table below I've looked at how much premium can be generated using around $100,000 of maintenance margin. This is calculated today for Friday expiry, so short term that would be less favourable to the Put that are more exposed to theta.
Of the main strategies the Iron Condor appears to give the best return against margin. The last option of selling a call spread to neutralise the BPS margin yielded the most but could be hard to manage that many contracts. So at this stage I'll probably stick with the IC's.
In the table below I've looked at how much premium can be generated using around $100,000 of maintenance margin. This is calculated today for Friday expiry, so short term that would be less favourable to the Put that are more exposed to theta.
| Option | Number | Premium | Revenue | MM Impact | MM/$ Revenue |
| Iron Condor | |||||
| 650/680 740/770 | 32 | $3.75 | $12,000 | $102,976 | 11.7% |
| Bull Put Spread | |||||
| 650/680 | 28 | $1.80 | $5,040 | $100,452 | 5.0% |
| Put | |||||
| 680 | 2.3 | $2.60 | $598 | $100,277 | 0.6% |
| Strangle | |||||
| 680 740 | 2.4 | $5.15 | $1,236 | $103,303 | 1.2% |
| Call Spread + BPS | |||||
| 740/770 | 272 | $1.94 | $52,768 | -$100,368 | -52.6% |
| 650/680 | 28 | $1.80 | $5,040 | $100,452 | 5.0% |
| Sub-Total | 300 | $3.74 | $57,808 | $84 | 68819.0% |
Of the main strategies the Iron Condor appears to give the best return against margin. The last option of selling a call spread to neutralise the BPS margin yielded the most but could be hard to manage that many contracts. So at this stage I'll probably stick with the IC's.
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