Wiki Selling TSLA Options - Be the House

[Buckminster]

Long time lurker in this thread, finally decided to register for an account and make it official! Wanted to pose a question to the knowledgeable members in this group. For background, my option experience has been mostly on the put selling side. During the drop at the end of Feb, I got the "smart" idea to buy a call (first call too ) thinking the drop might be temporary in nature. Picked up 1/21/22 expiry, $800 strike for ~$168. Have held it and it's worth ~$68 now.

Does anyone have advice not advice on how they would approach this situation? I'm bullish on Q3/4, but with ~5 months to expiry, time decay will really start to work against me. I was considering rolling up strike to get some theta, or maybe a bull call spread to be able to roll out the furthest? Call is currently sitting in an IRA so this might limit my overall options. Still learning and chalking this up as a newbie move.

I ran a poll a few weeks ago anticipating your question:
Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable
75% of "not advice" people say HODL. Maybe roll out another month or two after AI day (if you are bullish). It is a ballsy play - I have $900 Jun 23s.

 

[AquaY]

Long time lurker in this thread, finally decided to register for an account and make it official! Wanted to pose a question to the knowledgeable members in this group. For background, my option experience has been mostly on the put selling side. During the drop at the end of Feb, I got the "smart" idea to buy a call (first call too ) thinking the drop might be temporary in nature. Picked up 1/21/22 expiry, $800 strike for ~$168. Have held it and it's worth ~$68 now.

Does anyone have advice not advice on how they would approach this situation? I'm bullish on Q3/4, but with ~5 months to expiry, time decay will really start to work against me. I was considering rolling up strike to get some theta, or maybe a bull call spread to be able to roll out the furthest? Call is currently sitting in an IRA so this might limit my overall options. Still learning and chalking this up as a newbie move.

Decades ago I saw a comic of an elderly couple sitting in their living room.
The man was reading his newspaper and the woman had a parakeet with a string tied to it's legs and she was swinging it in circles over her head.
The man, obviously annoyed, put down his paper and said " Damn it Martha, Face Facts! the Bird's Dead!."

Rolls are mostly done to prevent assignment. So they are mostly used with Covered calls or short puts.
To me all you'll be doing rolling your long call is attempting to not face up to the fact that the bird is dead.
Seems you do not believe TSLA will be above $968 by expiration ( or at least $868) and you don't want to lose money ( who does?)
Nothing is going to change the fact that your trade has gone against you.
I'd suggest , if you don't think Tesla will rise enough by then and your losing more in time value, then you should close out the position and take your loss.
That's just my opinion.
I'm not a buyer of options other than as part of multi leg strategy or to close out positions so I have no experience in this situation.
I've rolled many a short put and even more covered calls. where i didn't want to lose the stock.
Sometimes I opted to lose the stock because I waited too long and the calls were too far ITM to make a roll worth it.
I like to think I learned my lesson from those mistakes.
For me those expensive lessons taught me to either not write covered calls on stock I don't t want to sell at that strike, or roll them before they are too deep ITM
YMMV
I'm interested how others answer your question and I am by no means saying there isn't a case to roll these that someone else may suggest.

Good Luck

 

[jeewee3000]

Long time lurker in this thread, finally decided to register for an account and make it official! Wanted to pose a question to the knowledgeable members in this group. For background, my option experience has been mostly on the put selling side. During the drop at the end of Feb, I got the "smart" idea to buy a call (first call too ) thinking the drop might be temporary in nature. Picked up 1/21/22 expiry, $800 strike for ~$168. Have held it and it's worth ~$68 now.

Does anyone have advice not advice on how they would approach this situation? I'm bullish on Q3/4, but with ~5 months to expiry, time decay will really start to work against me. I was considering rolling up strike to get some theta, or maybe a bull call spread to be able to roll out the furthest? Call is currently sitting in an IRA so this might limit my overall options. Still learning and chalking this up as a newbie move.

I'm not familiar with IRA's as a non US citizen so can't help on that front.

On the options part: holding through Q3/Q4 is risky since time decay is really killing you right now. You'd be better off closing the position and buying a LEAP (JAN2023's with $1500 strike price are priced at $50 right now with the stock at $710).

If you are correct on the predicted stock price movement in the next 6 months (up), the LEAP will be up by january 2022 normally. (And IV will have risen)

Therefore, you'll earn back some of your losses. If the stock stays relatively flat (let's say it goes to $800 by EOY) then the LEAP is also a losing proposition and you're better off putting the $6800 into stock.

If you expect possibility of huge SP rally, go with the LEAP. You can always convert it to stock at ATH or beyond.
If you only expect steady SP increase, go with stock.
If you're not sure of anything anymore, close the position and don't look back. Don't look at what you've already "lost", look at what you can prevent to lose in the coming months. That $68 position will reach $10 easily by EOY if nothing much happens.

GL

 

[cbh03]

I'm bullish on the stock price leading up to AI day so I closed my 8/20 $735 -CC (may sell another at a higher strike if we get a pop early next week) and rolled my 8/13 $670 -P to 8/13 $695

 

[jeewee3000]

I'm bullish on the stock price leading up to AI day so I closed my 8/20 $735 -CC (may sell another at a higher strike if we get a pop early next week) and rolled my 8/13 $670 -P to 8/13 $695

Good thinking IMO. Pattern lately has been MM's keep the SP supressed at end of week, but they cannot control the Monday pops. I'm expecting low volume close today between $710 and $720 and a pop come Monday to around $723 .

I've got some $720 cc's expiring today. I feel confident but it's still quite close for comfort (I'm no @Lycanthrope ).

 

[cbh03]

Good thinking IMO. Pattern lately has been MM's keep the SP supressed at end of week, but they cannot control the Monday pops. I'm expecting low volume close today between $710 and $720 and a pop come Monday to around $723 .

How did you pick $723? Is that what you expect the upper BB to be on Monday?

 

[jeewee3000]

How did you pick $723? Is that what you expect the upper BB to be on Monday?

No precise TA behind it, that's my "at least" number given that the stock popped to $725 past Monday. So read it as: somewhere over $720 but not too high.

 

[ReddyLeaf]

Ok, just thought today’s push down is a bit overdone. I rolled my p710s to 8/13 for $9cr and decided to BUY some 8/13 c720s at $6.50. I’m hoping for the typical Monday rebound where I will sell some CCs at 755 to complete the spread.

 

[UltradoomY]

With the SP dropping - I think it's a great time for..... you guessed it!
Another BPS for next week!!
-$695/+$595 for $10 each - will close out on a pop!

 

[Yoona]

With the SP dropping - I think it's a great time for..... you guessed it!
Another BPS for next week!!
-$695/+$595 for $10 each - will close out on a pop!

thanks, i copied it just now.
send a reminder once you're closing it?

 

[jeewee3000]

With the SP dropping - I think it's a great time for..... you guessed it!
Another BPS for next week!!
-$695/+$595 for $10 each - will close out on a pop!

Noob in BPS here. So am I reading correctly this BPS is :
- to sell a put with $695 strike (currently $10 or so)
- to buy a put with $595 strike (currently $1 or so)
Total credit $9

So if the stock pops -> bought put expires worthless, but so does the sold one = profit
Stock stays the same -> same profit
Stock drops below 695 -> sold put rises in value (loss or you get shares assigned) , bought put rises in value to offset this (albeit it only being relevant on a huuuuuuuge stock drop).

Am I reading this right?


Extra question: how much are you guys generally keeping in cash (% wise ofc) to allow these types of moves? I keep my cash reservers quite low since I pay 1% intrest on holding cash, it's ridiculous. So I'm mostly in calls and stock most of the time, only around 5% in cash.

 

[UltradoomY]

Noob in BPS here. So am I reading correctly this BPS is :
- to sell a put with $695 strike (currently $10 or so)
- to buy a put with $595 strike (currently $1 or so)
Total credit $9

Yes

So if the stock pops -> bought put expires worthless, but so does the sold one = profit
Stock stays the same -> same profit
Stock drops below 695 -> sold put rises in value (loss or you get shares assigned) , bought put rises in value to offset this (albeit it only being relevant on a huuuuuuuge stock drop).

Am I reading this right?

Yes
The spread is what protects you from max loss - in theory in this case it is $10k max loss for each position opened - since there is $100 spread but in reality the stock has to drop below the lower end of the BPS for that to happen.
Which in this case would be $595, I am fairly confident it won't do that by next week but this is of course "not advice"
If it did, I would look to roll and get some more credit.

Extra question: how much are you guys generally keeping in cash (% wise ofc) to allow these types of moves? I keep my cash reservers quite low since I pay 1% intrest on holding cash, it's ridiculous. So I'm mostly in calls and stock most of the time, only around 5% in cash.

About 10% in cash but these Bull Put Spreads use margin maintenance calculations for some reason.

 

[stealthyc]

Extra question: how much are you guys generally keeping in cash (% wise ofc) to allow these types of moves? I keep my cash reservers quite low since I pay 1% intrest on holding cash, it's ridiculous. So I'm mostly in calls and stock most of the time, only around 5% in cash.

I keep ~0 cash and sell all naked puts, backed by margin reservation

 

[UltradoomY]

In addition to the above @jeewee3000 I look to close these out when the stock price jumps up. This is the second time this week I have opened this particular spread - both times for $10 credit each. I closed it earlier this week when we hit $724 for 85% profit and will look to do these same with these.
So far $17.50 credit for each position is pretty good for me.

 

[jeewee3000]

I keep ~0 cash and sell all naked puts, backed by margin reservation

My broker doesn't allow that. It does have a margin calculation so only x% of the put value (in case of assignment) is necessary, but the closer the sold put gets to being ITM, the higher % of this put value is needed. So the margin requirement moves along with the SP (as is normal I guess).

For example, if I wanted to sell the $695 put for next week for $10 premium I'd need around $25000 USD in my account. (And not $69500 if they were fully cash covered).

 

[jeewee3000]

In addition to the above @jeewee3000 I look to close these out when the stock price jumps up. This is the second time this week I have opened this particular spread - both times for $10 credit each. I closed it earlier this week when we hit $724 for 85% profit and will look to do these same with these.
So far $17.50 credit for each position is pretty good for me.

Tnx for helping out. And on the local peaks ($724 in this case), you sell cc's, I presume?

 

[stealthyc]

My broker doesn't allow that. It does have a margin calculation so only x% of the put value (in case of assignment) is necessary, but the closer the sold put gets to being ITM, the higher % of this put value is needed. So the margin requirement moves along with the SP (as is normal I guess).

For example, if I wanted to sell the $695 put for next week for $10 premium I'd need around $25000 USD in my account. (And not $69500 if they were fully cash covered)

That's approximately the same for me, just reserves margin instead of having to have cash.

 

[UltradoomY]

Tnx for helping out. And on the local peaks ($724 in this case), you sell cc's, I presume?

I do not. I very rarely sell CC's - I have started selling Calendar spreads with some call I got for free but that's a story for another time.

 

[adiggs]

From the wayback machine (yesterday, Thursday) when I forgot to hit "Post Reply":

With the small move up today (which I expect to continue, but about to do a day trip, and this is my opportunity today):
-- Close the 550/650 BPS for about 60-70% profit (open 3.90, close 1.35).
-- Open Aug 13 740 cc at $8.80ish

So far it seems like if it's a good day to close one, then it's a good day to open the other. Or vice versa - if it's a good day to open one, then it's also a good day to close the other. I'm sure this won't generalize over years worth, and I still have a bias towards having both open, but this last week it's one or the other, flopping back and forth.



Jumping forward in time to today:
-- with the move down, I've closed those Aug 13 740cc at 3.60ish, leaving a 5.20 profit in 1 day.

And if it's a good day to close cc, then it's a good day to open put spreads!
-- For Aug 13th - one batch are 570/670s; the other account are 575/675s, for a 3.70 and 4.30 credit.

And while I was at it, I decided I was a bit light on the leap / long calls, so add:
-- June '22 600 strike calls.
(More CC in this account - but not today )


On these new calls, the account is taxable, so possibility of long term capital gains treatment is irrelevant.

I'm testing a hypothesis - I find that I like my Dec '21 calls because it's really easy for me to be aggressive with the cc against them. I dislike them because they are so near in time that I'll be needing to replace them in like a month to avoid the steep part of the time decay curve. I've only had about 1 or 2 months of selling CC against these - I wish I'd gone a little bit further out.

Meanwhile I like my June '23 calls because I know that I've minimized my month to month time value / cost to be in the position. But they are so far out in time that while I'm being aggressive with the CC against these, I don't want to be quite as aggressive and I can already tell that I'm going to work harder to avoid assignment.

All of this is in the context of an income strategy, and taking assignment on the covered calls is an important component (for me) that enables aggression. So I'm trying this roughly 11 month position and see how I do emotionally - am I really ok being aggressive with the CC against these? My guess is yes, and that the right mix of leaps for me will be roughly 50/50 1 and 2 year positions.

 

[corduroy]

Closed out my puts that I had rolled for 6 weeks, and sold 5x +540/-640s BPS for $1.50 for Aug 13th (still testing the waters with BPSs, so very conservative). Also closed out all -Cs.