Wiki Selling TSLA Options - Be the House

[MP3Mike]

I'm with TDAmeritrade, I pay a $0.65 commission fee though for every trade, regardless of cost or buying or selling options.

Is that per trade or per contract? (From their site it looks like per contract, and it doesn't mention anything about discounting the per contract fee for small BTCs.)

Same here at Schwab.

I think there is some confusion here. Schwab charges a $0 trade fee, but they charge a $0.65/contract fee. (Though they wave the per contract fee if it is a BTC at $0.05 or less.) E*TRADE charges a $0 trade fee, but they charge a $0.50/contract fee. (Though they wave the per contract fee if it is a BTC at $0.10 or less.)

 

[PastorDave]

Question about max pain graphs: what if retail traders one week sold more than bought options (ie. TSLA weekly calls for next week) so the MMs were net long? Would the max pain graphs showing those call walls be inverted (below zero) or would they still show the "open" positions as positive on the graphs even though it is the MMs who own them? Would there be any way for us ignorant retail traders to know this has happened? Would this encourage the MMs to try and get those calls ITM so they would profit instead of what happens every week?

The max pain chart would look the same either way. I'm reasonably sure that there's no way to know if MMs were net long or short, just like there's no way to know exactly how all of those options are structured. Eg, for next week there are nearly 9000 puts at 740. That's an odd place to see so many puts, unless traders are super bullish on the price and are selling puts at that strike. Are those in spreads? Are the cash secured? Are they long puts ITM for increased delta exposure? I don't think those are protective puts, right? So I can guess that those are probably mostly not MMs, but I don't think there's any way to know for sure. It should be a safe bet that most of those 750c "lotto tickets" are retail traders, as folks who sell calls like we do are not the norm. But that's just an educated guess, at best. Best bet is probably to watch the price action. It's been clear all week that 720 was a line in the sand, so we can be pretty sure the MMs were net short at 720c.

 

[PastorDave]

What are the range of things that could happen in "AH shenanigans"?

For example, if we close end-of-day at $719.50, could the closing cross and AH conceivably nudge the price up enough to trigger assignment for $720 cc's?

Yes. I've read about options being exercised based on AH price movements, and I believe that they're still executable until the AH market closes.

 

[CHGolferJim]

Yes. I've read about options being exercised based on AH price movements, and I believe that they're still executable until the AH market closes.

Thanks, I will start building in more of a cushion for that then. I suppose close everything out for pennies and/or roll on Thu/Fri.

 

[AquaY]

Yes. I've read about options being exercised based on AH price movements, and I believe that they're still executable until the AH market closes.

The OCC automatically exercises options that are $0.01 or more ITM, unless the option holder has notified his/her broker not to allow exercise of the option. Which has happened to me. I’ve had written options that were mildly ITM and were not exercised.

An owner of an option can exercise it until 430 on the Friday of expiration.
So in that sense you can be assigned up to 30 minutes past the close.
Automatic assignments occur from the Close price though I’m pretty sure

 

[pz1975]

Yes. I've read about options being exercised based on AH price movements, and I believe that they're still executable until the AH market closes.

Options can be exercised (both by you if you bought them and against you if you sold them) 30-60 mins after close depending on the broker. Usually this will happen if they go ITM after hours but it is also possible even if OTM.

 

[pz1975]

Thanks, I will start building in more of a cushion for that then. I suppose close everything out for pennies and/or roll on Thu/Fri.

Yes, I always close out OTM options just before close if it is reasonable for the AH price to make them ITM. For example, this week I closed all puts >690 and calls <740. It’s worth the few dollars each to avoid a potentially harmful exercise against you.

 

[jeewee3000]

Thanks, I will start building in more of a cushion for that then. I suppose close everything out for pennies and/or roll on Thu/Fri.

To add to what others have said about this, it is indeed wise to close or roll all of ones shorted options before market close of the expiration date to prevent unexpected surprises.

We discussed this about 2/3 of this thread (I believe it was a few months ago) and named it "practicing good options hygiene".

 

[jaspa]

Options can be exercised (both by you if you bought them and against you if you sold them) 30-60 mins after close depending on the broker. Usually this will happen if they go ITM after hours but it is also possible even if OTM.

Had this happen to me with DAL shares last year. The options closed OTM with a decent margin, however, right after the close, it was revealed that Warren Buffett got out of his airline positions. This caused DAL to tank in the AH, with the options going ITM and eventually exercising. Ironically, the news was digested over the weekend and DAL actually traded up that following Monday.

 

[Tslynk67]

Question about max pain graphs: what if retail traders one week sold more than bought options (ie. TSLA weekly calls for next week) so the MMs were net long? Would the max pain graphs showing those call walls be inverted (below zero) or would they still show the "open" positions as positive on the graphs even though it is the MMs who own them? Would there be any way for us ignorant retail traders to know this has happened? Would this encourage the MMs to try and get those calls ITM so they would profit instead of what happens every week?

Options are anonymous and an open position is just that, an open position, regardless of who bought or sold it

All trades go through the options exchanges (the biggest being Chicago Board Options Exchange) and there's no trace of who sold what to whom

When options are exercised, be it early or at expiry, the exchange sends the request out randomly to brokers holding the positions, who then randomly choose which ones to call - it's pure bad luck if you get an early assignment

We don't know the actual numbers, but I think the %age of retail trading options is even less than that of shares - think of how many people you know with stocks, then how many of those play the options gam, yeah, very few - probably for the best, fortunes are made, lives are ruined...

 

[AquaY]

Options can be exercised (both by you if you bought them and against you if you sold them) 30-60 mins after close depending on the broker. Usually this will happen if they go ITM after hours but it is also possible even if OTM.

I made a mistake. Options Clearing Exchanges will take orders up to 430 CT. I forgot it was Central time versus Eastern time. The market closes ET.
So that's an hour and half after the stock market closes.
I still believe automatic assignment occurs via the OIC with ITM by $.01 from closing price and of course brokers can opt out of that as well as option holders can give instructions not to exercise.

Option holders wishing to exercise can do so based on how late their broker allows it, which must be before 430 CT in order for them to get their orders in I think.
Either way, it's important to realize like you said that options can be exercised AH.

 

[EVCollies]

Thanks, I will start building in more of a cushion for that then. I suppose close everything out for pennies and/or roll on Thu/Fri.

Since I can’t watch the market actively, every Thursday evening I place a limit BTC at 0.05 for all my OTM options. For options ATM, I decide how much premium to lose and place a limit BTC for those options.

 

[adiggs]

Thanks, I will start building in more of a cushion for that then. I suppose close everything out for pennies and/or roll on Thu/Fri.

I would definitely close proactively with only $0.50 from a closing price and my strike price. That's me anyway

If your broker has commission free BTC orders at some threshold, I personally would bias pretty heavily towards taking them up on that commission free offer. I tend to close much earlier than that and pay the commission for closing. Then again I like proactively removing positions just for the peace of mind - the moment it's closed it stops occupying any mental energy at all.

 

[adiggs]

Had this happen to me with DAL shares last year. The options closed OTM with a decent margin, however, right after the close, it was revealed that Warren Buffett got out of his airline positions. This caused DAL to tank in the AH, with the options going ITM and eventually exercising. Ironically, the news was digested over the weekend and DAL actually traded up that following Monday.

Where's that "Lucky" button when I need it

 

[pz1975]

I would definitely close proactively with only $0.50 from a closing price and my strike price. That's me anyway

If your broker has commission free BTC orders at some threshold, I personally would bias pretty heavily towards taking them up on that commission free offer. I tend to close much earlier than that and pay the commission for closing. Then again I like proactively removing positions just for the peace of mind - the moment it's closed it stops occupying any mental energy at all.

I almost always watch the SP the last hour before close Fridays unless I am away (it is during my lunch at work) and so I usually wait until the last 15 mins before close to buy back the OTM expiring options. I can usually get them for 0.01-0.05 each. It doesn’t sound like much difference compared to 0.50, but doing this for dozens of options every week adds up of course.

But we all have our own availabilities to watch the market so your idea is much safer if you can’t watch closely on Fridays, especially near the end of the market day.

 

[adiggs]

I almost always watch the SP the last hour before close Fridays unless I am away (it is during my lunch at work) and so I usually wait until the last 15 mins before close to buy back the OTM expiring options. I can usually get them for 0.01-0.05 each. It doesn’t sound like much difference compared to 0.50, but doing this for dozens of options every week adds up of course.

But we all have our own availabilities to watch the market so your idea is much safer if you can’t watch closely on Fridays, especially near the end of the market day.

For real!

I've done some last few hours watching of the shares and option premiums - I even took some positions that were just barely OTM into the final few minutes of trading to get a feel for how prices shift around right there at the end.

My bias now is to be out of positions by Wednesday or Thursday of expiration week, so I can get setup to enter the new position a day or 3 earlier (with a correspondingly larger premium on the new position).

 

[pz1975]

For real!

I've done some last few hours watching of the shares and option premiums - I even took some positions that were just barely OTM into the final few minutes of trading to get a feel for how prices shift around right there at the end.

My bias now is to be out of positions by Wednesday or Thursday of expiration week, so I can get setup to enter the new position a day or 3 earlier (with a correspondingly larger premium on the new position).

I definitely often do that (close earlier) for sold puts so I can free up margin for next week’s trades. For covered calls, I never sell calls against all my shares so I like to squeeze every $ out of them and wait until the last minutes to buy back (or let them expire worthless if way OTM). I can still sell more covered calls for the next week if I want to.

 

[CHGolferJim]

I would definitely close proactively with only $0.50 from a closing price and my strike price. That's me anyway

If your broker has commission free BTC orders at some threshold, I personally would bias pretty heavily towards taking them up on that commission free offer. I tend to close much earlier than that and pay the commission for closing. Then again I like proactively removing positions just for the peace of mind - the moment it's closed it stops occupying any mental energy at all.

My account fees are asset-based and $0 for transactions, fortunately (?).

 

[AquaY]

I would definitely close proactively with only $0.50 from a closing price and my strike price. That's me anyway

If your broker has commission free BTC orders at some threshold, I personally would bias pretty heavily towards taking them up on that commission free offer. I tend to close much earlier than that and pay the commission for closing. Then again I like proactively removing positions just for the peace of mind - the moment it's closed it stops occupying any mental energy at all.

Etrade is BTC free commission and fees for closing trades $.10 or less.
I think they even call it Dime Buyback or something. I usually close out before it gets that low or leave it to expire

 

[TheTalkingMule]

I've done what you're thinking of doing with the MMD. TSLA tends to follow technical supports and resistances fairly well, so if it's at a support, buying a call can work out. What I've found is that it can also go against you pretty easily, and there's little recourse when buying. If you're day trading, I've done pretty well just watching the stock bounce around 4-5 points near resistance or support. Many days once the stock settles down it just stays in a tight range like that.

If you're looking to limit your risk, I can suggest 2 options for my not-advice. The first is what you're suggesting, just buying calls. Your risk is what you paid for the calls. That's fine, but if the MMD doesn't reverse, you don't have much of a recourse but to take a loss. Time value is against you when buying options. I imagine that's a reason most of the people in this thread are selling options rather than buying; you win even if the stock does nothing.

The second way to limit risk in your example is to sell a put spread (BPS), which is selling a put, then buying another put at a lower strike price. Eg, sell the 705p and buy the 695p. That also limits your risk to the spread amount (10 x 100) - credit on the spread, but you get the benefit of winning even if the stock price just sits at 705 for the rest of the week. Also, you have the option to roll the spread to the following week if the stock price drops beyond what you think is reasonable. Selling a 100 wide spread like most of the folks on this forum are doing (as am I) is functionally the same risk as selling a naked put, unless TSLA drops over 100 points out of nowhere, so keep that in mind.

Circling back to this thread to say thanks to all for the input on capturing MMD value with intra-day trades on same-week options. I was hoping there was a logical bull put spread strategy so I could be more of a seller than a buyer. I'll try that out when I figure it out and know it more thoroughly, but I think I've got the call buying system down. It's as simple as going on instinct with an eye toward support levels and trying to nail the bottom of a pushdown or MMD.

Even trying this out with single contracts Wednesday worked out fine. We opened at $713.31 and quickly dove to ~$708 by 10am. I bought a single $710c for Friday 8/13 @ $6.85 and my $7.85 sell order executed maybe 10 minutes later. Got down to the beach and noticed $710c was now priced at $5.40, so I bought there and my $6.35 sell order quickly executed again. We closed Wednesday @ $708, so even on a down day you can likely capture plenty of value. Obviously these are only 10-15% gains and when I whiff.........it's -100%.

My plan is to only run this on a Mon/Tues when I know for sure that sentiment is high and I see a big MMD that's completely illogical. Maybe do it on a Wednesday for calls expiring that Friday, but only if it's super glaring. I wanna stick to buying calls just barely out of the money at what I feel is the bottom of an MMD, then I can always fall back on a Wed/Th/Fri runup if my MMD guess is wrong on Mon/Tues.

It's basically home run derby, but I think we watch TSLA so closely I can turn a good profit. Will attempt to remain disciplined in my approach and report back. The goal isn't to sit and watch this thing all day, it's to see an MMD and have use a simple system to buy and set a sell order in a few minutes. Thanks again to all!