Wiki Selling TSLA Options - Be the House

[ggr]

Two reasons that are tied together at the hip:
1) It's a pretty strong pattern that people use to trade. Doesn't mean it happens every time, but it's common enough for people to use across many companies.
2) The way I think about it, IV builds due to the uncertainty around each earnings announcement. Is it a good one? A great one? A bad one? A really really bad one? True for any company, not just TSLA. So IV ratchets up as people take each side (one of the trading strategies is a straddle where you take BOTH sides ).

Once the earnings announcement happens, you have resolution of the uncertainty. That resolution drops the IV significantly (which changes the option premium by Vega). At least that's the theory I'm working from.

Yes, that's my understanding too. It does seem to be pretty reliable, at least for Tesla.

 

[ggr]

Interesting. And at that point it also becomes long term gains or is it treated as short term gain? Thanks for the info, very useful.

I'm pretty sure that if you sell to open in 2020, and buy to close in 2022, it is a long term gain, not short term. Basically the contract is its own security, unless it gets exercised, in which case it becomes part of the covering security.

 

[vikings123]

I'm pretty sure that if you sell to open in 2020, and buy to close in 2022, it is a long term gain, not short term. Basically the contract is its own security, unless it gets exercised, in which case it becomes part of the covering security.

Here is the link to the fidelity.com article. It appears the only time it becomes long term gain is when the option is exercised(also based on when the underlying stock was bought).

If you BTC or let it expire it is treated as short term gains regardless of when the the transaction was opened or closed or expired worthless.

What Are The Tax Implications of Covered Calls? - Fidelity

If a call expires worthless, the net cash received at the time of sale is considered a short-term capital gain regardless of the length of time that the short call position was open.

If a covered call is closed with a closing purchase transaction, the net capital gain or loss is considered short term regardless of the length of time that the short call position was open.

If a covered call is assigned, the strike price plus the premium received becomes the sale price of the stock in determining gain or loss. The resulting gain or loss depends upon the holding period and the basis of the underlying stock. If the stock delivered has a holding period greater than one year, the gain or loss would be long term.

 

[ggr]

Here is the link to the fidelity.com article. It appears the only time it becomes long term gain is when the option is exercised(also based on when the underlying stock was bought).

If you BTC or let it expire it is treated as short term gains regardless of when the the transaction was opened or closed or expired worthless.

What Are The Tax Implications of Covered Calls? - Fidelity

OK, I stand corrected.

 

[evermore]

Thanks for starting this thread, adiggs, and everyone else who has contributed. The spirit of sharing lessons and collegial tone here have made this particularly useful as I've learned more about options.

In that spirit, I'd like to share why, at least for the moment, I have decided not to use the wheel. This is not intended to encourage or discourage anyone else; I'm just presenting my own research and (maybe erroneous) conclusions. This is not advice.

I back-tested the wheel using ThinkOrSwim. I can't find an inexpensive source for historical option prices, so I just used the look-back feature in ToS that lets you select a date and paper-trade. It's a lot of clicking and waiting. I did this a few times, using different time-frames and different parameters (sometimes I strictly followed the wheel, sometimes I would buy back options that were just barely in the money). I looked back to April and to January. I didn't have the patience to go back further than that, but January is when Everything Changed, so the time-frame starting then seems most relevant. Including or excluding The Singularity in March also seemed like it would produce interesting information.

I was initially thrilled at the gains it produced, until my spouse pointed out that the gains were essentially enough to keep up with the growing capital requirements of servicing cash-covered puts. In other words, performance was fairly comparable to buy-and-hold. Incidentally, this may suggest that the options market is, at least in some respects, acting fairly efficiently.

Now of course many folks here have moved on from a strictly mechanical interpretation of the wheel into more complex strategies with more information input and more possibilities (and perhaps more intuition?), and it seems many of those have produced larger gains. So maybe the wheel is best seen as a framework or a starting point to start building experience.

 

[Chenkers]

I've had some excess cash sitting in a mortgage offset account thats not meant for investment but is effectively earning only 3% interest pa. But the high IV at the moment proved too tempting. So I transferred some to my brokerage account and sold a 24/7 1520 Put for $150. I'm expecting to let it run to expiry to net a nice 10.9% return for just over a week! Everything else is sitting in shares and options and I won't look at selling any other covered calls or puts until well after earnings.

 

[Chenkers]

I was initially thrilled at the gains it produced, until my spouse pointed out that the gains were essentially enough to keep up with the growing capital requirements of servicing cash-covered puts. In other words, performance was fairly comparable to buy-and-hold. Incidentally, this may suggest that the options market is, at least in some respects, acting fairly efficiently.

Now of course many folks here have moved on from a strictly mechanical interpretation of the wheel into more complex strategies with more information input and more possibilities (and perhaps more intuition?), and it seems many of those have produced larger gains. So maybe the wheel is best seen as a framework or a starting point to start building experience.

I see the wheel as being a valuable strategy to emply when TSLA is trading more 'normally' between events like P&D and earnings that can cause rapid appreciation of the stock price. During these times the stock price goes up much faster than the covering capital balance so you end up falling off the back of the wheel. A more nuanced approach of alternating between HODL/Options and the wheel should give a strong return, provided you get the timing right.

 

[Right_Said_Fred]

I see the wheel as being a valuable strategy to emply when TSLA is trading more 'normally' between events like P&D and earnings that can cause rapid appreciation of the stock price. During these times the stock price goes up much faster than the covering capital balance so you end up falling off the back of the wheel. A more nuanced approach of alternating between HODL/Options and the wheel should give a strong return, provided you get the timing right.

I think you are correct in your observation that the wheel will perform at its best when the stock starts trading in a channel. Ofcourse premiums will go down during such a period of relatively little stock movement, but you will still be able to grow your balance. Investors who just hold the stock during such a period will not.

The wheel is underperforming though during periods when the stock rises sharply.

 

[pz1975]

Great week for my funnel. After having to buy back some sold OTM calls (2,000) during the run-up Monday (I didn't know how high it was going to go and I like to close positions before the loss gets too high) and taking a $9,000 loss, once TSLA showed it was in a new channel through Tuesday and Wednesday, I started selling puts and calls Wednesday while the IV was still very high and slowly brought the strike prices closer to the SP through Thursday and today. I never got closer than 1550 calls and 1450 puts (sold this morning). In the end, my net profit was $34,000 for the week. The bulk of that was selling 2000 and 2500 calls Wednesday and 1400 puts Thursday.

 

[Nate the Great]

It was the first time that I had some doubts (fear of height) with put selling, but with a lot of good news coming up (Q3 financials is not mentioned often, but that is the major one for me) I’m not too worried that I’ll be stuck with shares at 1600 for too long. And if I am I will be selling monthly calls non-stop.

When I started this strategy a month ago I was hoping to reach a compounding return of at least 40% per year. I’m already at 42% after one month, so I still have a lot of room for error (= low premium income while being stuck with ‘expensive’ shares) for the next 11 months.

Would selling puts deeper in money work as well?

 

[Right_Said_Fred]

Would selling puts deeper in money work as well?

I don’t sell options that are ITM, as it limits the time premium. You could do it ofcourse if you expect a price movement in a certain direction (for instance sell calls 1000 if you expect a big price drop). But that is trading based on expectations, which can become costly when you’re wrong. That is not how ‘the wheel’ works.

 

[ejaykay]

Interesting thread. Going to go watch the videos. I will be back.

 

[pz1975]

Those weekly 3,000 calls are looking pretty irresistible to sell. $2.50 each and you either collect the premium or sell shares this week for almost double the current SP at $3,000!

 

[ZenMan]

Sold some 2000s expiring Friday for $34

 

[Right_Said_Fred]

I swapped my 10 sold puts 1600 exp 8/7 for 10 sold puts 1640 exp 7/31, so one week earlier. I think premiums will start dropping in the weeks after earnings and I believe that the extra week will give me a better chance of getting a good premium when I sell the next set of puts or calls (depending on whether the shares get assigned). I got $1200 for my trouble.

 

[Gabos]

Hi guys, I've been reading reading through the posts here lately quite a bit since I'd like to get into some options trading, especially at this time. I'm planning to buy an OTM call with money willing to part with for a chance of a jackpot. Looking for a mid-term expiry, best case after Q3 report. I mainly wanna play the possible S&P inclusion but still wanna have some cushion if possible and also since the more probable strike prices are out of reach with my play money. I still don't know much about options liquidity or how OTM calls valuate without getting ITM, so I have a few questions

Would I be able to liquidate the positions even during a squeeze ?

Until now I thought it would be best to buy the calls during a dip/lower SP (e.g. friday or today morning - didn't have the money ready yet though) but after the last Fred's post I'm not so sure - would the cost of the calls go lower after earnings even with positive results and htherefore a high probability of inclusion?

Also, how do OTM calls appreciate? Say I buy a Oct20 3500c and the price rises to 2500 next week, what are the price dynamics? I've been playing with a demo account for about a week now but am not anyhow wiser (even with the same example trade, being bought on thursday, it has raised by about 50% with todays SP run up - would it follow the same pattern for every %rise in SP?). I guess expiration date plays quite a role in this too, right?

I really appreciate all your insight and the fact you share your valuable knowledge on this forum!
Thanks!

 

[vikings123]

Hi guys, I've been reading reading through the posts here lately quite a bit since I'd like to get into some options trading, especially at this time. I'm planning to buy an OTM call with money willing to part with for a chance of a jackpot. Looking for a mid-term expiry, best case after Q3 report. I mainly wanna play the possible S&P inclusion but still wanna have some cushion if possible and also since the more probable strike prices are out of reach with my play money. I still don't know much about options liquidity or how OTM calls valuate without getting ITM, so I have a few questions

Would I be able to liquidate the positions even during a squeeze ?

Until now I thought it would be best to buy the calls during a dip/lower SP (e.g. friday or today morning - didn't have the money ready yet though) but after the last Fred's post I'm not so sure - would the cost of the calls go lower after earnings even with positive results and htherefore a high probability of inclusion?

Also, how do OTM calls appreciate? Say I buy a Oct20 3500c and the price rises to 2500 next week, what are the price dynamics? I've been playing with a demo account for about a week now but am not anyhow wiser (even with the same example trade, being bought on thursday, it has raised by about 50% with todays SP run up - would it follow the same pattern for every %rise in SP?). I guess expiration date plays quite a role in this too, right?

I really appreciate all your insight and the fact you share your valuable knowledge on this forum!
Thanks!

Options are pure gambling for the casual investor but I will say that you can make money off of Tesla options. Shorties and MMs will give you so many opportunities to buy the dip, just be patient. I sense some FOMO in your post so be careful not to jump in when the ship has already sailed. For eg; If you did not get in during the first couple of hours today you are better off sitting out.

Liquidity has never been a problem for Tesla OTM options. If you are looking for a lotto I would suggest to wait and see where the stock trades on Wednesday before you make a play. For eg: if the stock trades around 1700 on Wednesday, look to buy a lotto that is deep OTM like a 1880 strike expiring on July 24th. Just be prepared to lose it all. NFA.

 

[juanmedina]

Options are pure gambling for the casual investor but I will say that you can make money off of Tesla options. Shorties and MMs will give you so many opportunities to buy the dip, just be patient. I sense some FOMO in your post so be careful not to jump in when the ship has already sailed. For eg; If you did not get in during the first couple of hours today you are better off sitting out.

Liquidity has never been a problem for Tesla OTM options. If you are looking for a lotto I would suggest to wait and see where the stock trades on Wednesday before you make a play. For eg: if the stock trades around 1700 on Wednesday, look to buy a lotto that is deep OTM like a 1880 strike expiring on July 24th. Just be prepared to lose it all. NFA.

I agree. Options are pure gambling specially on the buying side. If we get a big drop in the SP in the future that might be the time to buy options in particular LEAPs IMO.

 

[Right_Said_Fred]

I agree that buying options equals gambling, with the odds against you. Time is your enemy and there could be an IV drop after earnings (although the timing of S&P 500 inclusion may prolong the uncertainty and therefore volatility longer). So even if you get the direction right, you could still end up losing money on the option.

This is not advice though! ! If we rocket to 2000+ all I said is moot.

—

P.S. This thread is not about buying options, it’s about selling them. So it’s better to continue this in another thread.

 

[Gabos]

Yeah, I appologize for the kinda OT post, honestly I knew it wasn't the exactly right thread, but figured I could get more points of view and better advice in an active discussion of experienced options trader like this one. @Right_Said_Fred

I know it's rather a gamble and it's money I'm okay with losing (I'd rather lose it than kick myself for not trying for what I belive in and missing on a good oportunity) - I've read a lot about the possible squeeze and think it's a real possibility fot TSLA to go even beyond $3000 in short term upon S&P inslusion.
@vikings123
SO yeah, I also admit there is FOMO (regarding the options, since I've been holding the stock for a while now, but didn't realize soon enough that it would take "such time" to get ready for options trading). But I'm rather looking for deep OTM call like the one in example with far enough expiration as a buffer and an expectation to make money on the call even without it getting ITM (but with a slight hope to make some extra if it gets ITM) rather than a weekly lotto.
And @juanmedina LEAPs are something I'm also planning on, though later once there is some sort of a dip and I've had enough time to rebalance.

So sorry once again for the OT (end of conversation on my part) and thank you for your opinions (can't and "not advice"