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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
It is $20k margin, or at least I mentally calculate it that way. That being said I opened what I expected to be a $300k margin position and saw my House Surplus go down $100k (not the $300k expected), so my own margin calculation seems to be a lot more conservative. Mostly it's just different from Fidelity's with my calculation mostly being a lot more conservative - except for occasionally when its more aggressive (usually when the unrealized losses are piling up
).The value to me is that I won't sell short puts using margin as the backing, where my assumption is that I will take delivery if necessary. Taking delivery would mean taking on a margin loan of some substance, even if we all know that the position will be managed so that there is no delivery. The additional value is that the margin requirement won't change as the share price moves around.
I will sell ~3.5 of these 500/700 put spreads with the same margin as 1 short put (cash covered) so this gets me some leverage in a defined way. There is no way I would sell 3 short puts (@$24k margin each) -- even if the latter is actually safer. My emotions (possibly scarring
) from the Feb hell puts have the better of my on this point. And 3 of these vs. 1 csp generates a lot more net credit (the leverage side).
Don't be. Worst case scenario: you roll it out until OTM. The question is: will TSLA ever revisit the strike in question after having run past it? If the answer is yes, you have nothing worry about. I'd say the stock needs to consolidate in the 700-750 range for some time before moving up.
That's interesting. I find the prospect of total loss w/ more difficulty managing a BPS vs a naked put much more daunting.It is $20k margin, or at least I mentally calculate it that way. That being said I opened what I expected to be a $300k margin position and saw my House Surplus go down $100k (not the $300k expected), so my own margin calculation seems to be a lot more conservative. Mostly it's just different from Fidelity's with my calculation mostly being a lot more conservative - except for occasionally when its more aggressive (usually when the unrealized losses are piling up
The value to me is that I won't sell short puts using margin as the backing, where my assumption is that I will take delivery if necessary. Taking delivery would mean taking on a margin loan of some substance, even if we all know that the position will be managed so that there is no delivery. The additional value is that the margin requirement won't change as the share price moves around.
I will sell ~3.5 of these 500/700 put spreads with the same margin as 1 short put (cash covered) so this gets me some leverage in a defined way. There is no way I would sell 3 short puts (@$24k margin each) -- even if the latter is actually safer. My emotions (possibly scarring
dc_h
Active Member
Sounds like we need another thread! It would be great to document the journey.
Already opened - see the Professional trader status thread
InTheShadows
Active Member
Wonder if you could set it up in an LLC or S-corp then take the QBID. For the USA folks.
Tax Cuts and Jobs Act, Provision 11011 Section 199A - Qualified Business Income Deduction FAQs | Internal Revenue Service
Find common questions and answers on the qualified business income (QBI) deduction, also called the 199A deduction.
LN1_Casey
Draco dormiens nunquam titillandus
I agree, so I plan on selling a 700p next week if this 720c this week is called away. I don't think it will be, but I can see the low 700's being a consolidation point for a bit. Unless a new stock split pops up.
I'm considering this stock price to be golden for us. For the last 4,5 months it was so undervalued that the risk of having the shares called away before a massive re-pricing was too high. Now that we are back in a reasonable trading range, it feels so good.
. I totally get that.Work out an example - no advice here, and the numbers are made up to be directionally but not precisely accurate.
Let's use a $350k position size for 700 strike puts. If we assume $24k margin for a short put, $20k for the $200 wide spread, then we get to a variety of possible positions.
For csp we can open 5 of these. That's the fewest of the ones we'll consider but is also as safe as safe can get. A full loss requires shares to go to $0 and would be $350k. In practice as the shares go down, 5 of these will be losing money at the lowest rate - roughly 500 shares at risk as the shares go down (so $50k if the shares go down $100). At $500 share price, this position will be down $100k ($20k / contract).
Lowest reward, lowest risk. And taking assignment is always available - you already have the cash in hand with no margin loan necessary.
Selling on margin we can open nearly 15 of these. Let's call it 15 for round numbers and easy math, and putting us into a $360k position. Full loss doesn't happen until shares go to $0 and would be 3x the size of the full loss on CSP ($1050k). None of us think that the full loss is at all likely but it's still there.
If we assume that a margin backed put is pretty much 1.0 delta at $500 share price (700 strike) then this position has a $20k loss per contract, or $300k at the $500 share price. That's a more reasonable 'big' loss.
Round numbers - this position earns and loses money 3x as fast as the csp. Taking assignment is possible and you'll take on a margin loan to fund the assignment.
As there is no insurance cost the received credit will be that much higher.
Using the $200 spread size we can sell 17 of these spreads with a position size of $340k. Max loss happens at $500 share price and is $340k (some simplifying assumptions there, that are common when assessing option positions). As above this position is gaining and losing at roughly 3x the rate of the csp (slightly more due to the 2 extra contracts). The insurance carries a cost with it. If we assume $0.50 per contract then that is $850 for 17 of these compared to the $2000 ($10 option premium, 2 extra options) raised by the additional 2 contracts. So we might think of the insurance as 'free' as long as we're also willing to take on the bit of extra leverage.
We're also taking on a slightly higher impact of loss on a share drop to $500 ($340k vs $300k).
The reality, and this shouldn't be a surprise, is that the two strategies have similar outcomes on such a large drop in the share price. From previous experience I would expect the 700 strike puts to be difficult to manage at $600 share price (really small net credits, and stuck waiting for a share price reversal to make the position manageable again). That's the same for the put spread.
In fact it's the similarity between how the put spread and the short puts behave at these larger spread values that attracted me to them. But I can also readily see margin backed puts being preferable. It starts to look like vinegar or ketchup for one's fries - they're both great, and have adherents that will argue for one or the other.
Yes seems reasonable that they are effectively the same at that point. I should probably spend the time plotting it out, but I wonder about how net credits might behave on a roll during a price drop between the two, and if there is much difference.
Work out an example - no advice here, and the numbers are made up to be directionally but not precisely accurate.
Let's use a $350k position size for 700 strike puts. If we assume $24k margin for a short put, $20k for the $200 wide spread, then we get to a variety of possible positions.
For csp we can open 5 of these. That's the fewest of the ones we'll consider but is also as safe as safe can get. A full loss requires shares to go to $0 and would be $350k. In practice as the shares go down, 5 of these will be losing money at the lowest rate - roughly 500 shares at risk as the shares go down (so $50k if the shares go down $100). At $500 share price, this position will be down $100k ($20k / contract).
Lowest reward, lowest risk. And taking assignment is always available - you already have the cash in hand with no margin loan necessary.
Selling on margin we can open nearly 15 of these. Let's call it 15 for round numbers and easy math, and putting us into a $360k position. Full loss doesn't happen until shares go to $0 and would be 3x the size of the full loss on CSP ($1050k). None of us think that the full loss is at all likely but it's still there.
If we assume that a margin backed put is pretty much 1.0 delta at $500 share price (700 strike) then this position has a $20k loss per contract, or $300k at the $500 share price. That's a more reasonable 'big' loss.
Round numbers - this position earns and loses money 3x as fast as the csp. Taking assignment is possible and you'll take on a margin loan to fund the assignment.
As there is no insurance cost the received credit will be that much higher.
Using the $200 spread size we can sell 17 of these spreads with a position size of $340k. Max loss happens at $500 share price and is $340k (some simplifying assumptions there, that are common when assessing option positions). As above this position is gaining and losing at roughly 3x the rate of the csp (slightly more due to the 2 extra contracts). The insurance carries a cost with it. If we assume $0.50 per contract then that is $850 for 17 of these compared to the $2000 ($10 option premium, 2 extra options) raised by the additional 2 contracts. So we might think of the insurance as 'free' as long as we're also willing to take on the bit of extra leverage.
We're also taking on a slightly higher impact of loss on a share drop to $500 ($340k vs $300k).
The reality, and this shouldn't be a surprise, is that the two strategies have similar outcomes on such a large drop in the share price. From previous experience I would expect the 700 strike puts to be difficult to manage at $600 share price (really small net credits, and stuck waiting for a share price reversal to make the position manageable again). That's the same for the put spread.
In fact it's the similarity between how the put spread and the short puts behave at these larger spread values that attracted me to them. But I can also readily see margin backed puts being preferable. It starts to look like vinegar or ketchup for one's fries - they're both great, and have adherents that will argue for one or the other.
Now THAT will be interesting to see. I look forward to reading what you work out
After the Fed info is out I'll open some of both and then do some comparisons over the week and report backNow THAT will be interesting to see. I look forward to reading what you work out
I'm in the process of doing something similar, incorporating my trading as an LLC:
:max_bytes(150000):strip_icc()/GettyImages-1650708091-3316036d0a724dddab8e9fc3f528afe0.jpg)
Benefits for Active Traders Who Incorporate
Trading through a separate business structure allows active traders access to all of the tax mitigation and asset protection strategies available.
So far it's been a bit of a pain to set up, but in theory the tax benefits are great, and my accountant said it should work for me. I'm assuming that I'll keep doing 10-20k a week in options income. The biggest benefits beyond those already mentioned in the great posts above are that you can move a lot of income to tax deferred accounts, like 401ks. There are also a lot of tax strategies that open up like the Augusta rule, having more than one business in your corporate structure, etc. Not tax advice, etc., but this is the direction I'm moving in.
WHere are you getting .50/contract @Oil4AsphaultOnly ? I'm paying .65 both ways!!! Cuz that .15/contract totally makes the difference (not)
Schwab. But that was recent because of all the trading activity. It was .65 before last week. I thought I was special, but then my mom (who doesn't trade options) got the same letter/notice, and then I felt shammed. Can't be in the cool crowd if your mom's in the same group right?
AquaY
Member
Depends on how cool your Mom is.
Closed my $730C at 60% profit, we've been bouncing around quite a lot so I closed when I was >50% profit. Still have a $720C open in my 401k. I don't mind being assigned and selling $700P after so no big deal.
Is everyone just sitting on their hands before J Powell's thing on Friday?
Is everyone just sitting on their hands before J Powell's thing on Friday?
jeewee3000
Active Member
I agree some whale could be accumulating, and in a few trading days some convenient analyst notes can pop up saying "look, we've taken another look at Q2 and AI day, and NOW we realize Q3/Q4 and beyond is going to be huge, so we raise our TSLA price target to $1100" and the stock takes off.
However, currently I'm only looking at this week.
Given the many responses, for which I thank you all, I notice an unusually large part of you expecting a SP rally.
My first reflex in these scenarios is: "be greedy when others are fearful". Longer term (=some weeks out) I agree we could see $800 in short order. This week, I took another look at the last Golden Cross (i.e. the 50 DMA rising above the 200 DMA since that is a significant technical sign for traders to enter into a stock.
Last time it happened was Tuesday November 5th 2019. I documented the most relevant data on the graph below:
According to my (rough) calculations, the Golden Cross will occur tomorrow, Friday August 27th. Given it's the end of the week, volume is low, I expect no sudden increase in buying interest, even with the Cross. Next week though, I wouldn't be so confident. The weekend will allow traders to notice the Cross, write some sugar about it on SeekingBeta and with the help of some WallStreetBets cellar-dwellers, we could see a decent pop on Monday taking us back (and maybe over??) the current resistance at $730.
So for now I'm holding onto my cc's. Only if there were a decent dip today I might close out the 700's. The others (720's and 750's) are way safer.
GLTA
I'm planning to let my cc735's expire tomorrow (or BTC @ $0.01) Unless there is a huge gap up today, which I don't expect ahead of tomorrow, I don't see much risk there. Max Pain updates in about an hour - would be interesting to see if it creeps up to 700.
Looking for some ideas to take advantage of the potential golden cross pop next week to open tomorrow right now.
Looking for some ideas to take advantage of the potential golden cross pop next week to open tomorrow right now.
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