I rolled my 10 p1640 7/31 to 10 p1640 8/21. Another 41k of premium in the bank for a total of 432k since starting on June 10th. Return of 46% so far (goal is 40+% for the whole year).
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Wait, you sold 10 contracts at $1650?! So you are willing to take delivery of $1.65m of $TSLA at an effective 16% yield on a $1T valuation in 2028....
What's the exit strategy on this trade if we are in the start of a downtrend?
I can't speak for @Right_Said_Fred but what generally makes the wheel go, is being ready and willing (even eager) to take delivery of the shares (in this case), or to sell the shares at the strike for sold calls.
With the wheel strategy, the idea is that when assigned on the puts, you take the shares (10 positions in his case), and start selling covered calls - probably pretty aggressive ones - until assigned again. Or of course, you can just keep the shares and stop selling as well.
Cash to shares, back to cash, and around and around the wheel goes.
As long as the strike to strike (cash to shares, shares to cash) is even, then the premiums are all yours. To the degree that the strike to strike is against you, then the premiums offset that; gotta keep a close eye on that, as being sufficiently negative on the strike to strike transitions can wipe out your premium gains and cause you to start falling off the wheel (term that somebody else used up-thread - I like that and plan to reuse it
).
Yes, in principle I’m willing to take delivery of 1000 shares for $1,64 million. And then start selling covered calls against them.
This can also be done in a downtrend, although the premiums will then ofcourse be less. But with a growth stock like TSLA, which has so much going for it over the next years, I do not consider a downtrend very likely, so I’m willing to take that risk.
In this case I’ve decided to postpone delivery of the possible assignment by a few weeks by rolling the position, as I think an S&P announcement may lift the share price above the strike.
I can't speak for @Right_Said_Fred but what generally makes the wheel go, is being ready and willing (even eager) to take delivery of the shares (in this case), or to sell the shares at the strike for sold calls.
With the wheel strategy, the idea is that when assigned on the puts, you take the shares (10 positions in his case), and start selling covered calls - probably pretty aggressive ones - until assigned again. Or of course, you can just keep the shares and stop selling as well.
Cash to shares, back to cash, and around and around the wheel goes.
As long as the strike to strike (cash to shares, shares to cash) is even, then the premiums are all yours. To the degree that the strike to strike is against you, then the premiums offset that; gotta keep a close eye on that, as being sufficiently negative on the strike to strike transitions can wipe out your premium gains and cause you to start falling off the wheel (term that somebody else used up-thread - I like that and plan to reuse it
I’m definitely trying to follow the rules of the wheel and go from cash to shares, shares to cash and so on. But I’m not following them rigidly if I believe another action is opportune. I’m also trying to learn what works best for me. I have a lot of experience daytrading index options 15 years ago (writing strangles and straddles, covered with futures), stock options are a new area.
A few semi-random thoughts from my thinking and preparation for assignment on covered calls at 1700 this past week.
In the wheel, we make transitions from shares to cash (covered call assignment - sell shares), and cash to shares (CSP assignment - buy shares).
The observation in this post is that cash and shares each have their own dynamic, and it matters for 'staying on the wheel'.
The think about shares is that no matter what the share price is, you have that many positions in shares. So if you have 500 shares, then you have 5 positions you can write covered calls against. That is equally true at a share price of $200, $1200, $2200, etc.. In any situation where maintaining shares is your priority, then having the share price go up after covered call assignment creates risk that in the strike to strike change, you'll lose more than you gain. And in the worst case, you'll lose enough that you can't get back into the same # of shares that you started with (falling off the wheel).
Share count will never increase or decrease.
Cash has a different dynamic. If you're never assigned, then with cash, you can turn cash into more shares at a low share price than you can at a high share price. If the share price goes down to $200, then you can get 6x the shares with your cash than if the share price were $1200. If the premiums collected along the way are adequately large, and the strike to strike is neutral or close, then the lower share price (buy price) makes it easier to buy more shares.
But the downside is that if the share price keeps going up, if you aren't generating premium at least as fast as the shares are going up, then you're falling off the wheel (at least as measured in the # shares your cash can be turned into).
(This might all be obvious)
In the wheel, we make transitions from shares to cash (covered call assignment - sell shares), and cash to shares (CSP assignment - buy shares).
The observation in this post is that cash and shares each have their own dynamic, and it matters for 'staying on the wheel'.
The think about shares is that no matter what the share price is, you have that many positions in shares. So if you have 500 shares, then you have 5 positions you can write covered calls against. That is equally true at a share price of $200, $1200, $2200, etc.. In any situation where maintaining shares is your priority, then having the share price go up after covered call assignment creates risk that in the strike to strike change, you'll lose more than you gain. And in the worst case, you'll lose enough that you can't get back into the same # of shares that you started with (falling off the wheel).
Share count will never increase or decrease.
Cash has a different dynamic. If you're never assigned, then with cash, you can turn cash into more shares at a low share price than you can at a high share price. If the share price goes down to $200, then you can get 6x the shares with your cash than if the share price were $1200. If the premiums collected along the way are adequately large, and the strike to strike is neutral or close, then the lower share price (buy price) makes it easier to buy more shares.
But the downside is that if the share price keeps going up, if you aren't generating premium at least as fast as the shares are going up, then you're falling off the wheel (at least as measured in the # shares your cash can be turned into).
(This might all be obvious
)
Given this shares and cash dynamic, I've realized that in my two accounts, I have opposite priorities.
In one account, that holds shares and almost 0 cash (>99% share value, <1% cash), my priority is to keep the shares. With so little cash though, I have very little leeway if I get assigned for the puts to get back to shares - I can only accept a very small loss and still get back to the same # of shares.
In the other account that mostly holds cash, my priority is to stay in cash. The motivation is more complex, but I'm more likely to be spending the cash in this account for living expenses or big purchases, and I'd prefer that I not tie up this money in shares for very long. Therefore, even though I've been steadily selling fewer puts in this account as the share price goes up (slipping off the wheel in terms of positions), it turns out that the account is generating more and more cash despite selling fewer and fewer positions, and I'm quite happy anyway.
Overall, this leads in the first account to selling far OTM calls and if assigned (rarely), selling close OTM and ITM puts.
In the second account, selling far OTM puts and if assigned (more likely due to writing higher delta puts), I would be selling close OTM and ITM calls.
The final observation from this week is that very high premium options create their own form of protection. I ended up in 3 positions with option premiums of $233, $175, and $119. Those very high premiums is what enabled me to get back to even and a little bit better this week, despite other positions losing a lot of money.
AND THUS my learning - instead of writing all of my positions as far OTM, I am going to start writing at least one of my positions in each account that is much closer ITM. Maybe these more aggressive positions are more like .30 or .40 delta, but either way, the idea is to court assignment on that 1 position, while generating the relatively large premiums in that one position from each side of the wheel. The big premiums are nice - the incremental protection from those big premiums look equally valuable (easier to close positions that go against me due to having more cash available to do exactly that).
The form that this took on Friday was to sell a put ladder in that cash centric account. I sold the ladder prior to the $100 drop on Friday (ah well), but setup there is (all for 7/31 expiration):
$1450 strike put, $40 premium, .33 delta at sale (and already ITM - I hope this doesn't go a lot more ITM)
$1400 strike put, $25 premium, .23 delta at sale (still OTM, but not by much.
These are the two that I'm actively courting assignment
Then a 1300 strike put at .12 delta for $10 premium
and a 1000 strike put for $1 premium (.01 delta). This last position is really using the last bit of cash to write what I can with it, rather than a serious position.
If the share price finishes below 1400 but not by a lot, then I'll easily be able to write similar strike calls for large premiums to convert shares back into cash on those 2 big premium positions.
And if the share price goes back above 1450 by Friday, then all of these positions will expire worthless and the higher premiums on those 2 contracts will enable me to push up that 1000 strike put to something closer (a 1075 or so).
Actually, I'll keep the premiums on the 2 large positions either way - unless very, very close ATM at expiration, I'll take assignment on those two. Worst that will happen is I'll sit on an extra 200 shares for months while we're waiting on the shares to come back up to this 1400 and 1450 strike range (oh the horror).
The intention is to do a similar call ladder in the other account, though I'm a lot more conservative there. I'll wait for awhile, maybe days for the share price to bounce back, and maybe months. The idea will be similar though - write a pretty high delta (and OTM) call, a medium delta call, and then the rest far OTM. I'll be courting assignment on those one or two, with the intent that I'll be writing ATM and ITM puts to return to shares and collect some large premiums along the way.
So my thinking is that having 1 (or 2) position I'm actively moving back and forth will generate some large premiums, and those large premiums will keep the cash account closer on the wheel (# positions is constant or increasing) and provide some buffer / flex on the share account to keep all the shares intact (and maybe someday, have enough extra cash to write an incremental put position, and then acquire an additional share position.
In one account, that holds shares and almost 0 cash (>99% share value, <1% cash), my priority is to keep the shares. With so little cash though, I have very little leeway if I get assigned for the puts to get back to shares - I can only accept a very small loss and still get back to the same # of shares.
In the other account that mostly holds cash, my priority is to stay in cash. The motivation is more complex, but I'm more likely to be spending the cash in this account for living expenses or big purchases, and I'd prefer that I not tie up this money in shares for very long. Therefore, even though I've been steadily selling fewer puts in this account as the share price goes up (slipping off the wheel in terms of positions), it turns out that the account is generating more and more cash despite selling fewer and fewer positions, and I'm quite happy anyway.
Overall, this leads in the first account to selling far OTM calls and if assigned (rarely), selling close OTM and ITM puts.
In the second account, selling far OTM puts and if assigned (more likely due to writing higher delta puts), I would be selling close OTM and ITM calls.
The final observation from this week is that very high premium options create their own form of protection. I ended up in 3 positions with option premiums of $233, $175, and $119. Those very high premiums is what enabled me to get back to even and a little bit better this week, despite other positions losing a lot of money.
AND THUS my learning - instead of writing all of my positions as far OTM, I am going to start writing at least one of my positions in each account that is much closer ITM. Maybe these more aggressive positions are more like .30 or .40 delta, but either way, the idea is to court assignment on that 1 position, while generating the relatively large premiums in that one position from each side of the wheel. The big premiums are nice - the incremental protection from those big premiums look equally valuable (easier to close positions that go against me due to having more cash available to do exactly that).
The form that this took on Friday was to sell a put ladder in that cash centric account. I sold the ladder prior to the $100 drop on Friday (ah well), but setup there is (all for 7/31 expiration):
$1450 strike put, $40 premium, .33 delta at sale (and already ITM - I hope this doesn't go a lot more ITM
)$1400 strike put, $25 premium, .23 delta at sale (still OTM, but not by much.
These are the two that I'm actively courting assignment
Then a 1300 strike put at .12 delta for $10 premium
and a 1000 strike put for $1 premium (.01 delta). This last position is really using the last bit of cash to write what I can with it, rather than a serious position.
If the share price finishes below 1400 but not by a lot, then I'll easily be able to write similar strike calls for large premiums to convert shares back into cash on those 2 big premium positions.
And if the share price goes back above 1450 by Friday, then all of these positions will expire worthless and the higher premiums on those 2 contracts will enable me to push up that 1000 strike put to something closer (a 1075 or so).
Actually, I'll keep the premiums on the 2 large positions either way - unless very, very close ATM at expiration, I'll take assignment on those two. Worst that will happen is I'll sit on an extra 200 shares for months while we're waiting on the shares to come back up to this 1400 and 1450 strike range (oh the horror
).The intention is to do a similar call ladder in the other account, though I'm a lot more conservative there. I'll wait for awhile, maybe days for the share price to bounce back, and maybe months. The idea will be similar though - write a pretty high delta (and OTM) call, a medium delta call, and then the rest far OTM. I'll be courting assignment on those one or two, with the intent that I'll be writing ATM and ITM puts to return to shares and collect some large premiums along the way.
So my thinking is that having 1 (or 2) position I'm actively moving back and forth will generate some large premiums, and those large premiums will keep the cash account closer on the wheel (# positions is constant or increasing) and provide some buffer / flex on the share account to keep all the shares intact (and maybe someday, have enough extra cash to write an incremental put position, and then acquire an additional share position.
I figured all of this out when facing assignment on the 1700 calls. I was expecting the shares to be more like 1900. I might not have had any puts available to sell with a high enough strike plus premium to get the break even down to 1700. If that were true, then I would probably have sacrificed one of my share positions so that the rest of the put positions could be returned to shares at very high premiums, and then look to be more aggressive to collect more premiums, and eventually get back that lost position (but of course more risk).
Lets work an example using the actual closing share price (1417) and this weekend's option chain, along with made up call assignment strikes.
A similar position as I was facing would have been assigned on calls at 1200 that are now trading at 1417. If I just write the 1400 strike puts for 53, then I'm looking at sell 1200, buy 1400, and lose 200 on the strike to strike change but make back 53 on the premium. I'll end up selling puts on 1 fewer position and if assigned (reasonably likely from selling ATM put), then I'm lined up to lose $147 per position. Ouch.
I have cash in the account of 1200 per position.
As my priority is to return to shares, while maintaining the shares, it looks kind of grim
I can sell the 1200 put for $10. If it's assigned, then I buy for 1200 what I sold for 1200, so I'm happy. But the delta is .10, so likelihood of assignment is low.
That premium from the first put, enables me to sell a second put at 1210. That also generates a $10 premium, now at a .105 delta.
Which enables me to sell another 1210, and so forth. I can sell as many positions worth of shares as I started with, but I need a pretty big drop in the share price to finish ITM and get assigned, and this is my priority.
So low premium generation, and low probability of being assigned - I need a pretty big drop in share price to help me get back on the wheel.
Similar setup, except that instead of being assigned on 1200 calls, I am assigned on 1400 calls. I have cash on hand for 1400/share for as many positions I sold.
An easy approach is to sell as many 1400 puts to match up with the positions that were called away. These sell for $53 and the .44 delta. Good premium plus reasonably high likelihood of assignment. I collect $53 / contract and wait for a week. If I finish OTM, then I have an incremental $53 / contract, so my break even goes up from 1400 to $1453, and I repeat next week (and I have the cash to write all of those 1450 options to maintain my share count).
Alternatively, I can sell the 1400 put for $53 (.44 delta). This is reasonably likely to be assigned, and if it is, then I keep the $53 premium.
That $53 premium enables me to sell a 2nd position at 1450 for an $80 premium (.57 delta). If assigned, I'll buy at 1450 what was sold at 1400. So I'll lose $50 on the strike to strike change, but net $30 premium (I'm pretty happy with this, and the high delta makes it pretty likely this will work).
I can now establish a 3rd put at say the 1475 strike for a $90 premium and .66 delta. For best chance of assignment, I probably write all of the remaining positions at this strike.
The net position I've established is a ladder where I have very little ability to close positions early, and which is designed for the highest likelihood of assignment. And if somehow nothing is assigned (share price ends above 1475), then I collected 53 + 80 + 90 (3 positions; +90 for each additional position after the 3rd) worth of premium that moves my break even from 1400 to about 1470 (+~70 average over the 3 positions).
If these all finish ITM, then I get back to my original share position, and I net out 53 + 30 + 15.
If the 1475 is ITM and the others OTM, then I net the $15 net profit from the 1475 option, plus the 53 and 80 for the other 2 positions that finished OTM - bigger premiums that increase the likelihood that in the next week I can write options that are likely to get back to the share positions at a profit.
Lets work an example using the actual closing share price (1417) and this weekend's option chain, along with made up call assignment strikes.
A similar position as I was facing would have been assigned on calls at 1200 that are now trading at 1417. If I just write the 1400 strike puts for 53, then I'm looking at sell 1200, buy 1400, and lose 200 on the strike to strike change but make back 53 on the premium. I'll end up selling puts on 1 fewer position and if assigned (reasonably likely from selling ATM put), then I'm lined up to lose $147 per position. Ouch.
I have cash in the account of 1200 per position.
As my priority is to return to shares, while maintaining the shares, it looks kind of grim
I can sell the 1200 put for $10. If it's assigned, then I buy for 1200 what I sold for 1200, so I'm happy. But the delta is .10, so likelihood of assignment is low.
That premium from the first put, enables me to sell a second put at 1210. That also generates a $10 premium, now at a .105 delta.
Which enables me to sell another 1210, and so forth. I can sell as many positions worth of shares as I started with, but I need a pretty big drop in the share price to finish ITM and get assigned, and this is my priority.
So low premium generation, and low probability of being assigned - I need a pretty big drop in share price to help me get back on the wheel.
Similar setup, except that instead of being assigned on 1200 calls, I am assigned on 1400 calls. I have cash on hand for 1400/share for as many positions I sold.
An easy approach is to sell as many 1400 puts to match up with the positions that were called away. These sell for $53 and the .44 delta. Good premium plus reasonably high likelihood of assignment. I collect $53 / contract and wait for a week. If I finish OTM, then I have an incremental $53 / contract, so my break even goes up from 1400 to $1453, and I repeat next week (and I have the cash to write all of those 1450 options to maintain my share count).
Alternatively, I can sell the 1400 put for $53 (.44 delta). This is reasonably likely to be assigned, and if it is, then I keep the $53 premium.
That $53 premium enables me to sell a 2nd position at 1450 for an $80 premium (.57 delta). If assigned, I'll buy at 1450 what was sold at 1400. So I'll lose $50 on the strike to strike change, but net $30 premium (I'm pretty happy with this, and the high delta makes it pretty likely this will work).
I can now establish a 3rd put at say the 1475 strike for a $90 premium and .66 delta. For best chance of assignment, I probably write all of the remaining positions at this strike.
The net position I've established is a ladder where I have very little ability to close positions early, and which is designed for the highest likelihood of assignment. And if somehow nothing is assigned (share price ends above 1475), then I collected 53 + 80 + 90 (3 positions; +90 for each additional position after the 3rd) worth of premium that moves my break even from 1400 to about 1470 (+~70 average over the 3 positions).
If these all finish ITM, then I get back to my original share position, and I net out 53 + 30 + 15.
If the 1475 is ITM and the others OTM, then I net the $15 net profit from the 1475 option, plus the 53 and 80 for the other 2 positions that finished OTM - bigger premiums that increase the likelihood that in the next week I can write options that are likely to get back to the share positions at a profit.
Big walls of text, and I apologize for that. I hope these thoughts about turning the wheel, and handling the risks of falling off the wheel are helpful.
And I hope others can point out where I'm missing things or can do better.
An obvious source of premium to widen the break even or profit level, is to go out more than 1 week as I'm doing. Whether 2 weeks or 4, you get that extra time premium that widens the share prices you can sell your options at and still hit a neutral or profitable strike to strike difference.
For instance, going out 1 more week.. That 1400 put @53 premium (.44 delta), goes up to $75 premium with the extra week. Staying with ladder design above, sell the 1450 put for $100 premium (.53 delta), and then the 1500 strike at $130 (.62 delta) probably sets up the ladder. Higher strikes on the ladder increases the likelihood of assignment and the higher premiums enable higher and higher strikes if needed to chase the share price higher.
And I hope others can point out where I'm missing things or can do better.
An obvious source of premium to widen the break even or profit level, is to go out more than 1 week as I'm doing. Whether 2 weeks or 4, you get that extra time premium that widens the share prices you can sell your options at and still hit a neutral or profitable strike to strike difference.
For instance, going out 1 more week.. That 1400 put @53 premium (.44 delta), goes up to $75 premium with the extra week. Staying with ladder design above, sell the 1450 put for $100 premium (.53 delta), and then the 1500 strike at $130 (.62 delta) probably sets up the ladder. Higher strikes on the ladder increases the likelihood of assignment and the higher premiums enable higher and higher strikes if needed to chase the share price higher.
pz1975
Active Member
One thing you could do if a position gets away from you (like your 1700 call if the SP had been 1900) is close it as a loss and try to recoup it by selling an OTM put and an OTM call expiring 1-3 months out. Make the premium on each equal half (or just more than half) of the loss you just took (in this case $100-105 each). That way you gain lots of time value relative to selling one expiring in the next 1-2 weeks (so the strike prices are much further OTM), and by selling both a put and a call, you know at least half of the trade will expire worthless. You may have to chase the other half later if the SP moves a lot in either direction, but it buys you time and by being much more OTM makes the deltas much lower (and thus much less likely to end up ITM). I would then just forget about those 2 positions until 1-2 weeks ahead of their expiry date, at which point they join back in the wheel and maybe you close the more risky one when it gets to 90-95% profit.
Given this shares and cash dynamic, I've realized that in my two accounts, I have opposite priorities.
In one account, that holds shares and almost 0 cash (>99% share value, <1% cash), my priority is to keep the shares. With so little cash though, I have very little leeway if I get assigned for the puts to get back to shares - I can only accept a very small loss and still get back to the same # of shares.
In the other account that mostly holds cash, my priority is to stay in cash. The motivation is more complex, but I'm more likely to be spending the cash in this account for living expenses or big purchases, and I'd prefer that I not tie up this money in shares for very long. Therefore, even though I've been steadily selling fewer puts in this account as the share price goes up (slipping off the wheel in terms of positions), it turns out that the account is generating more and more cash despite selling fewer and fewer positions, and I'm quite happy anyway.
Overall, this leads in the first account to selling far OTM calls and if assigned (rarely), selling close OTM and ITM puts.
In the second account, selling far OTM puts and if assigned (more likely due to writing higher delta puts), I would be selling close OTM and ITM calls.
The final observation from this week is that very high premium options create their own form of protection. I ended up in 3 positions with option premiums of $233, $175, and $119. Those very high premiums is what enabled me to get back to even and a little bit better this week, despite other positions losing a lot of money.
AND THUS my learning - instead of writing all of my positions as far OTM, I am going to start writing at least one of my positions in each account that is much closer ITM. Maybe these more aggressive positions are more like .30 or .40 delta, but either way, the idea is to court assignment on that 1 position, while generating the relatively large premiums in that one position from each side of the wheel. The big premiums are nice - the incremental protection from those big premiums look equally valuable (easier to close positions that go against me due to having more cash available to do exactly that).
The form that this took on Friday was to sell a put ladder in that cash centric account. I sold the ladder prior to the $100 drop on Friday (ah well), but setup there is (all for 7/31 expiration):
$1450 strike put, $40 premium, .33 delta at sale (and already ITM - I hope this doesn't go a lot more ITM
$1400 strike put, $25 premium, .23 delta at sale (still OTM, but not by much.
These are the two that I'm actively courting assignment
Then a 1300 strike put at .12 delta for $10 premium
and a 1000 strike put for $1 premium (.01 delta). This last position is really using the last bit of cash to write what I can with it, rather than a serious position.
If the share price finishes below 1400 but not by a lot, then I'll easily be able to write similar strike calls for large premiums to convert shares back into cash on those 2 big premium positions.
And if the share price goes back above 1450 by Friday, then all of these positions will expire worthless and the higher premiums on those 2 contracts will enable me to push up that 1000 strike put to something closer (a 1075 or so).
Actually, I'll keep the premiums on the 2 large positions either way - unless very, very close ATM at expiration, I'll take assignment on those two. Worst that will happen is I'll sit on an extra 200 shares for months while we're waiting on the shares to come back up to this 1400 and 1450 strike range (oh the horror
The intention is to do a similar call ladder in the other account, though I'm a lot more conservative there. I'll wait for awhile, maybe days for the share price to bounce back, and maybe months. The idea will be similar though - write a pretty high delta (and OTM) call, a medium delta call, and then the rest far OTM. I'll be courting assignment on those one or two, with the intent that I'll be writing ATM and ITM puts to return to shares and collect some large premiums along the way.
So my thinking is that having 1 (or 2) position I'm actively moving back and forth will generate some large premiums, and those large premiums will keep the cash account closer on the wheel (# positions is constant or increasing) and provide some buffer / flex on the share account to keep all the shares intact (and maybe someday, have enough extra cash to write an incremental put position, and then acquire an additional share position.
I have the same problem in my IRA I don't have much cash to rebuy a covered call that I sold if it gets away from me so that's why I sell way OTM calls. I am trying to build a larger cash position by collecting the small premium from the OTM calls and sometimes I buy a Yolo here and there If feel it will work out. On my brokerage account I can be more aggressive because I can fund the account if I need to close it out call.
Mokuzai
Member
In my IRA (Fidelity) there is a roll function with options where you can buy back and sell another call in the same operation. If you don't want your shares being called away you can use this to increase the strike with a farther out call and even net gain premium.
Hi gang. Sorry, haven't visited for a few days and haven't been in weeklies for some, erm, weeks
However, in Friday trading, I came to the conclusion that $TSLA had been hopelessly over-sold, so I sold 10 trading shares (that I'd bought Monday for $1514), sold those at a $900 loss and bought a couple of 14/8 c1545
Which went ITM yesterday and are now 53% up
Rest of my October calls went don the shitter last week, but have recovered now. I also got June 2022 $3500's a few weeks back, which got hammered, but time, time, time...
However, in Friday trading, I came to the conclusion that $TSLA had been hopelessly over-sold, so I sold 10 trading shares (that I'd bought Monday for $1514), sold those at a $900 loss and bought a couple of 14/8 c1545
Which went ITM yesterday and are now 53% up
Rest of my October calls went don the shitter last week, but have recovered now. I also got June 2022 $3500's a few weeks back, which got hammered, but time, time, time...
An update - I'm shifting my strategy lightly; I was writing occasional calls. After the last couple of weeks that has stopped. I'm not stopping completely - I'm just going to be better at sticking to my 'rules', and for that account, staying in shares is important to me. So I'm looking for a combination of strike, days to expiration, and premium that makes the risk/reward tilt my way. The net being that the current share price is too low: to get a premium worth the risk, requires either too low of a strike or too many days to expiration for me to chance it (0.50 premiums aren't worth any level of risk to me, after that very unfriendly big spike a week or 2 back).
On the put side, I've also shifted. I'm shifting my delta up pretty significantly. In particular:
I've written a put ladder today for Aug 7 / next Friday (closed the existing puts at 70% gain) that ranges from 1400 to 1485 and a delta from .23 to .42 (premiums from $26 to $51). I like the Aug 7 over July 31 as I like positions in the 3 to 8 day range, which makes today the 1 day in that range where I can go either way. I like the larger premiums for Aug 7 over rolling up for July 31.
That .42 delta put is comfortably the highest delta put I've ever written. My intent is to get assigned on at least one of these positions (and if it looks like I'm failing to get assigned, I'll just roll up the lowest delta position to a high delta position and try again).
It's also my belief that we're going up much more than down the next week or two at least. I'm hoping for a relatively modest net upward move in the stock week to week (up, up, and away, but $50/week instead of $200/day spikes). I think that hope is a forlorn one. That's a second reason for getting so aggressive on the put premiums - if I'm write about direction, then the premiums will melt quickly.
On the put side, I've also shifted. I'm shifting my delta up pretty significantly. In particular:
I've written a put ladder today for Aug 7 / next Friday (closed the existing puts at 70% gain) that ranges from 1400 to 1485 and a delta from .23 to .42 (premiums from $26 to $51). I like the Aug 7 over July 31 as I like positions in the 3 to 8 day range, which makes today the 1 day in that range where I can go either way. I like the larger premiums for Aug 7 over rolling up for July 31.
That .42 delta put is comfortably the highest delta put I've ever written. My intent is to get assigned on at least one of these positions (and if it looks like I'm failing to get assigned, I'll just roll up the lowest delta position to a high delta position and try again).
It's also my belief that we're going up much more than down the next week or two at least. I'm hoping for a relatively modest net upward move in the stock week to week (up, up, and away, but $50/week instead of $200/day spikes). I think that hope is a forlorn one
. That's a second reason for getting so aggressive on the put premiums - if I'm write about direction, then the premiums will melt quickly.
With the put ladder in place, I'm seeing a dynamic that makes sense, but wasn't as apparent or conscious to me.
By ladder, I mean that I have a range of strikes on the same expiration day. What I really have is a range of deltas, so I will have times where the delta fit within the range I'm looking for, but the expirations may vary (but typically only by a week due to my preference for option writes in the 3-8 days to expiration range).
After 1 day of the pieces of the ladder being in place, it's going my way. The largest absolute gains favor the closest ITM puts (shares +$7, while option premiums are minus-$4 to minus $7.
But the % gains favor the further OTM options (+$7 share price, option premiums today at -18% to -13%.
These differences in the math dynamics illustrates two interlocked ideas for choosing specific positions. The closer ITM options are going to provide the largest premiums (absolute and %). Those closest ITM options will drop in absolute value faster than further OTM options (they've got more total value to lose).
But the further OTM options are going to drop in % value faster.
As a consequence, I anticipate the furthest OTM options to reach my profit target of ~$67% most quickly. This seems to be a good profit level that captures a lot of the premium while also providing a new position within my time and delta considerations that I will prefer (namely 3-8 days to expiration, and delta as high as .30) over what's left of the 67% profit option.
I have a .42 delta put in my current ladder though (for the first time), and I like the dynamics it's providing so far. I suspect that I have increased the delta I'm willing to write up to that .40-.45 range, though I figure I need to write at least a 2nd to be sure; especially as long as I'm in a mode where I want to be assigned so I can start seeing the full wheel dynamics.
Even with these more aggressive positions, I think it unlikely I'll write most or all of my position at the .,30 or .40 delta level, but rather stick with this ladder idea where the lower end of the ladder is more like .10-.15. As the bottom of the ladder reaches 67% profit and/or a .05 to .07 delta, I'll roll that up and/or out to capture that gain and simultaneously establish a new position - most likely at or near the top of the ladder.
Oh - I'm still monitoring for call sale availability, but I suspect I need something closer to an 1800 to 2000 share price before I have call strike prices / premiums / delta levels that I find desirable. Or alternatively, I'll need a put assignment, at which I'll be writing highly aggressive calls against those purchased shares.
Hey can I get some help to validate this idea about tax?
Step 1
Assume today, the SP is $1500, and I sold a
Deep ITM call, Jan 21 $100 and collected $140k premium. And then I used that money to buy 95 shares.
Step 2.
From July to Nov, I sell puts and accumulate $200k gain, realized.
Step 3.
In Dec 2020, Assume the SP is $3000, and I close the deep ITM call by buying back the Jan 21 $100 call, and thus I realize $150k loss.
So for all the steps above, my net realized gain should be $200k - $150k = $50k right?
So essentially I transferred the short term gain from selling put to the 95 shares that bought in step 1. Is this correct?
Step 1
Assume today, the SP is $1500, and I sold a
Deep ITM call, Jan 21 $100 and collected $140k premium. And then I used that money to buy 95 shares.
Step 2.
From July to Nov, I sell puts and accumulate $200k gain, realized.
Step 3.
In Dec 2020, Assume the SP is $3000, and I close the deep ITM call by buying back the Jan 21 $100 call, and thus I realize $150k loss.
So for all the steps above, my net realized gain should be $200k - $150k = $50k right?
So essentially I transferred the short term gain from selling put to the 95 shares that bought in step 1. Is this correct?
Here is another example
Assuming it is Jan 1 2020 today, start of the year, and we have $100k cash in the broker account.
Assume Tesla stock is $1000 today.
Step 1
On Jan 1 2020, sell a call, say Jun 2022 $100 call, and collect $900 premium (we ignore the time value for now), then we have $900 * 100 shares = 90k proceed. We call this trade A.
At the same time, use the 90k proceed to buy another call, Jun 2022 $110 call. Assuming this strike is available. We call this trade B.
so after trade A and B, we should have $100k cash left or slightly more, since B is cheaper than A.
Step 2.
Use the $100k buy a few OTM calls, say Sep 2020 $1500 call. This is trade C.
Step 3.
wait from Jan to Sep. and now trade C is about to expire, and we assume the stock price is $2000 now and we sell the call for a gain/profit.
Assume we sold the call for $300k, so we have 300k-100k= 200k gain from trade C.
Step 4
In Sep 2020, after we close trade C, we close trade A. Now trade should realize $100k loss.
So in total we reduce the taxable gain from $200k to $100k now, and we keep trade B open for 2021 or 2022.
Essentially we transferred shorted term gain from trade C to long term gain in trade B.
Assuming it is Jan 1 2020 today, start of the year, and we have $100k cash in the broker account.
Assume Tesla stock is $1000 today.
Step 1
On Jan 1 2020, sell a call, say Jun 2022 $100 call, and collect $900 premium (we ignore the time value for now), then we have $900 * 100 shares = 90k proceed. We call this trade A.
At the same time, use the 90k proceed to buy another call, Jun 2022 $110 call. Assuming this strike is available. We call this trade B.
so after trade A and B, we should have $100k cash left or slightly more, since B is cheaper than A.
Step 2.
Use the $100k buy a few OTM calls, say Sep 2020 $1500 call. This is trade C.
Step 3.
wait from Jan to Sep. and now trade C is about to expire, and we assume the stock price is $2000 now and we sell the call for a gain/profit.
Assume we sold the call for $300k, so we have 300k-100k= 200k gain from trade C.
Step 4
In Sep 2020, after we close trade C, we close trade A. Now trade should realize $100k loss.
So in total we reduce the taxable gain from $200k to $100k now, and we keep trade B open for 2021 or 2022.
Essentially we transferred shorted term gain from trade C to long term gain in trade B.
Mokuzai
Member
Sold a Jul 31 $1,450 put on Monday for $56. Yesterday it went in the money and they assigned it. I'm actually surprised they assigned me...if I were on the other side of that trade I'd want to hold those 100 shares if I already had them. Whatever...time to sell a covered call on those shares on Monday.
Are you planning on selling weeklies on that? Or going out 30, 45, 60 DTE? I’ve been avoiding doing covered call sales, got burned a few times.
Mokuzai
Member
Well I got assigned at $1,450. Right now the Aug 7th $1,450 calls are going for $42. Will see what it's like when the market opens but $4,200 in a week is more than my day job. If we see another mighty Monday I might pick a higher strike. These are officially trading shares now so I wouldn't mind getting them called away. They're pure premium harvesting shares.
I finally figured out how to convert short term call gain to long term call and vice versa.
Does it work for you?
Long Term to Short Term
This is easier.
Say you have Jun 22 $1000 call, and since it is deep ITM, you want to convert it to a higher leveraged position.
You can sell a Jun 22 $1010 call, and take the premium to buy short term calls or high strike calls. Note that after this trade, you should have 2 trades open:
Long Jun 22 $1000
Short Jun 22 $1010
As long as the 2 trades are open, you wont be taxed for the premium you received for selling $1010 call yet.
Short Term to Long Term
This is much harder I think. Here is a way that I am using, but I am open to other ideas.
Say it is Aug 2020 now, and you have 10 Oct 20 $1800 call as the S&P 500 inclusion play at 5k cost. But you dont want to trigger the short term capital gain tax.
You can open 10 call spread, say
10 long Jun 22 $1500 (assuming the cost is 510)
10 short Jun 22 $1510 (assuming the cost is 500, cheaper than the above)
Then in Oct 20, assuming TSLA SP is $2000, you make $20k-5k = 15k profit (realize $15k gain) for 1 $1800 call, and you realize 150k gain in total for the 10 calls.
Now the short Jun 22 $1510 might be worth $800 now, so you accumulated ($800-500)*100 = 30k loss per contract.
So now if you buy back 5 $1510 contracts, you realize $150k loss here.
Note that to buy back 5 contracts, you need $400k cash. You have $200k cash from the sale of 10 $1800 call, and you need to find another $200k to cover the entire gain. Or if not, you can only cover a portion of the gain. This part is configurable depending on the call spread you choose.
Now the net gain is $0 for 2020. And you have these trades open:
10 Long Jun 22 $1500 (This position hasn't changed, and the $1800 call profit is transferred to these calls)
5 short Jun 22 $1510 (This position is reduced as we use it to realize loss)
Would this work? And be aware of wash sales rules when closing the short $1510, because it is a tax event and there is loss occurred.
Does it work for you?
Long Term to Short Term
This is easier.
Say you have Jun 22 $1000 call, and since it is deep ITM, you want to convert it to a higher leveraged position.
You can sell a Jun 22 $1010 call, and take the premium to buy short term calls or high strike calls. Note that after this trade, you should have 2 trades open:
Long Jun 22 $1000
Short Jun 22 $1010
As long as the 2 trades are open, you wont be taxed for the premium you received for selling $1010 call yet.
Short Term to Long Term
This is much harder I think. Here is a way that I am using, but I am open to other ideas.
Say it is Aug 2020 now, and you have 10 Oct 20 $1800 call as the S&P 500 inclusion play at 5k cost. But you dont want to trigger the short term capital gain tax.
You can open 10 call spread, say
10 long Jun 22 $1500 (assuming the cost is 510)
10 short Jun 22 $1510 (assuming the cost is 500, cheaper than the above)
Then in Oct 20, assuming TSLA SP is $2000, you make $20k-5k = 15k profit (realize $15k gain) for 1 $1800 call, and you realize 150k gain in total for the 10 calls.
Now the short Jun 22 $1510 might be worth $800 now, so you accumulated ($800-500)*100 = 30k loss per contract.
So now if you buy back 5 $1510 contracts, you realize $150k loss here.
Note that to buy back 5 contracts, you need $400k cash. You have $200k cash from the sale of 10 $1800 call, and you need to find another $200k to cover the entire gain. Or if not, you can only cover a portion of the gain. This part is configurable depending on the call spread you choose.
Now the net gain is $0 for 2020. And you have these trades open:
10 Long Jun 22 $1500 (This position hasn't changed, and the $1800 call profit is transferred to these calls)
5 short Jun 22 $1510 (This position is reduced as we use it to realize loss)
Would this work? And be aware of wash sales rules when closing the short $1510, because it is a tax event and there is loss occurred.
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