Wiki Selling TSLA Options - Be the House

[adiggs]

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.

That looks like about a perfect setup. One thing to look for on Monday is a big spike up (I of course can be wrong, but that's what I'm expecting will happen). If that does happen then you might get to write an even higher strike call than 1450 (hopefully assigned). If so, then when (eventually) it gets assigned, you'll have the premiums along the way PLUS the strike to strike gain.


I've decided I want to see what the wheel looks and I'm openly courting assignment on some puts. Two in the money at the current price level, but a week away from expiration. I'm expecting them to be OTM by end of the week though, and I'll just have to try harder to get assigned on a put.

 

[adiggs]

I rolled the first bit of my put ladder out to the 8/14 strike today. I rolled the bottom of my ladder, a 1400 put for this week, out to a 1450 put for next week. That increased the delta to .39 which is likely to be the top of my 8/14 ladder (roll bottom of the ladder this week, to the top of the ladder next week; the top of this week's ladder to the bottom of next week's ladder).

As the other pieces of this week's ladder drop into my profit range (67-75%), and when I believe that its most likely to be OTM, then I'll roll it out. I think the pattern will, in general, be bottom of this week's ladder becomes the top of next week's ladder. But I'll adjust each element of the ladder as I roll it out. So if the shares keep going up, then the current .39 delta on 8/14 might go down to .35 or .30 and one of the others will roll up to .40 (I really want to get at least one put assigned ).

For this week, I have a 1485 down to 1415 ladder remaining.

EDIT to add: I'm still figuring out what deltas to use in my ladder. Right now, I'm thinking something like .40, .25-.30, .15, and .10 (4 positions). The top 2 deltas are looking for assignment, the bottom two are more about collecting premium. In a steadily rising share price environment, I'll collect a lot of premium, but I'll be doing worse than owning shares (which is true of the wheel more generally). But the income side will be outstanding and that's the standard I'm measuring my success against.


And I continue to avoid call sales. I think the lowest strike I would write today is the 2000 strike, and I don't see enough premium to be worth that risk right now. Once we're close to 2000, I suspect the lowest strike I would write is more like 2200 or 2500, so I think it's going to be awhile before I do any call sales (outside of put assignments, which will get calls written in the .40 to .60 delta range).

 

[adiggs]

I rolled the first bit of my put ladder out to the 8/14 strike today. I rolled the bottom of my ladder, a 1400 put for this week, out to a 1450 put for next week. That increased the delta to .39 which is likely to be the top of my 8/14 ladder (roll bottom of the ladder this week, to the top of the ladder next week; the top of this week's ladder to the bottom of next week's ladder).

The ladder roll continues today, with the 8/7 1415 strike put becoming an 8/14 1415 strike put (-$6 to close, +23.50 to open the new position). The new position is at the .29 delta, putting the first 2 elements of the 8/14 ladder at .39 and .29 delta (when opened).

If it starts looking like this week's 1485 put will finish OTM, I'm considering writing an ITM 8/14 put. The 1500 strike has a .54 delta (I really want 1 assignment, and 2 would be good as well).


I also noticed today that IV is back down in the mid 50s on these short expiration options. We might be getting close to the range for buying calls...

 

[ggr]

I continue to contemplate "the Wheel" for Tesla. Here's my problem. At this point, I should be writing a Call. But I can't bring myself to do that, because my mode is "full bull". But I do have 100 shares lying around as a result of a Put being exercised a few weeks ago. How do I get back to the other side of the wheel? It's obvious: don't sell a call and wait for it to be exercised, Just Do It ™.

So, in the space of a few minutes at around 11am, I did the following:

• Sold 100 TSLA @1483.18 (made about $32k profit, but that's not relevant to this post.) This freed up enough margin to then...
• Wrote (sold to open) 1 8/7 $1495 Put @$26.85. If exercised, I buy back the stock I just sold for $1468.15, less than what I just sold it for. Since the margin reserved to do this exactly cancels out what was being loaned on the stock, I now have $2,685 more cash in my account. I now want to make a speculative purchase using that cash, so...
• Bought 1 8/14 $1555 Call @$26.75. Yes, I chose the strike entirely based on how much money I wanted to spend. This has actually been working well for me, but I can't find a Greek letter to explain it.

My analysis: if Tesla goes down, the net effect is that I slightly reduced the effective cost basis of the 100 shares I started with. If Tesla goes up (which it did a few minutes later), the Put expires, and I have the speculative call for next week that's only about 7% movement in the next 7 trading days to be profitable.

(In case anyone is worried on my behalf, no, I am not near the limit on my margin account, so I'm not worried about a margin call if the price drops, at least not unless it drops a lot. But, "Full Bull".)

 

[adiggs]

I continue to contemplate "the Wheel" for Tesla. Here's my problem. At this point, I should be writing a Call. But I can't bring myself to do that, because my mode is "full bull". But I do have 100 shares lying around as a result of a Put being exercised a few weeks ago. How do I get back to the other side of the wheel? It's obvious: don't sell a call and wait for it to be exercised, Just Do It ™.

So, in the space of a few minutes at around 11am, I did the following:

• Sold 100 TSLA @1483.18 (made about $32k profit, but that's not relevant to this post.) This freed up enough margin to then...
• Wrote (sold to open) 1 8/7 $1495 Put @$26.85. If exercised, I buy back the stock I just sold for $1468.15, less than what I just sold it for. Since the margin reserved to do this exactly cancels out what was being loaned on the stock, I now have $2,685 more cash in my account. I now want to make a speculative purchase using that cash, so...
• Bought 1 8/14 $1555 Call @$26.75. Yes, I chose the strike entirely based on how much money I wanted to spend. This has actually been working well for me, but I can't find a Greek letter to explain it.

My analysis: if Tesla goes down, the net effect is that I slightly reduced the effective cost basis of the 100 shares I started with. If Tesla goes up (which it did a few minutes later), the Put expires, and I have the speculative call for next week that's only about 7% movement in the next 7 trading days to be profitable.

(In case anyone is worried on my behalf, no, I am not near the limit on my margin account, so I'm not worried about a margin call if the price drops, at least not unless it drops a lot. But, "Full Bull".)

That original problem - writing a covered call on existing shares - I too have troubles doing that. Especially after the last couple of weeks where a small and distant call that looked like easy money turned into a $300 (per share) premium loss (but no worries - I got it back on another trade, and netted out a gain for the month). My conclusion is that sitting out call selling is a better idea for me right now.

I HAVE been thinking about writing 1 high delta covered call where I'm seeking assignment; probably in the .30 to .40 range. The idea is to use that to convert shares into cash, and then start selling a high delta put with that cash to turn it back into shares. That's the wheel in a nutshell anyway, and I want to gain some experience with actually turning the wheel (vs collecting premium and never be assigned, as it's gone for me so far).


Your sequence of selling shares and then selling a put against the cash raised by selling shares looks like a totally legit variation on the wheel. We've had others that use wheel premium proceeds to buy calls. I don't have anything meaningful to add to that - I just pile up the cash and think of it as dividends.


For these shorter term options, I would watch delta and theta. Delta is the size of the option premium change for a $1 change in the share price. The ATM options are around .50 delta, but not a requirement.

Theta is the amount of option premium loss (gain for sellers) each day. It's the measurement of time decay, and it grows as you get closer to expiration (at least as a % of the option premium). When time is short, Vega (change in option premium for each 1 point change in IV) becomes relatively unimportant. It's very important the farther out the expiration is.

 

[adiggs]

The ladder roll continues today, with the 8/7 1415 strike put becoming an 8/14 1415 strike put (-$6 to close, +23.50 to open the new position). The new position is at the .29 delta, putting the first 2 elements of the 8/14 ladder at .39 and .29 delta (when opened).

The ladder roll is done, probably for this week. I'm left with a 1485 put expiring this week that I hope for assignment on (looking unlikely to me, despite only being $5-10 out of the money).

For 8/14, I closed the 1450 put expiring this week, and replaced it with the 1485 strike put expiring next week ($-9 to close, $+49 to open the new position).

That puts me into a 8/14 put ladder at .47, .39 and .29 delta. If the remaining put this week fails to assign, then I'll write it as a new 8/14 put at a low delta - probably .15 or so (and gleefully keep the $52 premium originally received).


That new position at 1485 was chosen with an eye towards being assigned and is sort of assuming the 1485 this week won't be assigned. This raises the possibility I get assigned next week as well (I'm ok with all 4 being assigned, but I have a weak preference for only 2 being assigned).

 

[adiggs]

Something I've been learning, slowly but surely, is that one of the benefits of selling options is that it is frequently beneficial when thinking about trading, to decide not to and keep watching the position. Because time decay is on our side, we know that every $ of option premium that isn't intrinsic (ITM amount) goes to $0 on expiration day (or on assignment, if you're assigned early).

The most extreme version of this for me - I had about a 3 week option sale where the premium was higher than when I sold it for all but the final day (my account showed me as losing money on that position all the way to expiration day). But it was never ITM (though obviously close).

On expiration day, that option went from losing money to a 90% profit on that day, because all of the option premium was in the time value and it went to $0 that final day.


Especially in the final week, the time decay becomes huge / fast. Good reason to be selling weekly, and a good reason to not buy weeklies (MHO).

 

[Tempus]

I've been following this thread for a while and I wanted to make a small contribution. I have a collection of shares and leaps that i'm fairly comfortable with (could always be larger, but i don't have the capital to really increase this a huge amount right now). I have a couple of shorter term S&P/battery day plays in the september timefame. So I feel like i'm fairly well set up for what we all hope will happen there.
With that I've been able to experiment with selling puts at 8-9 days out (following adiggs philosophy of staying short term, but trying to capture as much of that last week+ time decay as possible) to pad the cash available in my account.

What I've realized so far is that in the past, when I was primarily buying calls, I found that I was HORRIBLE at timing the market, even if I was good at understanding the underlying direction (UP!) of TSLA. So i've lost quite a bit of money on short/medium term calls. I've done better with leaps, because it takes out the need to be right, and right on time.

I have also done a lot better with selling puts, at least so far. This is about 6 weeks into the play for me. I haven't ventured into the selling calls side of things, because I think that's much more likely to get me hit by the steamroller one day, but I would be perfectly fine if my puts did get exercised, and I was forced to buy the stock (and then likely sell calls at that point against the extra shares). Just for informational purposes, i'm targeting those puts that are between .20 and .30 delta - again, I like the way adiggs has been explaining his rationale - it resonated well with the way I think about the topic.

 

[bxr140]

Especially in the final week, the time decay becomes huge / fast. Good reason to be selling weekly, and a good reason to not buy weeklies (MHO).

FWIW, I pretty much only sell weeklies, at most two expirations out, with an occasional very conservative cash covered put with farther expiration to capture more Vega. For me, selling options (including if I build a credit spread to manage margin) is all about income, and for me income is primarily theta (and secondarily Vega, and really has little to do with ∆). Yeah by going with short term expirations I'm clipping potential profits that I'd get from the higher Vega on the longer term expirations, but for me income its all about small, modest, frequent wins.

To expand, ∆ is not really a factor for me in selling options because ∆ is a) explicitly a function of underlying movement and b) progressively less profitable as that movement is realized. If I'm contemplating a position based on predicted underlying movement I'm going to buy*** a contract (or shares) where the ∆ will progressively increase. (***Depending on volatility I'll build a credit/debit spread instead of a single leg buy, but that's another conversation). For me the sold contract strike price should be on the 'other' side of a strong technical signal (support/resistance, etc) where I explicitly don't think the price will move.

Full disclosure, I don't sell options for the purpose of being assigned, and I don't sell ITM options with the exception of some covered call scenarios, those mostly just around earnings (come on ROKU!). If I want shares (or want to sell shares) at a target, I'll just buy/sell those shares at that target. For me, there's no point in the risk of getting put shares at a strike of $1000 if underlying dumps to $800, and even if price has an opportunity to rebound back to $1000 before expiration I'm not keen on going $20k in the red on a contract at any point in its life...

Unrelated, one big bummer with TSLA is that underlying is so high that options liquidity has gone way down. The result is some really crappy B/A spreads, especially as you go farther away from ATM. When you're selling options and your profit is explicitly capped, this is important (again, to me).

 

[adiggs]

What I've realized so far is that in the past, when I was primarily buying calls, I found that I was HORRIBLE at timing the market, even if I was good at understanding the underlying direction (UP!) of TSLA. So i've lost quite a bit of money on short/medium term calls. I've done better with leaps, because it takes out the need to be right, and right on time.

I am similarly horrible at getting the market timing right. I even managed to get LEAP (15 month call option) timing wrong (though I should have exited that position MUCH earlier).

Every time I've gotten myself into trouble selling options on either side (2 times in 4 months so far), it's because I sold an option that in retrospect I didn't want to be assigned on. I've had plenty where it wasn't a problem as they still finished OTM (or were on there way anyway), but the problem trades were primarily problems because I violated one of my rules - only sell options where I'm happy to be assigned.

As a result, I'm not doing any call sales right now. Not because I'm opposed, but because the 2200 or 2500 strikes I'd be writing right now aren't worth the pennies I'd be paid. I can readily imagine a future environment where I'm selling covered calls, but I'm sitting out the puts (say the share price jumps rapidly to $3000 later this year - that might do the trick).

My rules:
- use delta to choose positions, as it does a reasonable job of normalizing risk
- write options in the 3-8 (or 3-9) trading days to expiration range (time decay is really aggressive in this window, and I minimize the time window for a really big move; smaller steady moves in 1 direction can be managed)
- don't write an option I'm not happy to be assigned on (which is why no call sales right now; they'll be back though)
- remember that this is a dividend strategy, so 1-3% per month is outrageously good (when in doubt, be conservative)
- and use small positions to test out alternatives to these rules (such as 2-6 week option sales, higher delta options, active wheel turning, etc..)

And I realize that my rules don't apply for everybody (#4 about this being a dividend strategy is the most obvious one).


Welcome, and I hope we hear more from you. I am particularly interested in the rationale behind positions chosen, positions not chosen, and stuff you learn along the way. Wherever possible, I like to learn from OTHER people's mistakes

 

[adiggs]

For me, selling options (including if I build a credit spread to manage margin) is all about income, and for me income is primarily theta (and secondarily Vega, and has nothing to do with ∆)

These are also my sources of profit / value gain (with the frequent open and close of positions, it's mostly theta, as the Vega changes are good on 1 side and bad on the other, unless I leave a gap between the open/close (in which case it can be good/good, or bad/bad).

The reason I watch delta is that delta represents a good estimate of what the market thinks the odds are that a given option will finish ITM. So a .30 delta option, in the market's opinion and price, has a 30% chance of finishing ITM which means a 70% chance of finishing OTM (which is what I usually want). I expect that my primary source of value gain comes from theta (where delta gains would lead to an early close - those are nice upsides).

Delta is my way of normalizing and managing risk, as measured by other market participants and what they pay to buy options. When I started I was down in the .05 to .10 and then .15 deltas. Very far OTM. I've been increasing the delta levels I sell at steadily, and have recently started writing very high delta puts trying to get assigned.


Something I learned a couple of weeks ago when I worked myself into a corner, was that really large premium options not only generate larger returns, those larger returns also provides it's own form of protection. In that particular case, a $233 premium from a call sale offset a lot of the losses associated with a ~$300 loss on a call sale - thank you spike from ~1450 to ~1790.

Of course I want to avoid anything like that $300 loss from ever happening again. I don't expect I'll be writing any of these $233 premium calls or puts in the future, but that very high premium call was critical to recovering that big loss. Collection of the higher premiums seems to provide more protection for whenever those big losses do comes along. I'm still figuring out this idea and it's the primary reason I've got such very high delta puts these days - I'm trying to get something assigned, and failing badly so far (oh no!).

I'm also considering a single high delta call for the same reason, but that'll be a conversation with my wife first (going beyond our agreed limits on what I'm doing) as that'll involve assignment on core shares.

 

[bxr140]

Delta is my way of normalizing and managing risk, as measured by other market participants and what they pay to buy options.

Got it--I understand your logic. I'd highly recommend you look into your platform's probability ITM/OTM calculations. They do a much better job of normalizing risk.

Of course I want to avoid anything like that $300 loss from ever happening again. I don't expect I'll be writing any of these $233 premium calls or puts in the future, but that very high premium call was critical to recovering that big loss.

FWIW, whenever I'm underwater on a -P/-C, I roll.

 

[juanmedina]

Got it--I understand your logic. I'd highly recommend you look into your platform's probability ITM/OTM calculations. They do a much better job of normalizing risk.



FWIW, whenever I'm underwater on a -P/-C, I roll.

Tastyworks has probability of profit POP which is better than Probability of ITM or OTM. I never really use that I just been selling calls $500-400 bucks about the SP and depending on the IV you can get decent money on weeklies. I am not selling anything right now because of the SP inclusion but I am trying to buy cheap weeklies with what I collected from selling covered calls.

 

[adiggs]

FWIW, whenever I'm underwater on a -P/-C, I roll.

That works for some situations, usually where you're close ITM. I got to be over $300 ITM ($1460 to $1760 that lovely day) - I did roll that day, but had to take a debit for the roll, and that left me with so little cash in that account that I could no longer buy-to-close those calls. Had to just ride them out (or roll again, but it worked out without that next roll).

Having the roll transaction type available is a big help (for those that don't know what it is and/or haven't used it). There are situations (such as covered calls, with little cash in the account) where the roll enables you to get into a new covered call position that you can't get to using two separate transactions.

 

[bxr140]

Tastyworks has probability of profit POP which is better than Probability of ITM or OTM.

Good news is that In the end they're basically the same number--prob ITM is based on assignment price and POP is just offset of that to break even price. Obviously its all up to the individual, but I strongly prefer/recommend prob ITM/OTM over POP unless one is dead set on getting assigned. Normally the point of a sold contract is for it to expire worthless. Prob ITM/OTM directly indicates where a position lands. POP is kinda like using mph when all the speed signs are in kph. Ultimately it gets you to the same place, but with unnecessary complication.

I also find POP a little shady as the higher percentages (for the same position) entice less educated traders to enter positions more often and/or more aggressively. Caveat emptor and all, but still...

 

[bxr140]

I did roll that day, but had to take a debit for the roll.

FWIW, one of my hard rules is to NEVER roll for debit (that goes for any roll, though we're of course talking about short positions here). I ALWAYS roll for credit, including fees, and that rule supersedes any of the greeks. My perspective is that income is all about slow and steady, so even though you got into a pickle, stick with the same slow and steady strategy to claw back out of that bad trade instead of forcing it. For me, its just part of paying the stupid tax. No income until I fix my *sugar*.

The good news is that there's a lot of options (ha ha) for rolling.
-Obviously there's rolling out (in expiration) and/or in (more agressive strike). This is generally ok if you don't get too deep ITM and if you think price is going to reverse back into your favor.
-There's splitting, where you split the total dollar value of your position over a larger number of contracts (need to be careful with this--its real easy to get into a very bad place)
-There's flipping (rolling your -P to a -C or vice versa), which is a great one if you think price is going to continue in the 'unfavorable' direction (like if price pushed through a major technical indicator)
-There's rolling from a naked to a spread if you need to manage margin. This sets you up for the long game and also bounds how shitty you get, and IMHO its worth it to just start out with a spread. FWIW I always go with verticals on credit spreads. I love me a diagonal for a long position, but that's another conversation...
-But my go-to is hands down split-flipping into a short straddle/strangle (or more likely, I split-flip a spread into an Iron Condor/iron Butterfly because, as noted, I prefer spreads over naked). I really like this one because there's really no major downside to the basic alternative of rolling out/in, and usually margin requirements are simply the requirements for one of the spreads in the condor (if they're asymmetric, its the larger spread that sets the margin requirements). Really the only downside of this one over the standard out/in roll is that price reversal back into the original favorable direction--which just means you keep playing the rolling game and it takes longer to clear the bad position.

 

[adiggs]

Woot! I'm finally going to get assigned on a put (a 1485 that expired today). I'll be writing an aggressive call against these incremental 100 shares I now own starting Monday.

Based on today's closing prices, I'll be choosing on Monday between the 1485 @ $27 premium and the 1500 @ $23 premium. A third choice to dramatically improve the chance of assignment is the 1450 @ $41 premium (all 8/14 expiration).

Overall profit on the round trip (assuming assignment on 8/14 for all of these): $27 + $0 for the 1485, $23+$15 for the 1500, and $41 - $35 for the 1450.

Right now I lean towards the 1500 - less chance of being assigned, but if assigned, then $23 premium + $15 strike to strike profit, along with a reasonably high premium to offset (some) flat or downwards trading (and another call next week).

The option premium difference doesn't seem large enough to prefer the 2 lower strikes, and my opinion is that the bias in the shares is up (rather than down).


In the worst case (shares keep going down), I can keep writing the 1485 (even for pennies) while I wait for the shares to come back. This doesn't bother me - it's what I'm already doing with the bulk of my shares; I just have 100 more than I had before. Maybe I can get another put or 3 assigned next week ...

 

[myt-e-s-l-a]

This is my PL on options trading today in my IRA. Switched to trading both calls and puts on the long side. TSLA was down today -36.87 @ 1452.71

My best option play was when tsla was trading crazy that day up to $1790/shr and I sold 2x ITM 1730 weekly covered call for $140 when tsla was @ $1770. By eod the call was trading @ 41. And I let it expire worthless. Profit was +$28k

 

[Mokuzai]

So this week was interesting. Last Friday my $1,450 put that I sold for $56 got assigned. On Monday I sold a covered call at $1,460 for today expiry for $50...which would have ended up expiring worthless but I was feeling regretful since it seemed that $1,500 was a more likely target. Same day bought it back on a dip and actually pocketed about $100. Still Monday, sold a covered $1,500 strike call for next week Aug 14 for $57.70.

Massive dip today so bought that back (too early) for $27...and feeling a bit attached to these shares until at least we find out what is happening with S&P. So I purchased another $1,500 call for next week Aug 14 for $21.50...thinking either we gravitate back towards $1,500 mid week or S&P finally gets off their butts.

Up about $6,600 in realized gains over an 11 day period and holding onto a $1,500 call that could be worth something next week.

 

[Right_Said_Fred]

Woot! I'm finally going to get assigned on a put (a 1485 that expired today). I'll be writing an aggressive call against these incremental 100 shares I now own starting Monday.

Based on today's closing prices, I'll be choosing on Monday between the 1485 @ $27 premium and the 1500 @ $23 premium. A third choice to dramatically improve the chance of assignment is the 1450 @ $41 premium (all 8/14 expiration).

Overall profit on the round trip (assuming assignment on 8/14 for all of these): $27 + $0 for the 1485, $23+$15 for the 1500, and $41 - $35 for the 1450.

Right now I lean towards the 1500 - less chance of being assigned, but if assigned, then $23 premium + $15 strike to strike profit, along with a reasonably high premium to offset (some) flat or downwards trading (and another call next week).

The option premium difference doesn't seem large enough to prefer the 2 lower strikes, and my opinion is that the bias in the shares is up (rather than down).


In the worst case (shares keep going down), I can keep writing the 1485 (even for pennies) while I wait for the shares to come back. This doesn't bother me - it's what I'm already doing with the bulk of my shares; I just have 100 more than I had before. Maybe I can get another put or 3 assigned next week ...

Selling the c1450 really doesn’t sound like an attractive option, unless you expect us to end the week down. I personally would never sell calls with a strike that is (35 points) lower than what I paid for the shares.