Wiki Selling TSLA Options - Be the House

[ammulder]

With all the talk about LEAPs, I started to realize I am under leveraged for a upward move. But with LEAP prices being so capital intensive, I wanted to look at alternatives with unlimited upside potential. That's when synthetic long positions caught my eye. Basically, you buy a call and sell a put at the same strike and expiration. They have the same risk/reward profile as stock, at a fraction of the cost of stock or LEAPs. The downside is the margin requirement, as well as more risk that the LEAP (but equal to stock).

I looked at the closest strike to the current ATM, $730 at the Mar 2023 expiration and compared stock, the LEAP, and the synthetic long positions. (Note, if you increased the strikes to $750, this would be a net credit). My prediction at expiry in Mar 2023 is $1,406 (conservative)

View attachment 706034

If one had excess unused margin, and had a bullish thesis, this seems like a good option. I am I missing something here? Does anyone have thoughts on the pros/cons of the synthetic long vs the LEAP?

Well... comparing the Synthetic Long and LEAP... you're using about an extra $50K of margin. If you sold 5 weekly $100 put spreads with that margin, for a pretty conservative $2 premium each (could easily be more if the stock is doubling in that time frame) it adds to $1000 a week from the margin, so over a year and a half (assuming you can execute) it would add up to more than any of the entries on your chart -- especially if you use the proceeds along the way. While you could potentially sell covered calls against the call in the synthetic long, that seems like a much trickier game if the stock price is doubling in the same time frame; I don't know how to estimate those proceeds. But any of this involves a lot of time spent managing weekly options, versus the more fire-and-forget methods you discussed.

All of which is to say, locking away a lot of margin to me is not a no-brainer, but might make sense if you don't want to actively work with it.

 

[FrankSG]

For those of you interested in following along with @FrankSG LEAPS calculations - here are my worksheets.
Disclaimer - older numbers may not always be accurate, sometimes I lose interest and don't update completely
Also, my goal is to buy LEAPS and hold them for eventual profit when I sell. This may not apply to those buying ITM LEAPS for selling calls against.

I would recommend the new members to read Frank's blog from October 2019 if you have not already done so. Link is below. Remember, this was before the great breakout for SP - so it is phenomenal on how good his predictions were.
Tesla in 2020 & 2021: My bet on TSLA Jan'22 Call Options October 07, 2019

Personally, I prefer the following worksheet - similar to his post with October 2019 calculations - The calculations are mine, done at different times this year - gives you a good window on how the options pricing and ROIs have changed in comparison to underlying stock price. Screenshots from Frank's Oct 2019 are included - mainly to see how the current prices and ROI compares to Oct 2019, which was probably the best time ever to buy TSLA LEAPS.
Options Analysis ROI calculations
How to interpret these calculations? Well, lets look at the table at the bottom which I updated today with "Today's Date 9/6/2021".
I am fairly certain that the SP will increase by minimum of 50% by June 2023. In that case, June'23 LEAPS with strikes of 600 or 800 would give a minimum ROI of 193% or 156% compared to 150% that buying shares instead would give. If the SP increases by 100% - these would give 338% or 391% respectively compared to 200% the shares would provide.

These are minimum return calculations assuming the SP at expiration has increased by certain percent of SP price on which the calculations were done. If these SP targets are achieved earlier, the ROI for options would be higher as they will still have some time value.

It is not an apples to apples comparison with Frank's numbers, which were done when SP was around 230. But roughly we appear to be in similar range for ROI for LEAPS - provided SP increases by minimum of 50% before expiration date.

edit: corrected some typos. More complex worksheet based on Frank's calculations from his May 2020 blog. I find this one more complex and less useful than the one posted above. The sheets titled "New" are mine, Frank's original sheets are included with only modification being adding row for "multiples of shareprice". Please note - Frank's calculations are prior to the stock split.
Options Analysis_1

Cool to see there's a cult-following of that old October 2019 blog post And yeah, I'm also happy to see how well my predictions turned out. Especially given that post was before Q3'19 ER that significantly increased OPEX margin.

I agree with everything you say. The only thing we seem to differ on is the likelihood we think the stock will 2-3x to $1,500-2,000 by early 2023. I agree it's totally possible, but I don't have enough confidence in it to buy OTM leaps right now.

Even if it does 2-3x in the next ~18 months, I think that run up may not start until next year. Q3 and Q4 should be great, but are unlikely to be more than marginally (10-20%) better than Q2. Not until Austin and Berlin start really ramping next year will financials really improve 50-100% from where Q2 was at. So I think there could be a better time to buy leaps in the next six months.

I'll probably take another look later this month once Jan'24s are out. I suspect I'll like those better.

 

[EV forever]

Cool to see there's a cult-following of that old October 2019 blog post And yeah, I'm also happy to see how well my predictions turned out. Especially given that post was before Q3'19 ER that significantly increased OPEX margin.

I agree with everything you say. The only thing we seem to differ on is the likelihood we think the stock will 2-3x to $1,500-2,000 by early 2023. I agree it's totally possible, but I don't have enough confidence in it to buy OTM leaps right now.

Even if it does 2-3x in the next ~18 months, I think that run up may not start until next year. Q3 and Q4 should be great, but are unlikely to be more than marginally (10-20%) better than Q2. Not until Austin and Berlin start really ramping next year will financials really improve 50-100% from where Q2 was at. So I think there could be a better time to buy leaps in the next six months.

I'll probably take another look later this month once Jan'24s are out. I suspect I'll like those better.

Welcome back Frank! Really good to hear from you. Hope you are doing well in your MBA program.
I have learnt more about investing from your blog than my entire 50 years on this planet combined - so yes, you have a cult following from me at least. The absolutely main learning point was - Diversification is nonsense, it is perfectly fine to be concentrated in a single investment if there is conviction. You are one of the top ones on my list on people to thank for my good fortune in TSLA over the last 2 years and conviction for the 5 years prior to that.

Also, on your blog site, the 2019 articles are kind of buried - so often folks read the later ones from 2020 or 2021, but miss the gems from 2019.

I agree that 2-3X increase in SP is not reasonable over next 2 years. However, I do believe 1.5- 2.0X is possible - by June 2023. For that, I am staying in the 600-800 strike range

 

[adiggs]

Thanks for your reply!

1. I will try closing the BPS on the same ticket next week - hopefully works easier than closing each leg seperately. I keep getting confused on which long and short puts go together because of Fidelity oddball pairings!
2. This is my first experience with ICs. So if we get a pop on Tuesday/Wed will try to close the Put side first. Hoping for a pop if China production numbers come out soon -these should be better than street expectations
3. I don't use the Fidelity ActiveTraderPro desktop app. It is very glitchy on my Macbook. Typically, I find I can do everything needed on the web based app. Is there a specific advantage of the desktop app you have seen over the web based site? Maybe I should give it another try on a PC.
4. Will check out the wingman tracker app as well.

also, thanks for starting this forum. Great learnings here - glad to be back here. Not sure how often I can post, but I do follow the thread regularly.

I've found that almost all of my Fidelity trades are done via the web page. I use the desktop app for analysis - charts, trend lines, stuff like that. I think, but haven't tried, that I can even add my own lines to the charts I've got - that'd make the desktop app even more valuable.

I'm on Windows - I've tried it on Mac previously and barely got it loaded before I exited and uninstalled

 

[Chenkers]

With all of the discussion of LEAPS recently, I decided to take a closer look at them. The main reason is that I've been generating a lot of cash selling weekly IC's, CC's and BPS's and I need to decide what to do with this cash in my account.

One benefit of cash is that it directly adds to the account excess liquidity. Since I use this excess liquidity to sell options against, its level has a significant impact on the amount of additional income I can generate from sold premiums. So I did some analysis based on my situation to determine what was the best use of the cash generated going forward. Note that others circumstances will vary, particularly in the margin requirements of different brokers.

The base option that I compared against is leaving the cash in my account as cash and using the additional excess liquidity to sell more weekly options (in this case Iron Condors -IC). Note I typically only use up to 50% of the extra excess liquidity so I can keep a decent margin buffer in place. The calculations for this base option are conservative as they ignore the compounding effect of additional cash over time. Also note for me the margin/liquidity amounts are in AUD while everything else is in USD. The other options considered against this were:

1. Use the cash to purchase additional TSLA, in this case 100 shares. (With my broker IB and account around 66% of the share value (USD) is retained as extra maintenance margin requirement (AUD)).
2. Use the cash to purchase LEAPS. (for this case I selected JUN23 800C and for these the maintenance margin is nearly 1:1)
3. Similar to the LEAP purchase above but this time selecting JUN23 600C and selling a LCC against the LEAP on a weekly basis (although I rarely sell CC against all my shares)

The analysis results:

So it turns out that for me, I'm much better off leaving the cash as cash and using the additional excess liquidity to sell options like IC's against. The added benefit of this approach is that I'll have cash on hand to pay tax bills or to take advantage of a big market correction (where I would be buying LEAPS). I only plan to do this until I reach an upper target amount of premiums that I'm comfortable selling each week and then look to buying TSLA or LEAPS after that or just give more to charities.

 

[EV forever]

BTC at 1, not 4 (see video at 10:39 mark)

I think the video didn't say trade this if current IV>50%. It said the week they are choosing has an IV that was above the 50% avg of the last 52 wks. So, for TSLA, anything above (1.259-.431)/2=41.4% is good and try 45 DTE.

• I took the 25% max profit to mean, if selling IC for $4 credit, then set the BTC at 3$, rather than BTC at 1$

I watched the video as well, and my takeaway was same as @alterac000 - they are talking about closing with 25% of max profit. So, in their example they are opening the position for about 4.39 and then he calculates 1.20ish as the 25% of max profit. For the example here, if you open the position at about $4 you would be closing it out at about $3 to get $1 profit, which is 25% max profit. Is that correct? This likely happens quickly within the early part of the 45 DTE, so then you would just close it an open the next one.

 

[Yoona]

I watched the video as well, and my takeaway was same as @alterac000 - they are talking about closing with 25% of max profit. So, in their example they are opening the position for about 4.39 and then he calculates 1.20ish as the 25% of max profit. For the example here, if you open the position at about $4 you would be closing it out at about $3 to get $1 profit, which is 25% max profit. Is that correct? This likely happens quickly within the early part of the 45 DTE, so then you would just close it an open the next one.

Correct, close at 3. I meant BTC once 1 already gained.

 

[PastorDave]

Could someone remind me what the current speculation on the August China #s is? I remember a 14k domestic leak, and I believe an output increase on MY, but what's the status of exports? Lots of ships leaving port in August? I have the impression of an expectations beat, but there was also a shut down for a few days.

Basically I want to know how aggressive I can be today putting on the call sides of my trades.

 

[FrankSG]

Welcome back Frank! Really good to hear from you. Hope you are doing well in your MBA program.
I have learnt more about investing from your blog than my entire 50 years on this planet combined - so yes, you have a cult following from me at least. The absolutely main learning point was - Diversification is nonsense, it is perfectly fine to be concentrated in a single investment if there is conviction. You are one of the top ones on my list on people to thank for my good fortune in TSLA over the last 2 years and conviction for the 5 years prior to that.

Also, on your blog site, the 2019 articles are kind of buried - so often folks read the later ones from 2020 or 2021, but miss the gems from 2019.

I agree that 2-3X increase in SP is not reasonable over next 2 years. However, I do believe 1.5- 2.0X is possible - by June 2023. For that, I am staying in the 600-800 strike range

All is good MBA is almost finished already.

That's awesome to hear! Stories like this make all the work that went into the blog worth it!

Looks like our views for the next two years are pretty similar then. Fingers crossed reality will match those expectations.

 

[juanmedina]

All is good MBA is almost finished already.

That's awesome to hear! Stories like this make all the work that went into the blog worth it!

Looks like our views for the next two years are pretty similar then. Fingers crossed reality will match those expectations.

Good to see you back Frank. I hope you finish that MBA soon so you can come back to posting regularly haha.

 

[phantasms]

No clear giant call wall this week. I'm considering writing one 750, more aggressive than my usual play, in hopes that it doesn't get called away but worst case I can play the wheel and sell puts into the triple next week.

Anyone have any opinions on safer "shitcalls"?

 

[UncaNed]

First, thanks for calling me out on a trade you think is unreasonable @ammulder . I gave the rationale for these higher up in a post yesterday morning:

Worst case for next week being 10 under max pain (715) seems fine to me? Selling at max pain also seems reasonable to me given the recent strength of the stock, manipulations downward needing to be unwound, and likelihood that max pain will rise sometime next week as traders put on call options. But I could certainly be wrong about that.

I sold 9/10 puts at 750 in an ITM spread, which has a much different risk/reward ratio. The position risks $3.35 on a $10 spread, so I'm not actually expecting the SP to be over 750. I'll close this on Tuesday during a pop unless the max pain chart dictates otherwise. It has very low capital risk for what could be a good sized reward.

Your point about quad witching (it's quad this month, not triple) is a good one. It makes sense that the MMs would want to start to bring the SP down next week, but would they try to bring it down past that week's max pain? Also, max pain tends to change as more options are opened, which we won't see until later next week for 9/17. I believe that 9/17 MP will rise significantly by the Monday of that week. If I had to guess maybe to 690ish. I definitely think that's likely to be a down week, but how far? I don't have any puts open for that week (other than ones I put on like 6 months ago) either. The trendline I mentioned (that we bounced off of like a rocketship a couple of days after the autopilot investigation was announced - also a monthly options expiration week I believe) should bring us back up the following weeks, hence my positions for 9/24 and 10/1.

Again, thanks for the feedback!

So @PastorDave & @ammulder , if we expect a SP drop right as September 2023 LEAPS appear on the option chain, and with volatility being relatively low, it might be a good buying opportunity for the simpletons among us who just buy and hold leaps...?

Much thanks for discussing these things that I'd never notice myself.

 

[AquaY]

Sure am glad I held off writing calls last week

 

[phantasms]

Sold that 750 a little too soon. lol

 

[juanmedina]

Sold that 750 a little too soon. lol

View attachment 706199

You sold some shares? How could you

So far I sold a single $755, $770, and have orders for $780 and $800s.

 

[jeewee3000]

I STO some 09/10 750cc's and 760 cc's, given the call walls there.

Left some room for further CC-selling later this week should this be a big runup. I could split them out or DCA (dollar cost average) on some of these calls, who knows.

I expect the MM'ss to keep it below 760 by friday though.

 

[Drezil]

rolled my 17/9 700c to 15/10 735c for 10$ credit. If we go down they have lower delta & i could theoretically roll back & they have lower theta-maintanance.

also opened 770/760 bear put spread (as part of an iron condor), but then closed the 680/720 side shortly after that & looking to reopen that if we trend lower on wednesday/thursday.

also STO 10/9 755c covered with the afromentioned oct-calls & some 17/9 760c. I would happily close my calls with those as this means at least 10% upside in my portfolio in less than 2 weeks

Also STO 775/785 Bear call spread for 17/9 @2.46. ~25% interest on the used margin ("only" 20k margin used ) for a target i hope we will not hit. otherwise this would be offset by the gains of the positions above.

That are my plays up to now.. Now just hoping that MM get it under control & walk it down until friday

 

[willow_hiller]

Been watching from the sidelines for a long time, but I finally applied for options authorization. Wish me luck!

 

[InTheShadows]

Sure am glad I held off writing calls last week

I bought all mine back on Friday. I tried to write some a little bit ago but couldn’t pull the trigger, even for 800’s.

I closed out 3 sets of put spreads this morning taking 50% profits. Waiting for mmd to reopen them. Weekly return on all were between 3.85% and 4.47%. I have 4 more GTC orders placed for 50% profits too. My usual is 80%.

 

[rikkert]

Sure am glad I held off writing calls last week

I opened a bunch of STO 10/9 785cc last friday. I'm hoping that we are just seeing a regular Monday pop on this post-bank-day Tuesday.