InTheShadows
Active Member
This is opposite. There is more leverage with close spreads. To sell a put you need 70k, that same $ amount gets you 7 $100 spreads or 700 $10 spreads.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
If it helps, I'm in a similar position using margin and have done a fair bit of experimentation on risk levels to date. For my process I look at my excess liquidity (=net liquidation value of account - maintenance margin requirement) at the start of the week with no new positions opened. I take this figure and currently multiply by 35% to get the amount of maintenance margin I'm comfortable using in a week. I'm mostly trading IC's and so far this level has been OK for me maintaining a healthy margin that I could 'fix' something if needed. Although there could be some weeks that may even test this. I've also tried using 40-50% and most of the time it's OK but can get a little tight towards the end of the week if there's a move in one direction. You will need to determine what level is right for your account and trading but this is what seems to be working for my situation so far.
jeewee3000
Active Member
There's been some encouraging moves in the Options Open Interest chart. Below is the chart as it was on Friday and below that the chart for today. You will note that the call wall at $700 has disappeared as positions have been rolled and changed from last week. There's a decent Put wall at $720 and call walls at $750, $780 and the biggest at $800. Max pain is still at $700 but the balance of Puts/Calls currently suggests something closer to $735-$740. Although as we've seen in recent weeks these are all likely to change as the week goes on.
Look at the vertical scale. The call wall at 700 is still there with ~45k, but dwarfed by the overlapping put wall with ~78k.
Plus, highest call is still listed as 700.
I ignore any Call walls that are dwarfed by Put walls at the same strike. MM's won't try to keep it below $700 to avoid paying out on 45k of Calls when it means they will be paying out 78k of Puts.
AquaY
Member
If the SP drops 200 points with the $10 spread your max lost is $10 - premium.
With the $100 spread it is $100- premium
The maintenance margin requirement at Etrade according to their margin calculator for selling a BPS of +730/-630 at Fridays close prices is $8,876.30 ( $10,000 minus the premium collected)
Doing a BPS of +730/-720 has a margin requirement of $726.30
The funny thing to me is the wide spread gives you much more room to adjust the trade while increasing your risk of total max loss while the narrow spread gives you great insurance against a big loss but limits your adjustment options.
Ignoring the highest call position seems strange to me. Why wouldn't they pin the SP to 700 to avoid paying on both puts and calls, or slightly above 700 due to ratio adjusted risk (better to be slightly on the side of the lesser number than the greater number)?
It's either paying out on Puts or Calls at a given number (given how hard it is to hit an exact round number) so the lower is preferred by MM's. While official max pain is at $700 this is skewed by a lot of cheap old Puts as this is a quarterly expiry. In reality these cheap Puts (and Calls) should all be delta hedged ages ago and so can largely be ignored. In a given week the usual action is around the balance point between Puts and Calls and this moves through the week. There are also multiple MM's with different priorities although the chart does seem to represent an average. Last week was more unusual due to the strong negative macro action late in the day on Friday. None of this is a given week to week, I'm just really echoing observations that many of us have made over time following this closely.
The wide spread *decreases* your risk of max loss, as the stock has to move farther. You are confusing the likelihood of max loss with the size of max loss. Imagine a naked put at $700 strike. It is for all intents and purposes a 0-700 spread. Your max loss is the largest a put spread could have, but the likelihood of max loss is practically 0%. As you tighten the spread you are reducing the max loss (for a single option) but you are increasing the chance of total loss. Throw the other side on there and make an iron condor and you have not increased your max loss at all, but you have doubled your chance of loss happening.
Narrow spreads also decrease your premium significantly, but they allow for massive leverage. To wit, I can sell ~5x naked puts at 730 (due to portfolio margin) for the same margin as 300x 725/-730 put spreads, and the former gives $5k credit and the latter gives $45k credit. WIth the spreads my max loss is massively more likely than with the naked puts.
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Knightshade
Well-Known Member
I did 615/715 BPSes, down over 82% presently.
Still not super concerned, esp after seeing the 700 put wall flip since Friday as well as the additional put wall appearing at 720.
Guesses on the floor for today? I'm thinking of BTC some of my CC's today.
This week now seems like the battle of the put and call walls. The $700 walls are both big, but it seems like the $720 put wall might hold with 30.4k puts.
This week now seems like the battle of the put and call walls. The $700 walls are both big, but it seems like the $720 put wall might hold with 30.4k puts.
Welp, bought a bunch of calls at the open and then couldn't help but close them a few minutes later for ~35% profit.
Also closed out my 760 which I'll roll to next week, possible a little higher, on some price recovery. <-- this one I'm hoping gets called but will milk the premiums and kick the can down the road until we get a good run again.
Also closed out my 760 which I'll roll to next week, possible a little higher, on some price recovery. <-- this one I'm hoping gets called but will milk the premiums and kick the can down the road until we get a good run again.
AquaY
Member
I'm not confusing likelihood and size. I think earlier I said the likely hood was less. but the amount is more.
But it is a fact that a 100 point spread has the potential of a greater loss than a 10 point spread for the same side trade.
I compared 1 narrow BPS and the maintenance margin requirement with 1 wide spread BPS.
I did not include using a narrow spread to increase leverage.
I think all the variables highlights the fact that risk management has a multitude of aspects to it.
corduroy
Active Member
STO BPS 2x -660/570 $3.90 and 3x -650/560 $3.85
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