Wiki Selling TSLA Options - Be the House

[BornToFly]

I should add, that part of the reason for doing expirations 2-4 weeks out, is that you have more power in time value if you need to roll because the SP moved dramatically against you. In other words, you can move the strike price a lot and not lose money by going 3-6 months out on your roll if things get really bad. When I used to sell a lot of Puts 1-2 years out, and the SP dropped 50% and I got a margin call, my hands were tied. Then I had to BUY cheap out of the money Puts 1-2 weeks out to make the margin call go away. Those were dark days.

 

[Drezil]

That sounds awful. Far be it from me to throw the first stone… but is it possible maybe you should be looking at more conservative strikes?

That's what I am doing now..

 

[MrMoo]

I’ve been asked to share my option selling strategy. I am NOT an expert. I’ve learned through many years of trial and error, and I think I’ve developed a good strategy. In a nut shell, it is "go for nickles, not dollars." I have a good size account, so I have a lot of shares for covered calls, and a lot of margin for writing Puts. My Realized gain so far this year is almost $2.2m, losses $327,000 ish, for a Net gain so far of around $1.9m. I’ve been trying this for about 5 years, and it didn’t go well in the beginning. I have a few rules I try to live by now that seem to be working. Rule #1 is don’t get greedy. If you look at the options chain for Puts expiring in a month, you will obviously notice that you make A LOT more money selling Puts that are closer to the current SP. I used to get sucked in with positive thinking. If contracts 10% below the current SP are getting X, and contracts 5% below are getting 5X, I used to get sucked in to the riskier Puts (because there is NO WAY the SP is going to go down more than 5% with all the good Tesla news, Right?.… WRONG!!!) I have become more disciplined. I also use the margin calculator tools, and use both the hypothetical transactions tool and the Price Change Tool to see what happens to my margin with a trade, and what happens to my margin if the stock drops a lot more than I expect it to. A margin call at the wrong time will devastate your account. Therefore, Rules 2 and 3 are also: DON’T GET GREEDY, and don’t get anywhere near your margin limit.

Rule 4 is don’t put all you eggs in one basket. As good as a trade looks today, the SP can really drop or climb much faster than you think possible, and ruin everything. A strategy I TRY to use is a revolving door, where I sell contracts a month out, and they are spaced one to two weeks apart. Usually, if you look at how much a contract will net you at a certain strike price, you make the same amount per week if you go out 2 weeks, 4 weeks, or 6 weeks. So you usually don’t gain anything doing half as many trades by going 2x farther out, except more risk if the SP starts to go in the wrong direction, because there is more time for your contract to end up in the money. The exception to this rule is around earnings. I recently sold more 650 Puts and November 19th was paying out better, so I just went out two months. I usually don’t do this, and hopefully it doesn’t backfire. But part of my thinking was that the SP has been way too low all summer, and I expect Q3 earnings to be a blow out. After that, the 650 strikes I sold will be worth very little, so I collected an extra month of premium early on the 650s.

Rule 5: Don’t be afraid to admit you made a mistake, and do take a small loss to fix it before it turns into a big loss. Unless you have a crystal ball, you will have some losses and that’s ok.

Rule 6: Don’t panic if you have the margin. I sold 750 strike Puts around March/April before the SP dropped. I was able to roll them to 700s. Those 700s were in the money for months, but as long as the value is significantly larger than the price gap between the current share price and the strike price, they probably won’t get assigned (but always have plenty of margin in case they do). When the gap starts to shrink with time value decay, decreasing volatility, etc. (usually 1-2 weeks from expiration), roll them out another month. Don’t wait too long to roll. I was making $1,500 a month/ per contract, just by rolling the 700s that were In-The-Money, and they didn’t get assigned even when the SP went to 580 because they were always worth more than the $120/share gap (in the 580 example).

Rule 7: Don’t think everything has to expire worthless before you sell another set. If there is a week left, and I can harvest 90% of the money, I will buy them back with a 90% profit and sell again another month out. If I have enough margin, and the current stock price is well above the strike price, I may gamble a little and sell the new set without buying back the previous ones. This obviously puts a larger strain on the Margin, so I watch carefully and I’m ready to buy them back if the SP starts to move in the wrong direction. It is a little bit of a gamble, because I am risking some of that 90% profit I had locked in, in the hope of pocketing that last 10%. Many times, that risk isn’t worth it (See rules 1-3).

I currently have Puts with 620 and 700 strike expiring 9/24 that are up around 90%. I have November 1 620s, and November 19 650s. There is an October gap because the Nov. 19s were so good when I sold them (that I kept selling more as my revolving door came around - if that makes sense). I may buy back the 700s with a few days left next week, and sell 700s for October 22nd to fill my expiration date gaps. The 700s are ones that I have the cash ready for assignment, so I can turn around and sell covered calls instead.

In my mother’s account, I have Oct 1st, Oct 22nd, and Nov. 19th 620 strike Puts.

Speaking of covered calls (CC), those scare me the most. I have 820s expiring 9/24. After that, I am not selling any more until I see Q3 results. If Q3 numbers look good, I will wait until the SP has climbed (maybe 10%?) before selling new CC. I would be fine selling all my shares at 1500, so I will sell Jan 2023 1500s if they climb back to $70 or so. Otherwise I will continue to sell 2-4 weeks out, and use strikes at least 10% above the current SP. I make a lot less per contract with my CC than my Puts, because I really don’t want my shares called away (so I use a bigger gap between the current SP and CC strike price, then the current SP and Put strike price), but I’m ok with picking up more cheap shares if my Puts do get assigned.

Here is the bottom line. I've been on TMC for 8 years. I haven't seen a single person who can predict the SP accurately one month from now. I think if you are going to sell Options successfully long term, you should try to hit "singles" and use strikes that have very little chance of ending up in the money. I think if your goal is to make 10% of your portfolio value/year using the value of your shares, you are probably following rules 1-3. Some may say 10% isn’t very good, but we are talking about making money on your shares that may not be increasing in value all year because the SP is just trading up and down in a narrow range. This is a strategy for the more conservative Buy and Hold crowd to make a little extra money by being the “House,” instead of gambling by buying options that will probably expire worthless. If there is a SAFE, get rich quick strategy SELLING options, I don't know it.

Thanks for the tips buddy! I've been employing a few of these this year and doing ok. I just had one question, you've done quite well on your net gain this year. Congrats! Just wondering as a % What is it? Just want to compare how my % (15%) returns on options have been in comparison to yours and if I can change my strategy more. I've actually been selling more calls this year than puts, which is one big area where our strats may be differing.

My issue with selling puts is that I've been so stung from that February to March correction, I can't stomach having ITM Puts and watching your portfolio vaue drop at the same time. At least with calls you are hedging the down side. However these days the call options are so cheap, puts may be the way to go.

 

[Drezil]

One technical not bullish Thing:

We did not close above 762.xx - which would have been the highest close since April or so.
This would have been nice as it would have confirmed a breakout for some technical traders (on the daily AND weekly chart).

Would not have changed much today, but would have maybe added more gasoline to the breakout Monday morning.

I was a bit disappointed. I would have liked a visit to 745 or so on Friday. Then my orders to widen the spreads would have triggered.

But that is just complaining, that the cherry on the cake is not perfect.
At least I have cake!

 

[euro2012]

Question regarding trading platforms. My current one (Qtrade in Canada), is really limiting in that I am getting trades rejected since I am considered ‘too concentrated’. Yes, I am 100% TSLA. I am considering switching to IB. Does anyone who is 100% TSLA have similar issues on IB?

 

[ZenMan]

Question regarding trading platforms. My current one (Qtrade in Canada), is really limiting in that I am getting trades rejected since I am considered ‘too concentrated’. Yes, I am 100% TSLA. I am considering switching to IB. Does anyone who is 100% TSLA have similar issues on IB?

Nope. I'm at IB and 100% TSLA. No issues with iron condors / open wing butterflies / anything discussed in this thread. PM me if you want a referral.

 

[Yoona]

I had been doing something similar with SPX, selling 0DTE spreads to avoid overnight news. This strategy is not something I'm putting a ton of money into, but I like the idea of having as much info as possible, and I also like the idea of black swans only taking out 3x my premium instead of 10x on safer trades. I'd rather lose small more frequently than have one big event crush me. (anyone read Antifragile by Nassim Taleb? We're doing the exact opposite of what he recommends for options trading, lol)

do you have a sample executed trade to share? i am also looking into SPX/SPY but clueless where to begin; thanks in advance!

 

[Chenkers]

Question regarding trading platforms. My current one (Qtrade in Canada), is really limiting in that I am getting trades rejected since I am considered ‘too concentrated’. Yes, I am 100% TSLA. I am considering switching to IB. Does anyone who is 100% TSLA have similar issues on IB?

I have 100% TSLA in two accounts with IB and no issues with rejected trades or similar concerns. At times IB have placed a higher margin requirement (Portfolio Margin) on concentrated positions such as IB. Currently it doesn't appear to be an issue for me and looks to be around a 50% maintenance margin requirement on the stock. But I do keep margin in reserve for trading and also in case they decide to review their house margin requirements on TSLA.

 

[juanmedina]

I got my Plaid yesterday. Thanks call/put buyers .

 

[PastorDave]

do you have a sample executed trade to share? i am also looking into SPX/SPY but clueless where to begin; thanks in advance!

I'd be glad to. What I've found with these is that the best thing you can do is NOT TRADE if there's a shred of doubt, and that ICs on days that are likely to be flat (market waiting for big data drops, etc.) are easy money. I quit doing this because all of my mental bandwidth has been taken up by TSLA, but it was fairly successful for me. Typically do about 2 trades a week (3 expirations a week, but usually one I wouldn't feel confident in so would skip it) about .10 delta on either side, $5 or $10 spread for about $.35-$.40 @ $5 spread. SPX moving 40+ points in one day is super rare, especially if you're trading the call spread side, but it does happen and you need to watch it because that's a HUGE loss if it goes against you without management.

I traded SPX because there are tax advantages (I think it's like 60% of the profits are considered long term, vs. SPY which is all short term gains). Another advantage is that SPX is cash settled, so if your spread ends up slightly ITM you won't have to worry about being assigned anything. Eg, if you sell +4000p/-4005p and the SP falls and ends at 4002, you're only on the hook for that $3, not a full loss, and it's just taken out as cash, not assigned shares or whatever.

Also, watch The Stocks Channel on YouTube if you're considering this; his insight into resistances and market movements is invaluable. He gives daily resistance and support for SPY QQQ and a few others via discord if you sing up for his patreon.

Here's an actual trade from my logs:
6/14/21
IC -4220p/+4225p/-4280c/+4275c @ $.50

That's $.50 cents on $4.50 risk holding one day, so it can be pretty good gains 3 days a week. It absolutely does not work every time though and you have to know when not to trade.

I usually sell from the opening price about 30-40 out on either side depending on the IV. So on this day the opening price was likely around 4250.

A helpful rule of thumb that some might not know, but the VIX is basically the SPX's IV, so the higher the VIX, the better credits this strat will give, and the more dangerous it is of course.

Hope that helps!

 

[Drezil]

Question regarding trading platforms. My current one (Qtrade in Canada), is really limiting in that I am getting trades rejected since I am considered ‘too concentrated’. Yes, I am 100% TSLA. I am considering switching to IB. Does anyone who is 100% TSLA have similar issues on IB?

They increase your margin requirements if you are concentrated. I have up 66% or so..
I once bought amd as a decent percentage of my portfolio and the margin requirements went way down.

 

[pz1975]

They increase your margin requirements if you are concentrated. I have up 66% or so..
I once bought amd as a decent percentage of my portfolio and the margin requirements went way down.

Can you confirm that IB doesn’t have a cap of some kind for a concentrated TSLA position? My current broker has a margin cap of about 15% of my total portfolio, which is about 95% TSLA and TSLA LEAPS. I don’t know if it is calculated by a % or some sort of hard cap but it’s annoying. There is a 50% maintenance margin on that but it still limits my margin for selling puts a lot. I would never use all of my margin anyways, but I would want to have a large buffer to avoid a margin call in weeks where trades go against me.

 

[BornToFly]

Thanks for the tips buddy! I've been employing a few of these this year and doing ok. I just had one question, you've done quite well on your net gain this year. Congrats! Just wondering as a % What is it? Just want to compare how my % (15%) returns on options have been in comparison to yours and if I can change my strategy more. I've actually been selling more calls this year than puts, which is one big area where our strats may be differing.

My issue with selling puts is that I've been so stung from that February to March correction, I can't stomach having ITM Puts and watching your portfolio vaue drop at the same time. At least with calls you are hedging the down side. However these days the call options are so cheap, puts may be the way to go.

Our % returns are similar. The "correction" we had from February to March is exactly why I say don't get Greedy - keep more Margin than you think you need, and sell Puts that are well below the current SP. Use Margin Calculators like Fidelity offers. TSLA can and has dropped 30% in a short amount of time multiple times for no apparent reason. Puts are more dangerous financially, because if you get Margin Called you can lose a lot. At least with Covered Calls, all you can lose are your shares at a higher SP. That being said, I'm a Bull and believe that the SP will go up in the long run, so I would rather sell Puts as long as I can do it with a good safety margin.

 

[Drezil]

Can you confirm that IB doesn’t have a cap of some kind for a concentrated TSLA position? My current broker has a margin cap of about 15% of my total portfolio, which is about 95% TSLA and TSLA LEAPS. I don’t know if it is calculated by a % or some sort of hard cap but it’s annoying. There is a 50% maintenance margin on that but it still limits my margin for selling puts a lot. I would never use all of my margin anyways, but I would want to have a large buffer to avoid a margin call in weeks where trades go against me.

A little "what-if"-portfolio. Only 1000 TSLA stock & 20 710/720 BPS for next week. No cash.

Portfolio worth would be ~690k€, Margin Reqs ~330k€.

In the rows all numbers are in $. For 1000 TSLA worth 756k IBKR calculates 418k initial & 379k maintanance margin - This leaves you with around 50% of the value of the shares as margin. The margin-reqs for the puts nearly cancel out (8k initial, 4k maint.), but those can explode to 10k (max-loss on the BPS).

Clicking 7000 AMD into there (~725k) does not change the margin on TSLA, but only costs 239/217k margin, while being worth the same.

BUT if i add 6000 ARKK (~725k) the margin-requirements are 0(!) and the margin on TSLA goes down to 297/270 instead of the 418/379 before:

Maybe i have to buy ark "for free" tomorrow

 

[pz1975]

View attachment 711509

A little "what-if"-portfolio. Only 1000 TSLA stock & 20 710/720 BPS for next week. No cash.

Portfolio worth would be ~690k€, Margin Reqs ~330k€.

In the rows all numbers are in $. For 1000 TSLA worth 756k IBKR calculates 418k initial & 379k maintanance margin - This leaves you with around 50% of the value of the shares as margin. The margin-reqs for the puts nearly cancel out (8k initial, 4k maint.), but those can explode to 10k (max-loss on the BPS).

Clicking 7000 AMD into there (~725k) does not change the margin on TSLA, but only costs 239/217k margin, while being worth the same.

BUT if i add 6000 ARKK (~725k) the margin-requirements are 0(!) and the margin on TSLA goes down to 297/270 instead of the 418/379 before:

View attachment 711516

Maybe i have to buy ark "for free" tomorrow

Thanks for doing that. Can you also please punch in an account with, for example, 15,000 shares of TSLA (and nothing else). I want to see if there is a hard cap for allowed margin above a certain portfolio value. I think that is what my current account has. Thanks.

 

[MrMoo]

Our % returns are similar. The "correction" we had from February to March is exactly why I say don't get Greedy - keep more Margin than you think you need, and sell Puts that are well below the current SP. Use Margin Calculators like Fidelity offers. TSLA can and has dropped 30% in a short amount of time multiple times for no apparent reason. Puts are more dangerous financially, because if you get Margin Called you can lose a lot. At least with Covered Calls, all you can lose are your shares at a higher SP. That being said, I'm a Bull and believe that the SP will go up in the long run, so I would rather sell Puts as long as I can do it with a good safety margin.

Thanks for the response buddy. Good to know my redumentary selling this year has been doing ok compared to some of the big dogs. That is exactly what happened to me. I didn't get margin called but my maintenance margin quickly started going down day by day until the point I decided to bite the bullet and and buy some puts back. Of course I bought them back 1 day before a 20% Bounce lol. I learnt a lot during that correction, but i think it also mentally scarred me somewhat and I spent the rest of the year selling covered calls instead. Also never ended up using margin to buy any stocks that fell which was a lost opportunity.

 

[willow_hiller]

Quick couple of questions for the folks who have sold calls covered by ITM LEAPS... (as an aside, I've since learned that this is called "surrogate covered call")

1. I'm presuming this is only allowed with margin accounts? Otherwise an ITM LEAP doesn't represent 100 shares by itself. I'm quickly realizing that margin is a must-have for increasing return on capital employed, but for the moment I'm on a cash-only account.

2. Does anyone happen to have tried this with TD Ameritrade? They've got absolutely no written guidance about surrogate covered calls on their online resources.

This thread has led me to consider selling covered calls, but I'd love to increase my leverage with some deep ITM LEAPs at the same time.

 

[corduroy]

Quick couple of questions for the folks who have sold calls covered by ITM LEAPS... (as an aside, I've since learned that this is called "surrogate covered call")

1. I'm presuming this is only allowed with margin accounts? Otherwise an ITM LEAP doesn't represent 100 shares by itself. I'm quickly realizing that margin is a must-have for increasing return on capital employed, but for the moment I'm on a cash-only account.

2. Does anyone happen to have tried this with TD Ameritrade? They've got absolutely no written guidance about surrogate covered calls on their online resources.

This thread has led me to consider selling covered calls, but I'd love to increase my leverage with some deep ITM LEAPs at the same time.

I do that strategy (also called a diagonal spread) in TD Ameritrade in both a regular brokerage with margin and IRA accounts.

 

[MP3Mike]

1. I'm presuming this is only allowed with margin accounts? Otherwise an ITM LEAP doesn't represent 100 shares by itself. I'm quickly realizing that margin is a must-have for increasing return on capital employed, but for the moment I'm on a cash-only account.

At E*TRADE you don't need margin, but you do have to be setup for level 3 options. I think your CC has to have a higher strike than your Leap as well as the same or closer date.

 

[BornToFly]

Thanks for the response buddy. Good to know my redumentary selling this year has been doing ok compared to some of the big dogs. That is exactly what happened to me. I didn't get margin called but my maintenance margin quickly started going down day by day until the point I decided to bite the bullet and and buy some puts back. Of course I bought them back 1 day before a 20% Bounce lol. I learnt a lot during that correction, but i think it also mentally scarred me somewhat and I spent the rest of the year selling covered calls instead. Also never ended up using margin to buy any stocks that fell which was a lost opportunity.

One thing to keep in mind, is that investors on TMC are in different phases of life and investing. I have retired with a nice size portfolio. I have little other income now. I am not trying to maximize growth. I am looking for safer, guaranteed income by using the value of my account, and I want to keep a comfortable amount of cash on hand (which I use to secure some of my Puts in addition to using available margin). I am trying to hit singles instead of home runs, without selling any of my shares (because I believe they will be worth a lot more in just a few years).