Wiki Selling TSLA Options - Be the House

[InTheShadows]

They will have earned income this year. Discussing the finer points with the CPA, but they will have enough to fully fund a Roth contribution.

However, everything I've read is that if you withdraw the Roth IRA funds for college, you owe taxes on it (well, the kids do - but not the 10% penalty). That would defeat the purpose of using that vehicle for college expenses.

College Savings: Roth IRA, 529 Plan, or Coverdell? — Oblivious Investor

obliviousinvestor.com

Roth IRA vs. 529 Plan for College Savings: Which Is Better? | The Motley Fool

Both of these tax-advantaged plans can help you save for education expenses for yourself or someone else. But which one is best for you?

www.fool.com

I’d pay the taxes to do options and return close to 100% annually. And what’s not used for college can continue to grow for their retirement.

 

[bkp_duke]

I’d pay the taxes to do options and return close to 100% annually. And what’s not used for college can continue to grow for their retirement.

They aren't mutually exclusive. We will fund the kids Roth's 100% this year, but looking to dump cash in anything else tax advantaged that we can then grow long-term for them, preferably for college expenses.

 

[BornToFly]

For those that ARE using margin in their brokerage, I'm curious which of the various margin #s do you watch most closely. I manage my account to the house surplus amount, but it is invariably pretty significantly smaller than my cash amount - house surplus is about 60% of my cash right now for instance, where Margin Equity is about 50% more than the cash balance.

If I use put spreads up to my cash balance, the house surplus goes negative (by about that 40% of cash that isn't found in the house surplus).

AT least with Fidelity, when the House surplus goes negative, you get a Margin Call. That is really the only number I look at when I use their Margin calculators, including the price adjustment tool, to make sure I won't get a Margin call if the stock drops quickly back to 620. Unfortunately, this assumes they don't change their margin requirements for TSLA stock, which they can also do to suddenly give a bunch of investors margin calls to try to get their shares for cheap.....

 

[stealthyc]

For those that ARE using margin in their brokerage, I'm curious which of the various margin #s do you watch most closely. I manage my account to the house surplus amount, but it is invariably pretty significantly smaller than my cash amount - house surplus is about 60% of my cash right now for instance, where Margin Equity is about 50% more than the cash balance.

If I use put spreads up to my cash balance, the house surplus goes negative (by about that 40% of cash that isn't found in the house surplus).

I do all my options trading backed by margin and I tend to keep about 100% maintenance excess, though I’ve gone closer to 50% on occasion

 

[kcveins]

They aren't mutually exclusive. We will fund the kids Roth's 100% this year, but looking to dump cash in anything else tax advantaged that we can then grow long-term for them, preferably for college expenses.

I had funded an Illinois based "Bright Start" 529 plan for the kids, but took the 10% penalty 3 years ago and put the money into TSLA
I know that the tax advantage is not there, but obviously the returns mean that not only is college now paid for, so is grad school and a little extra to help them start their lives afterwards...

 

[corduroy]

For those that ARE using margin in their brokerage, I'm curious which of the various margin #s do you watch most closely. I manage my account to the house surplus amount, but it is invariably pretty significantly smaller than my cash amount - house surplus is about 60% of my cash right now for instance, where Margin Equity is about 50% more than the cash balance.

If I use put spreads up to my cash balance, the house surplus goes negative (by about that 40% of cash that isn't found in the house surplus).

Margin management is something I am increasingly realizing is on of the most important factors in growing my portfolio at the rate that I want to. But admittedly, something I need to work on deeper learning. The 2 main things I watch are total options buying power and maintenance requirement. About 6 months ago I flew too close to the sun with the number of open contracts and a maintenance call quickly taught me the importance of that number.

In the last couple months, I have been in a pattern of using about 25% of my available margin carried over on weekend trades (7-9 DTE when open), then Monday-Friday I will ramp up to 90% intra-week trades based on conditions and opportunities. Then de-risking again for the weekend. I'm also holding 30% of my portfolio in cash which I feel gives me flexibility for dealing with the unexpected.

I don't know if any of these are best practices, but it's working well for me. (2nd best week ever last week!)

 

[bkp_duke]

I had funded an Illinois based "Bright Start" 529 plan for the kids, but took the 10% penalty 3 years ago and put the money into TSLA
I know that the tax advantage is not there, but obviously the returns mean that not only is college now paid for, so is grad school and a little extra to help them start their lives afterwards...

Right, and I agree this is an option. But in this case, I don't really see any advantage to this vs. us just pulling from our core TSLA position out of our brokerage account, when the kids go off to college.

 

[buttershrimp]

just because Im inexperienced with bps. I havent touched them again after getting burned badly last year. I feel like naked puts are easier to be managed in term of risk and rolling. However IV of fotm strikes were high enough for me to take the risk

Uh oh, if you are “inexperienced” with them, that makes me in utero ….

How did you get burned? Back in 2020 covid drop? Was it weeklies that did it or monthlies? Thanks for sharing btw … I’m trying to learn how to psychologically handle a threatened strike without acting and something occurred to me … if the strike is just outside of resistance and support, then a clean break through the resistance or support level seems to be the cue to manage it. The P&L looks awful sometimes with a spread, and the psychological aspect of the stock price approaching an anchor seems to feel emotionally like impending max loss!

 

[CHGolferJim]

It seems that you, and a few others here, traded this week like it is any other, and have now extended some of the risk into next week. But these two weeks are not like what we had the last two months, and you can't trade the same way. We are going into a record breaking PD coming out after 5 more trading days. Wall Street can be blind and dumb, but they aren't completely blind. Reports all over twitter and elsewhere about record production from China, with record European deliveries, and now record registrations in China. US delivery is off the charts. This is not the time, IMHO, to sell calls anywhere near the money. I had sold and made a little money on 820CC expiring today. I am sitting on my hands all next week! If the past repeats, there will be a run up into next Friday (probably over 800), with maybe a small pullback early in the week. Then we might have a further climb the first week of October if the numbers are really good, before a slight pullback 2 weeks before earnings when Wall Street plays a game of Chicken. I do expect another climb going into the ER in the later part of October. After ER, anything can happen, no matter how good the ER (Buy the Rumor, Sell the news again?) I think Puts are safe. But for selling CC, better to wait 10 days. My personal rules 1-3 are Don't Get Greedy for a reason. Good luck friends.

You are probably right. I’m going to just keep rolling my ITM covered calls for a few $k/week until the strike price catches up to the SP. Might be quite awhile. But the bought calls are spankin’…….

 

[CHGolferJim]

I’d pay the taxes to do options and return close to 100% annually. And what’s not used for college can continue to grow for their retirement.

I was in and out of 529 plans before Tesla appeared. Last decade, each state had their own plan and you could shop for investment alternatives. Surely at least one allows at least TSLA without options. All gains and withdrawals were non-taxable in NC, and for a large part of the contribution phase the contributions were NC deductible, so not bad for ordinary investing.

 

[juanmedina]

Right, and I agree this is an option. But in this case, I don't really see any advantage to this vs. us just pulling from our core TSLA position out of our brokerage account, when the kids go off to college.

I never really understood the point of the 529 plans with how limited the investment options they have. Just write them a check when they go to college.

 

[juanmedina]

House surplus is the same as Margin Excess or Maintenance excess I believe.
I have Etrade and I look at Margin Excess as well as Amount of options on margin.

I started wondering and asking a week or 2 ago pretty much the same thing as you have. How do others manage their margin risk?
I have not found a suggested rule of thumb but basically I decided to look at a market correction as a guide.
A market correction is when the market tanks 10% . It can go worse ( much much worse) than that as we know but that doesn't happen often.
The pandemic plunge was 15% in 2 days and 30% in about a month.
Those things are like once a decade ( in theory). while a market correction is around every 2 years or so.
So I've tried to plan on keeping at a minimum a reserve margin that could weather a 15% drop in my portfolio balance in order to avoid a margin call.
I hope that's enough. It probably isn't. Margin balances though are just one aspect of my portfolio risk management.
I also consider probabilities of my options positions being assigned both when I enter the trade and weekly. The lower the probability the greater I reserve in margin. But I do not have a # rule for doing so.

How do you run those kind of scenarios on E-trade?

Yeah on E-trade the important variable is the "Maintenance Excesses"

 

[AquaY]

How do you run those kind of scenarios on E-trade?

Yeah on E-trade the important variable is the "Maintenance Excesses"

As far as I know you can't run those scenarios on Etrade.
I just figure out on my own what the drop would be in the account roughly, using the beta on my biggest positions and nothing less than a Beta of 1.
It's off the hip but the best I can do

 

[kcveins]

Right, and I agree this is an option. But in this case, I don't really see any advantage to this vs. us just pulling from our core TSLA position out of our brokerage account, when the kids go off to college.

I agree, but had put the $ in there when the kids were still very young and it was basically going to be a sunk cost, so instead of it sitting around and covering their undergrad costs, now have much more for them.

 

[kcveins]

I never really understood the point of the 529 plans with how limited the investment options they have. Just write them a check when they go to college.

The Illinois program basically guaranteed the cost of education + board regardless as to what the actual cost was at the time they went to college. It was a type of hedging at the time college costs were out of control..

 

[EVCollies]

I've successfully run the wheel, STO calls/puts, with $1.5M from selling 2,000 TSLA generating enough to purchase 20 stocks a week. But I have been struggling if this is better than HODL taking a very bearish view of TSLA. I think this Google sheet demonstrates that up to a 35% yearly SP increase in the next 10 y that selling puts with that cash is better.

The first four columns assume HODL, the last three are generating stocks with the cash by STO calls/puts.

I assume the cash will be the same $1.5M from year to year and the number of stocks purchased by running the wheel will decrease every year by the SP increase.

I really don't know if the decreased number of contracts as the sale priced increases will still generate a similar return though. Here is my work thus far:

	Hold Long			Use cash to STO calls/puts and buy stock with proceeds
Year	SP	Shares	Value	Yrly Shares Created	Tot Shares Created	Sh Cr Value
1	$750	2,000	$1,500,000	0	0	$0
2	$938	2,000	$1,875,000	1000	1000	$937,500
3	$1,172	2,000	$2,343,750	750	1750	$2,050,781
4	$1,465	2,000	$2,929,688	563	2313	$3,387,451
5	$1,831	2,000	$3,662,109	422	2734	$5,006,790
6	$2,289	2,000	$4,577,637	316	3051	$6,982,684
7	$2,861	2,000	$5,722,046	237	3288	$9,407,289
8	$3,576	2,000	$7,152,557	178	3466	$12,395,612
9	$4,470	2,000	$8,940,697	133	3600	$16,091,235
10	$5,588	2,000	$11,175,871	100	3700	$20,673,468
SP % increase	0.25

Wheel Calc

Sheet 1 Table 1 Hold Long,Use cash to STO calls puts and buy stock with proceeds Year,SP,Shares,Value,Yrly Shares Created,Tot Shares Created,Sh Cr Value 1,$750,2,000,$1,500,000,0,0,$0 2,$938,2,000,$1,875,000,1000,1000,$937,500 3,$1,172,2,000,$2,343,750,750,1750,$2,050,781 4,$1,465,2,000,$2,929,6...

docs.google.com

 

[phantasms]

Careful with the calls next week. I say enough stupid stuff that I could eventually be correct…

Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

The Rocklin SC is located 25mi east of Sacramento and just a few miles from Sierra College. 5 days before the end of Q2 I noticed about 25 new Teslas parked in the Sierra College overflow parking lot across the street from the main entrance. I came to the conclusion there must not have been...

teslamotorsclub.com

 

[AquaY]

I've successfully run the wheel, STO calls/puts, with $1.5M from selling 2,000 TSLA generating enough to purchase 20 stocks a week. But I have been struggling if this is better than HODL taking a very bearish view of TSLA. I think this Google sheet demonstrates that up to a 35% yearly SP increase in the next 10 y that selling puts with that cash is better.

The first four columns assume HODL, the last three are generating stocks with the cash by STO calls/puts.

I assume the cash will be the same $1.5M from year to year and the number of stocks purchased by running the wheel will decrease every year by the SP increase.

I really don't know if the decreased number of contracts as the sale priced increases will still generate a similar return though. Here is my work thus far:

	Hold Long			Use cash to STO calls/puts and buy stock with proceeds
Year	SP	Shares	Value	Yrly Shares Created	Tot Shares Created	Sh Cr Value
1	$750	2,000	$1,500,000	0	0	$0
2	$938	2,000	$1,875,000	1000	1000	$937,500
3	$1,172	2,000	$2,343,750	750	1750	$2,050,781
4	$1,465	2,000	$2,929,688	563	2313	$3,387,451
5	$1,831	2,000	$3,662,109	422	2734	$5,006,790
6	$2,289	2,000	$4,577,637	316	3051	$6,982,684
7	$2,861	2,000	$5,722,046	237	3288	$9,407,289
8	$3,576	2,000	$7,152,557	178	3466	$12,395,612
9	$4,470	2,000	$8,940,697	133	3600	$16,091,235
10	$5,588	2,000	$11,175,871	100	3700	$20,673,468
SP % increase	0.25

Wheel Calc

Sheet 1 Table 1 Hold Long,Use cash to STO calls puts and buy stock with proceeds Year,SP,Shares,Value,Yrly Shares Created,Tot Shares Created,Sh Cr Value 1,$750,2,000,$1,500,000,0,0,$0 2,$938,2,000,$1,875,000,1000,1000,$937,500 3,$1,172,2,000,$2,343,750,750,1750,$2,050,781 4,$1,465,2,000,$2,929,6...

docs.google.com

How is a 25% growth rate yearly with never a decrease bearish at all? Let alone “very bearish”?

 

[vikings123]

agreed. I pulled money out of my oldest’s 529 last year. I dont think I can ever go back to passive investing.

I have been meaning to do this. Was the process easy? So essentially you pay 10% penalty on your gains?

 

[ammulder]

I think this Google sheet demonstrates that up to a 35% yearly SP increase in the next 10 y that selling puts with that cash is better.

But that’s assuming all good weeks, right? I mean, the advantage to HODL is zero effort and zero risk of things stalling or going badly so long as the stock price eventually ends up at $5588. Whereas in real life, there will be lulls, pullbacks, and whatever that mean some weeks options will lose money or show low gains due to losses or rolling puts/calls for little or no premium. So how often? Does your record extend past Jan 1, including both major drops this year? If not, then if you only make 75% of the expected option gain each year, is the difference to HODL then small enough that you’d rather do nothing and log 3/4 of the same gains?

Another question: why use option proceeds to buy shares instead of keeping cash to fund larger option purchases? Or if you’re going to buy shares, at least use the margin created to sell options. Though you could do that in the HODL case too.

And is this really sustainable for 10 years? It feels like such a gift horse it’s hard for me to believe it’s that reliable, though others have just suggested switching as needed to options on the indexes or whatever. Hmm. I will need a couple years of this to feel comfortable counting on it for decades, I think.