Yes. You just withdraw the whole thing and report it on your tax EOY.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
I got burned because apparently TSLA was too high at the moment
. I could literally close them for pennies but decided not to…Anyone think that the put-call disparity is due to retail call selling? We must have a sizeable number of people that put the bulk of their savings into TSLA and now have multimillion dollar positions but no cash flow. There could be tens of thousands (I have no real idea) of people selling dozens of contracts every week.
Puts on the other hand are mostly going to be sold by retail as spreads and this is consistent with far out of the money puts still holding their value. People aren’t sitting on millions in cash to back puts the way they’re sitting on millions in shares.
If this is the case, the call walls may not be defended strongly as the contracts will be quickly rolled away by people who don’t want to lose their shares. Retail isn’t delta hedging. And maybe this could mean market forces are shaping up to take cheap shares from retail call sellers by moving the SP up.
Puts on the other hand are mostly going to be sold by retail as spreads and this is consistent with far out of the money puts still holding their value. People aren’t sitting on millions in cash to back puts the way they’re sitting on millions in shares.
If this is the case, the call walls may not be defended strongly as the contracts will be quickly rolled away by people who don’t want to lose their shares. Retail isn’t delta hedging. And maybe this could mean market forces are shaping up to take cheap shares from retail call sellers by moving the SP up.
But why would this be different now vs. a few weeks ago when max pain seemed to have the gravitational pull of a black hole?
AquaY
Member
No I don’t think thats it.
Put premiums have for decades been higher compared to call premiums for several reasons.
i think 2 of the biggest reasons are puts can be more volatile, and puts are used as insurance against market corrections( something that right now many have concerns about)
Are TSLA put premiums even more skewered than the norm?
I don’t know but I expect put premiums to be greater
Last edited:
willow_hiller
Well-Known Member
I wouldn't neglect the fact that the "risk-free" rate is a part of the put-call parity equation. Higher put prices could be reflective of folks anticipating continued increases in interest rates/bond yields/etc.
Selling puts risks cash, so as the opportunity cost of being short cash increases, so will put prices.
Likewise, holding shares risks cash, so call writers will be more willing to risk their shares at lower prices because if their shares are called away, they can effectively use the cash.
I’d put my own public service announcement on the thread but it seems every 12 weeks, I’d have a new one. So did it drop late in the week or after hours or something? Sorry to make you recount the trauma, but I’m trying something very new this month… which is trying to learn from other people’s mistakes so I don’t have to experience them 5 times.I got burned because apparently TSLA was too high at the moment
Thanks to all of those here that teach and to @adiggs for creating a forum of the meeting of the minds.
I think the 529 is a great vessel to guard against dads who think options are cool…. And think, junior is going to Harvard this week, let’s buy some leaps baby….. fast forward to end of week with parent researching trade school options…. “Sorry son, I know you worked hard these last 12 years, but what the world needs now are electricians not electrical engineers….”
I have to say this thread has a wealth of knowledge from various people that can tell when it’s not a good time to sell calls…. @UltradoomY and others…. When they are nervous about upside risk…. I listen…. I look forward to one day being able to read open interest and call walls better and being able to discern resistance points. Knowing one stock really well has its advantages
AquaY
Member
The world does need electricians as well as electrical engineers.
What the world does not need is Gender Studies, Political science, Theater arts, Dance, Golf management, Feminist Theory, Human Geography, or Philosophy majors.
Well you just totally stomped on all 8 of my dreams once I hit it big: I guess there will be no Buttershrimp interpretive dance coffee bar with put-put golf. Dang it, I had plans with unisex bathrooms and golf holes modeled after Nietzsche’s philosophy- the bottomless golf hole…. It was going to be a cash cow!
AquaY
Member
Just because the world doesn't NEED "Buttershrimp's Interpretive Dance Coffee bar with Putt-putt Golf doesn't mean people don't want it.
Follow your dreams.
As long as I don't have to pay for them. LOL
Hey! I resemble that remark. Then again I think we're all Philosophers, whether we major in it or not.
This happened to me as well, though with naked puts. Or maybe I got hit on the other side
My 'solution' that helped a lot, was the really really wide put spread. For me that was a $200 wide spread. I chose the short put as if it were a naked put (and still do), and then added a long put that was $200 further OTM. You'll find that the insurance put is probably under $0.50 and will never be worth very much. The overall position will evolve like a naked put until $50 or maybe even $100 ITM. You'll manage it as if its naked, it'll generate most of the same premium as if its naked.
But it'll also be defined risk and thus in an IRA (or how I do naked puts in brokerage) you can do 3-4 of these vs 1 naked put.
The way I'm getting leverage into my account are a series of defined source positions. They show up as margin, house surplus, maintenance excess, etc.. But the positions themselves come from defined risk positions, and thus the maintenance excess / house surplus changes very slowly with the share price, and rapidly with positions coming and going.
In particular I'm buying DITM leaps for lcc's (and have stopped selling cc's against my shares - I HAVE sold off a fair number of the shares, but with the leaps I've netted out at about +50% share equivalents).
I hold large cash balances that I use to back bull put spreads instead of naked puts. I'm using $100 bps these days - I occasionally shrink the spread width, but mostly not. This enables me to sell 7 bps instead of 1 700 strike naked put. And thus the wide spreads - I'd be too likely to sell 14 of the $50 wide spread vs. 1 of the naked puts; the income increase is outstanding, but the risk starts making me uncomfortable. I'd probably be better off returning to the $150 or $200 wide spreads, not because they are a particularly good use of the leverage, but because it acts as a better brake on my 'but but, moar!'.
For me it was naked puts in the Feb/March timeframe. The shares had rocketed up and briefly touched $900. I figured $800 or so was safe, and being aggressive with the puts was important as the shares were heading to the moon, and the put income was helping offset the call losses (I was struggling to keep the cc's up with the share price). Overall income was outstanding.
Then the shares reversed back into the 700s and I didn't roll the puts down NEARLY aggressively enough. Suddenly the calls were all OTM and in great shape, while the puts went deeply enough ITM that there were no longer good rolls available. Since I had just the week previously had a good roll (sm. net credit, $5 strike improvement) while $80 ITM I figured it was just a matter of time to catch back up (because clearly, the shares were going to turn around any day now).
That didn't happen and I lived with those DITM puts for 5ish months before finally resolving them (via bull put spreads!).
Or then - there was the time, back in June, where I added on a call spread to a put spread for the small additional premium. It looks totally safe to me and it was 'free'(*)! It was also a narrow spread ($20 or $40) and it went ITM to 50% ITM and looked like it was going to 100% (insurance call going ITM), and it all seemed to happen in the same day. I was new enough to spreads that I didn't have enough experience on how to manage, and just bought my way out around 50% loss, rather than waiting for a 100% loss.
(*) Where 'free' cost multiple $10k of $.
That's made me really gunshy of call spreads
With the naked puts --
What I did right - the puts were fully cash secured, so there was no margin call coming for me.
What I did wrong - didn't roll down aggressively enough, didn't take the loss early enough.
With the call spreads--
What I did right (I think). Take the loss before it got worse. I should have taken it sooner - and that only counts because I had that thought at the time and didn't act on it. Broadly speaking I'm finding that if the conscious thought goes through my brain to close a position for early/small profit vs. hold for later/big profit, act now; or whether its act now to close a position for an early/small loss vs. hold and hope for recovery, act now and take the early/small loss.
The pattern is the same - when I consciously think "close now, or later", then the decision has been made and close now.
Now that I'm doing $100 wide bull put spreads, if the same situation as the naked puts arises I'll be looking at a ~max loss. Ergo - don't let it happen. The things that I see:
1) when the shares are near a local low ($700 is that level right now as I see it), then I can be more aggressive with the put sales. Actually I'd love for the shares to hang out in the 720-760 range for like, forever.
2) when the shares are near a local high, get way way more conservative with the put sales. I may still be selling 730ish level puts even when the shares are going past 800, where I've sold some 730 puts recently when the shares were high 740s.
3) when not near a strong support, assume that any pull back is going to keep going, and roll down for max strike improvement and minimal credit to get to that strong support.
4) AND THEN - be ready to take the loss. An early loss is likely to be relatively small in % terms (it'll be high in absolute $). But it'll also easily be covered by previous sales and/or the next few sales. I've experienced this already with an early loss on call spreads back in June. The % loss was in the 40-70% range (ouch) and the month still made good income. Don't let a single position generate a significant setback.
All of this goes back to the wide spreads. With a $100 wide spread I've got a big range in which to manage them.
Another approach is to use no more than 1/2 of the available margin on whatever size spread one likes, where one of the management choices is to bring more leverage into the position to fund a really big move in the strike. So have the margin available to expand a $50 wide spread to $100 wide spread (or sell 2x of the $50 wide spreads) to improve the short strike and recover a position that is moving against.
Not sure. Maybe they needed time to lull retail call sellers into a false sense of security?
I’ve been selling calls for awhile but put spreads are new to me so I can’t say if TSLA is more skewered than usual. But the difference in prices seems glaring right now. Anyone have a better perspective on historical put-call prices?
I do remember a couple years ago this same disparity being commented on, and the reasoning at that time was that the cost of shorting was so high that people were doing it synthetically with puts. But that logic doesn’t hold with current short interest and borrowing rates.
AquaY
Member
I've done puts for awhile on AAPL, AMZN, GOOG, T as well as others.
TSLA premiums are better ( from the seller's perspective) but I only have a few months of experience in TSLA.
I'm sure there are those with far greater experience and those that run all the numbers for several different underlyings that can answer you better than I.
You mention naked puts but then call them fully cash secured, but then talk about using available margin, so I’m a touch confused about whether or not you tend to sell cash covered puts or naked puts (margin covered)This happened to me as well, though with naked puts. Or maybe I got hit on the other side
My 'solution' that helped a lot, was the really really wide put spread. For me that was a $200 wide spread. I chose the short put as if it were a naked put (and still do), and then added a long put that was $200 further OTM. You'll find that the insurance put is probably under $0.50 and will never be worth very much. The overall position will evolve like a naked put until $50 or maybe even $100 ITM. You'll manage it as if its naked, it'll generate most of the same premium as if its naked.
But it'll also be defined risk and thus in an IRA (or how I do naked puts in brokerage) you can do 3-4 of these vs 1 naked put.
The way I'm getting leverage into my account are a series of defined source positions. They show up as margin, house surplus, maintenance excess, etc.. But the positions themselves come from defined risk positions, and thus the maintenance excess / house surplus changes very slowly with the share price, and rapidly with positions coming and going.
In particular I'm buying DITM leaps for lcc's (and have stopped selling cc's against my shares - I HAVE sold off a fair number of the shares, but with the leaps I've netted out at about +50% share equivalents).
I hold large cash balances that I use to back bull put spreads instead of naked puts. I'm using $100 bps these days - I occasionally shrink the spread width, but mostly not. This enables me to sell 7 bps instead of 1 700 strike naked put. And thus the wide spreads - I'd be too likely to sell 14 of the $50 wide spread vs. 1 of the naked puts; the income increase is outstanding, but the risk starts making me uncomfortable. I'd probably be better off returning to the $150 or $200 wide spreads, not because they are a particularly good use of the leverage, but because it acts as a better brake on my 'but but, moar!'.
For me it was naked puts in the Feb/March timeframe. The shares had rocketed up and briefly touched $900. I figured $800 or so was safe, and being aggressive with the puts was important as the shares were heading to the moon, and the put income was helping offset the call losses (I was struggling to keep the cc's up with the share price). Overall income was outstanding.
Then the shares reversed back into the 700s and I didn't roll the puts down NEARLY aggressively enough. Suddenly the calls were all OTM and in great shape, while the puts went deeply enough ITM that there were no longer good rolls available. Since I had just the week previously had a good roll (sm. net credit, $5 strike improvement) while $80 ITM I figured it was just a matter of time to catch back up (because clearly, the shares were going to turn around any day now).
That didn't happen and I lived with those DITM puts for 5ish months before finally resolving them (via bull put spreads!).
Or then - there was the time, back in June, where I added on a call spread to a put spread for the small additional premium. It looks totally safe to me and it was 'free'(*)! It was also a narrow spread ($20 or $40) and it went ITM to 50% ITM and looked like it was going to 100% (insurance call going ITM), and it all seemed to happen in the same day. I was new enough to spreads that I didn't have enough experience on how to manage, and just bought my way out around 50% loss, rather than waiting for a 100% loss.
(*) Where 'free' cost multiple $10k of $.
That's made me really gunshy of call spreads
With the naked puts --
What I did right - the puts were fully cash secured, so there was no margin call coming for me.
What I did wrong - didn't roll down aggressively enough, didn't take the loss early enough.
With the call spreads--
What I did right (I think). Take the loss before it got worse. I should have taken it sooner - and that only counts because I had that thought at the time and didn't act on it. Broadly speaking I'm finding that if the conscious thought goes through my brain to close a position for early/small profit vs. hold for later/big profit, act now; or whether its act now to close a position for an early/small loss vs. hold and hope for recovery, act now and take the early/small loss.
The pattern is the same - when I consciously think "close now, or later", then the decision has been made and close now.
Now that I'm doing $100 wide bull put spreads, if the same situation as the naked puts arises I'll be looking at a ~max loss. Ergo - don't let it happen. The things that I see:
1) when the shares are near a local low ($700 is that level right now as I see it), then I can be more aggressive with the put sales. Actually I'd love for the shares to hang out in the 720-760 range for like, forever.
2) when the shares are near a local high, get way way more conservative with the put sales. I may still be selling 730ish level puts even when the shares are going past 800, where I've sold some 730 puts recently when the shares were high 740s.
3) when not near a strong support, assume that any pull back is going to keep going, and roll down for max strike improvement and minimal credit to get to that strong support.
4) AND THEN - be ready to take the loss. An early loss is likely to be relatively small in % terms (it'll be high in absolute $). But it'll also easily be covered by previous sales and/or the next few sales. I've experienced this already with an early loss on call spreads back in June. The % loss was in the 40-70% range (ouch) and the month still made good income. Don't let a single position generate a significant setback.
All of this goes back to the wide spreads. With a $100 wide spread I've got a big range in which to manage them.
Another approach is to use no more than 1/2 of the available margin on whatever size spread one likes, where one of the management choices is to bring more leverage into the position to fund a really big move in the strike. So have the margin available to expand a $50 wide spread to $100 wide spread (or sell 2x of the $50 wide spreads) to improve the short strike and recover a position that is moving against.
Also the last bit you said I think is very important and that is to make sure you leave margin room to manage positions in creative ways. I generally start the week opening positions covered by about 30-40% of my margin for that reason
What do we think would happen to premiums if TSLA were to split again - the value of the underlying price per share has an undeniable impact on ITM contracts, but would it reduce OTM premiums as well? Thinking of being able to write 10x the amount of contracts for instance is pretty amazing, but it becomes a wash or maybe even a negative as I assume IV would be reduced (more shares = harder to move the stock to strike prices since it would require larger moves to attain the same percentage gain)?
Obviously premiums were sky high earlier this year despite a split, so there is some precedent for high premiums in such a scenario.
Obviously premiums were sky high earlier this year despite a split, so there is some precedent for high premiums in such a scenario.
djy
Member
I’m also at Fidelity and like you, I used to only look at the House surplus number and ignore the rest. But I unexpectedly found myself in a Fed call (negative SMA balance) this weekend after opening a large bps position right before close on Friday.
I’m fairly new to margin so apologies if this has been discussed before, but has anyone found themselves in a Fed call without being in a house/maintenance call? I’m assuming I can just close the spread position I opened on Friday and it will go away, but since I have 4 days to manage a Fed call… would it be ok to just keep the spread position open for a few days until it (hopefully) loses a lot of its value before closing it out? Thanks in advance for any advice anyone may have.
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