Now, this is not advice....but I am pretty sure that IV will NOT come down after tomorrow because the P&D report is not the only binary event happening in the next week.
The IV will stay high and possibly continue to increase until the Annual Share Holders Meeting after hours next Thursday.
Play your cards appropriately but I do not see anything happening with the P&D report tomorrow, it will be Saturday at minimum.
I also look forward to a day when Tesla stops sending out the P&D report as it is not material to them or us anymore.
We lose a week each quarter from higher IV but it helps the mission in the long run.
Sort of what I'm expecting from P/D. I did notice that IV on the 10/8 puts was 50s ATM, and low 70s for the strike I was selling. Heaven on earth has to be high IV with low daily changes in the share price as we've been seeing for the last few months.
How do you feel about the narrower spreads at lower strikes. Say instead of 1 600/-700 spread, going with 2 625/-675 spreads. Same midpoint however longer for the stock to get to the short leg. Running that model with AH option prices gets you $889 for the 100 spread and $868 for the two 50 spreads. (Fees taken into consideration). The return is slightly better on the 100 spread however your chance of needing to manage the 50 is a lot less.
This is an interesting idea. It's not something I've thought of doing.
In exchange for a reduced need to do any management at all, you are also trading in a shorter 'travel' from max gain to max loss. On the $50 wide spread you achieve max loss at $625 instead of $600. The total of the max loss is the same as you've opened 2x of the $50 wide spreads.
I haven't thought much about it, so my opinion is still weak
But I do have a couple of observations that will go into my thinking about this. The first is that one benefit of the $100 wide spread, is that one of my management choices is to roll into 2x the contracts with a $50 wide spread. That should get me a pretty hefty move in the short strike even when I'm pretty deep ITM. The downside, and there always is one, is that when I cut the spread in half and double the contracts, is that now I lose money 2x as fast
The second is that I've got a profit generation management choice available that I've used one time. If/when the long put gets cheap enough (basically free) -- think in terms of 2-4 days to expiration -- I can roll up the long put so its $50 away. That cuts my margin reservation in half, and allows me to double up on the number of positions.
In both of these rolls, the committed margin stays the same. I'm just levering up when I think it's safe (or necessary; I still need to think I'm getting out after the roll).
What has been most successful as an exit strategy for BPS from all of your experiences when they end up ITM? Thinking of trying out BPS vs naked/uncovered puts but want to be comfortable with exit strategies first in the event that the sp drops and they end up ITM, given that I would likely be doing a higher number of contracts. With put selling so far I have been comfortable rolling down/out if I get caught pantsdown. I plan on starting far enough OTM that it hopefully wont be an issue but want to be prepared in any event. Do brokerages usually allow rolling of long/short puts independently? Do you have to roll the whole spread? I imagine rolling the short puts out and or down while STC the long puts might be a decent option. Definitely want to avoid assignment. Am I missing something? Would love to hear what has worked for you. Thank you all for the wisdom btw, this thread is amazing
Several thoughts
I don't know about most successful, but I do know that my first preference is a straight up roll. I.e. - if I had -650p/+750p and the shares moved down to $725 and I decide to roll, then my first preference is something like adding a 1 week to expiration, and moving down to 630/730 or something like that. With this sort of roll I'm buying time, but I haven't changed my rate of gain / loss dynamics. I also didn't bring any new margin to the table, so my defined loss hasn't changed.
Rolling the 2 options independently won't be a thing unless you have enough cash to break up the position that way. Generally speaking you'll need to close the short options, and then the long options. The margin on the short options goes through the roof when their insurance goes away. This is also the magic of the roll ticket - by putting all of the changes from the old to the new, your broker can see how your account risk profile changes. There isn't a risk of a market move on you while you're in the middle of doing the individual trades that leaves your broker holding the bag.
The closest to advice I have is to do some small trades and give it a whirl. If you want to force yourself into a roll dynamic, then sell a put spread or put that is ATM. Maybe the 670/770 put spread for a week from Friday. It'll have a nice premium but with only 1 it's not a lot of money on the table ($10k) and to lose it all the shares need to drop below 670. What you hope happens is that the shares trade down to 760 or 750 and your spread goes deeper and deeper ITM, and you need to manage it.
Of course the shares might go up, your big premium spread earns a lot of money, and you need to try again for the week after. (Darn
).
Or do it as a 730/770 for a smaller spread size. Or do 1 of each.
If you haven't done any, then I'd really suggest starting small and far OTM. If you've been selling puts, then you can use the same logic for choosing the sold put, and add on the more distant insurance put, and just like that you've turned a short put into a put credit spread aka bull put spread. Along these lines, the main reason I've been doing wide spread sizes is that the resulting position behaves almost identically to a short put, and that's what I have over a year of experience with. I like the way short puts work
Either way you're looking for experience and insight into the mechanics and how the BPS premium changes with time and the share price. You're also looking forward to some experience with the mechanics of rolling.
And maybe most important (MHO) you'll get to experience some of the emotions that come along with the trade. I've done a few of these test type trades, mostly making money, that I decided I wasn't going to repeat. I made money but I also put too much energy into the trade, or worrying about something that could happen, or ...
I've also done test type trades where I really liked how the trade evolved (the BPS is a recent example).
I am trying to understand the margin requirement, and changes to margin requirements you have been through while you were on this options journey.
Do you mind sharing which brokerage these accounts are with? Again asking from margin impact point of view, are these accounts heavily concentrated in TSLA, do you have portfolio margin?
The basic margin requirements on a BPS are straightforward. With portfolio margin and concentrated positions and stuff it gets more complicated, but it only gets more complicated if you're trying to lever up even further. For a $100 wide spread size you have $10k at risk. The margin reservation is $10k. This is best seen in an IRA, where that $10k/contract is subtracted from cash and goes into a Pending bucket. It stays in that Pending bucket until you close the position - that Pending position is how your broker knows that in the worst case, you can fund closing the position.
For myself, I rely on this basic margin approach even in my brokerage where I have actual margin available. I'm already getting leverage from the BPS (i.e. the $100 wide spread lets me sell 7 600/700 BPS vs 1 700 strike put). Further lowing my margin reservation from $70k in this instance to say $35k (half way point - chosen to make the math easy), and now I can sell 14! Of course I also have that margin reservation change as the shares move, and that could be pretty unhappy making.
There are others here making far more sophisticated use of margin than I that can provide better info. I like reading and learning about it, but I find that I've already got plenty of leverage from buying DITM leap calls, and selling wide put spreads.
