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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Thanks for explaining! This is an interesting approach. I may try this with a small portion of the current BPS I have just to see how the mechanics of this works. Hopefully, we get a spike in price tomorrow!
(sorry, I had posted this response to the wrong post first, so deleted that and responded again)
Um, thanks for the data point, but not at all encouraging! According to the advisor helping, it should be 4-8 business days once the I’s are dotted and T’s crossed. That point happened last friday, so I am hoping for this week? Maybe?
More general in this example you moved from 100 spread to 65 spread. Thus you lowered max-loss from 10k to 6.5k per contract. This should roughly get you back 35% of the margin you spent to cover that position.
The margin you can use for anything. Sell 35% more contracts, sell calls to take advantage of the SP going down again and after it went down widen the spread again. This yields money from the call + gain on the long put. Or buy shares with the margin. Or divest into other things (GME, NKLA, F, .. you name it ..
)If the SP bounces between 2 points you can do the "shrink spread"->"sell call"->"SP drop"->"buy call"->"widen spread"->"SP rise" multiple times a day (until it doesn't anymore
)
Well - working a quickie example from the current option chain.
$1M using $100 wide spread is $10k/contract or 100 contracts for this Friday expiration would be something like a 680/780 (12.70 - 2,40 = 10.30 net credit. Of course you'll probably close early, but if we net closing early on several positions, with letting one position go to expiration, then this will get you into the right ballpark.
For next Friday that might be the 650/750 for 15.50 - 5.40 for a 10.10 net credit.
Basically if you can get a 10% of spread size net credit each week and then keep most of it week after week, then you're there.
Double the cash at work and keep the spread size, and you only need 5% or $5 net credit per contract.
The stomach acid quotient on the first example would be too high for me. But that second example doesn't sound all that bad. Well - as long as opening 200 contracts with a $100 wide spread doesn't freak you out too badly
But with the "short strike being $100 below SP" doesn't that mean that BPS would be more like 580/680? But you need way more of them and way more margin/cash to support them to get to $100k/week.
Like 20 pages ago, on Friday, he said he sold 165x +p600/-p685 vertical spreads for $6 each ($99k premium using $1.4M cash backing I believe). The put prices that day were
Thanks for the example. In the past, I've just been selling naked puts and like most here, have started incorporating BPS (using a 100 wide spread) and getting comfortable with the mechanics. Just curious how everyone positions their accounts with BPS in a portfolio margin account? The natural inclination is to load up on BPS's since the margin requirements are so much less. It felt easier for me to develop a comfort level selling naked puts but am still trying to gauge for BPS.Well - working a quickie example from the current option chain.
$1M using $100 wide spread is $10k/contract or 100 contracts for this Friday expiration would be something like a 680/780 (12.70 - 2,40 = 10.30 net credit. Of course you'll probably close early, but if we net closing early on several positions, with letting one position go to expiration, then this will get you into the right ballpark.
For next Friday that might be the 650/750 for 15.50 - 5.40 for a 10.10 net credit.
Basically if you can get a 10% of spread size net credit each week and then keep most of it week after week, then you're there.
Double the cash at work and keep the spread size, and you only need 5% or $5 net credit per contract.
The stomach acid quotient on the first example would be too high for me. But that second example doesn't sound all that bad. Well - as long as opening 200 contracts with a $100 wide spread doesn't freak you out too badly
Yeah - if you're doing 580/680s then you'll need a LOT more. I guess a note on my own terminology - from the brief time I was doing ICs a couple of months back, I got in the habit of entering the transactions in increase order of the strike prices. THus long put, short put, short call, long call. I've retained that point of view when talking about short vertical spread as we're doing. Thus the BPS or short vertical put spread is +580p/-680p, which I shorten to 580/680. A short vertical call spread might be 800/900 for a -800c / +900c.
Anyway - for that 580/680 for next week expiration that'd be 7.70 - 2.20 or 5.50 per contract. So you'd need 200 of those $100 wide spreads or $2M worth of margin.
H'mm - apparently it really is easy to make more money, when you already have money. That sounds like a pretty easy dividend to me. And one could run similarly distant (or more) call spreads for "free" (margin) for a bit of bonus income. Cuz, you know, some extra beer and sushi money is helpful if you're only getting $100k/week.
Then comes the tricky bit - would a person be satisfied with only earning $100k/week being that far OTM, know that they could sneak just a little bit closer for a big boost to income? I'd like to think that I would indeed be satisfied - that sort of distant strike would make it easy to ignore a position and daily share gyrations, relying on a share price alert plus a stop by on Friday to close the current week position and open the next week position. Who cares if the entry is particularly good or particularly bad in this case? So you earn $50k one week?!?
Thanks for making me work through the math. Maybe I own too many shares
I use etrade and you can definitely roll/close both legs of the BPS at the same time. That's the only way to manage your margin efficiently. You do not need power etrade for that. In etrade, you can create a ticket with up to 4 different "actions." But easiest is to go into the trading screen, click on "position" on the right and select the ones that you want to close/roll.
I'm a convert from short puts as well.
Part of what helped me make the transition was using a really wide spread. I started at $200 and then moved up to $100 wide spreads with experience. My thinking is that the wider the spread, then the more like a short put that the overall position behaves as. And I've got more than a year worth of experience with short puts, so making the spreads as much like what I knew was a good idea.
So NOT-ADVICE - widen the spread out until you're just as comfortable with the BPS as you are with a short put, realizing that there are some mechanical differences. The insurance put at $200 OTM is nearly free for instance - you're getting really really close to a short put at that point, but with ~1/3rd of the margin as a cash secured put (and maybe very VERY close to the margin reservation for a margin backed put). Of course there aren't margin backed puts in an IRA, and I'm doing a lot of these in my IRAs.
I don't have portfolio margin so I'm no help there.
Another reason I start with the wide spreads and mostly stay there is it helps me resist my inclination to load up on the leverage. I can do 10 of the $100 wide spreads for $100k in backing, or I can do 100 of the $10 wide spreads for $100k in backing. The problem with that much leverage is that (shockingly I know) I won't always be right, and being wrong on the 100x$10 wide spreads can achieve max loss by only going $10 ITM.
Even when the position wins, it only needs to get close OTM for the sleepless nights to start.
The key is to maintain a healthy portfolio margin buffer and not eat into the margin too much. For me, I'm leaving 60-65% of my excess maintenance margin liquidity as a buffer to account for moves in the stock. For others this may be 80% depending on comfort level etc. Using up to 35-40% of my excess margin seems to work well as long as I pick my strikes well. I do get instances on the Friday expiry where a rapid move can see that excess margin eaten into quickly, but so far its held. However a big quick move into the spread range could see the margin get eaten. This used to happen to me when I kept less buffer and I have had other positions liquidated by IBKR at times to maintain margin.
The other thing I do is to sell BCS or more often IC's, which are just paired BPS/BCS. The stock can only move in one direction at a time so if the BPS is under pressure the BCS is very profitable. This helps maintain a more healthy margin position and adds a lot to collected premiums. As with BPS, you need to choose your strikes carefully with the BCS or IC. The number one thing that has kept my portfolio margin healthy and account balance expanding is to be patient and choose strikes carefully.
InTheShadows
Active Member
Yes you can. Select one of the legs and then choose roll two legs. Then choose the other leg and you can then close them or roll them.
NOT-ADVICE.
More like random musings that are likely to keep me up all night
The question about position size or backing to achieve $100k/week has gotten me thinking about an entirely different trading style than what I've been doing the last month or two. It would use the same trading strategies I've already come to know and love, but if one has access to and can make use of large amounts of cash / margin to back their trades, then going much further OTM can create positions that are a lot more autopilot.
And if the larger strategy becomes something closer to riding positions out to expiration, rather than trading in and out at desirable opportunities along the way, then actual daily and weekly effort can be significantly diminished. That latter part isn't important to everybody, but I know it is to me. I enjoy the process and learning that comes along with it a lot, but one of the vectors I think about is whether I'm doing something that I believe will be sustainable - something I'll be doing 15 years from now and have been doing weekly over those 15 years.
As backing increases, position sizes (cash / margin backing) can be used for the purpose of lowering position risk rather than increasing profit. At the example we've just been using, $2M can back 200x $100 wide spreads, and next week put spreads can yield a $5 credit using the 580/680 (680 is awfully far OTM). Management of a position is much wider - effectively down to 630ish, with more management options from there, such as the 2x contract for 1/2 spread size that probably can get you rolled down to 550-580. That'll take a REALLY steep and fast fall to make that position unmanageable. Even the Feb-April fall in the share price would have been readily handled, maybe with 3-5 weeks of no income.
But if you're collecting $100k/week the rest of the time, does 45 weeks otu of the year instead of 50 really make a difference? Really?
Which has me thinking - maybe I'm at a point in my life where I've got too many TSLA shares. I'm already overly concentrated based on standard financial advice - I own cash and TSLA shares/derivatives (really seriously NOT-ADVICE). But if I could be pretty reliably be getting $70-$120k/week with an hour or two of actual trading effort each week, along with the routine and ongoing education about Tesla that I would be doing anyway, then would I care if I'd be missing out on more than that? I really, really hope the answer to that question is "no".
The tougher question to be thinking about - would I really care if I missed a $1000 move in the share price? Like - really? It's not like I'd get rid of all the shares, but clearly cash and put spreads would be earning a lot more slowly during that $1000 share price move than owning shares or LEAPs, but again - does it matter if I'm earning that income level? Again - I really hope the answer to that question is "no".
(In both cases - my answer to that question for me; we all have different needs and wants in life, so the answer is personal. It ties into an important idea, of having some idea of what "enough" is).
This idea is somewhat resistant to changing premium and IV levels. If the premium balance shifts to be in favor of calls, then call spreads can be used instead of put spreads, and the resource (cash/margin) is unchanged in type and quantity. Or these can be combined into distant ICs where we add on some call spreads to go with the put spreads.
Heh - maybe I have "discovered" what @Chenkers has been talking about and doing all along
Critical and previously unstated assumption is that these weekly positions are effectively 100% winners. Considering the distance OTM I don't have a hard time believing in that idea. But I also have my own personal experience where 99 of my first 100 trades (according to my trade log), when I was still buying a clue, were winners. (I got paid a lot, buying that clue!). The winning rate has fallen off since then, but managing to avoid max or even big winners isn't that hard to do - especially when you start so far OTM.
Also unstated before now - $100k/week is sort of a ridiculous income or standard to be using (at least for virtually ever person on the planet). I only picked it up from the previous question.
More like random musings that are likely to keep me up all night
The question about position size or backing to achieve $100k/week has gotten me thinking about an entirely different trading style than what I've been doing the last month or two. It would use the same trading strategies I've already come to know and love, but if one has access to and can make use of large amounts of cash / margin to back their trades, then going much further OTM can create positions that are a lot more autopilot.
And if the larger strategy becomes something closer to riding positions out to expiration, rather than trading in and out at desirable opportunities along the way, then actual daily and weekly effort can be significantly diminished. That latter part isn't important to everybody, but I know it is to me. I enjoy the process and learning that comes along with it a lot, but one of the vectors I think about is whether I'm doing something that I believe will be sustainable - something I'll be doing 15 years from now and have been doing weekly over those 15 years.
As backing increases, position sizes (cash / margin backing) can be used for the purpose of lowering position risk rather than increasing profit. At the example we've just been using, $2M can back 200x $100 wide spreads, and next week put spreads can yield a $5 credit using the 580/680 (680 is awfully far OTM). Management of a position is much wider - effectively down to 630ish, with more management options from there, such as the 2x contract for 1/2 spread size that probably can get you rolled down to 550-580. That'll take a REALLY steep and fast fall to make that position unmanageable. Even the Feb-April fall in the share price would have been readily handled, maybe with 3-5 weeks of no income.
But if you're collecting $100k/week the rest of the time, does 45 weeks otu of the year instead of 50 really make a difference? Really?
Which has me thinking - maybe I'm at a point in my life where I've got too many TSLA shares. I'm already overly concentrated based on standard financial advice - I own cash and TSLA shares/derivatives (really seriously NOT-ADVICE). But if I could be pretty reliably be getting $70-$120k/week with an hour or two of actual trading effort each week, along with the routine and ongoing education about Tesla that I would be doing anyway, then would I care if I'd be missing out on more than that? I really, really hope the answer to that question is "no".
The tougher question to be thinking about - would I really care if I missed a $1000 move in the share price? Like - really? It's not like I'd get rid of all the shares, but clearly cash and put spreads would be earning a lot more slowly during that $1000 share price move than owning shares or LEAPs, but again - does it matter if I'm earning that income level? Again - I really hope the answer to that question is "no".
(In both cases - my answer to that question for me; we all have different needs and wants in life, so the answer is personal. It ties into an important idea, of having some idea of what "enough" is).
This idea is somewhat resistant to changing premium and IV levels. If the premium balance shifts to be in favor of calls, then call spreads can be used instead of put spreads, and the resource (cash/margin) is unchanged in type and quantity. Or these can be combined into distant ICs where we add on some call spreads to go with the put spreads.
Heh - maybe I have "discovered" what @Chenkers has been talking about and doing all along
Critical and previously unstated assumption is that these weekly positions are effectively 100% winners. Considering the distance OTM I don't have a hard time believing in that idea. But I also have my own personal experience where 99 of my first 100 trades (according to my trade log), when I was still buying a clue, were winners. (I got paid a lot, buying that clue!). The winning rate has fallen off since then, but managing to avoid max or even big winners isn't that hard to do - especially when you start so far OTM.
Also unstated before now - $100k/week is sort of a ridiculous income or standard to be using (at least for virtually ever person on the planet). I only picked it up from the previous question.
Since becoming a regular put seller, it occurred to me that all the FUD we see might not actually be some grand conspiracy against Tesla. I see FUD these days and, instead of annoyance, I think, “Hey, maybe this will get me more for my BPS next week.”
Maybe all the FUD is just a form of advertising to motivate people to buy more put contracts. If they’re this lucrative for us, I can only imagine the profits they generate for the banks. Why would they not use their analyst reports, journalist shill contacts, sock puppets, etc. to try to get people to buy more?
Maybe all the FUD is just a form of advertising to motivate people to buy more put contracts. If they’re this lucrative for us, I can only imagine the profits they generate for the banks. Why would they not use their analyst reports, journalist shill contacts, sock puppets, etc. to try to get people to buy more?
Thanks, this is helpful. My comfort level probably aligns best with wide spreads. I remember some sleepless nights during the Feb/Mar tankathon. It all worked out in the end but that definitely put me on edge.
Did you have to get anything enabled/approved to be able to do it in an IRA? I'll check out my etrade during market open tomorrow, but with a 700/600 spread, would you just need $10k cash in an IRA to satisfy the max loss? I didn't realize it would be a possibility in an IRA.
Are you mostly doing BPS while maintaining that 60-65%? That seems very sufficient, but I imagine with a rapid down move, it'll get eaten very quickly.
BCS does seem to be the missing piece in my toolbox. Being a bull, just feels harder to pull the trigger on BCS. I wouldn't want to go close close on SP, but going far away just doesn't seem worth it either.
I think many here are within reach of the $100k/week club. Maybe not trading $100 OTM.
I'm looking forward to hearing about the $250k/week and $500k/week club.
It's what you do with the money that matters. If stress and time commitments are in check, then maybe it can be looked at as a responsibility to earn that level of money that can affect positive change in one's sphere.
Two things.
- Maybe we should state Lycanthrope’s $100k per week as $7000 per $100k backing cash or margin, to make it more relatable to those without multi-million dollar balances. Still impressive.
- Don’t forget that assumes you let the options expire. More common, I think, would be to roll to the next week at perhaps 80% — more like $5650 per $100k backing. I think Lycanthrope often does close for peanuts before or after opening the next week’s allotment, but that’s not the super-low-effort scenario you described.
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At Fidelity, I need Level 2 option trading authorization, along with margin and Spread Trading. The full boat
The 'margin' in an IRA is just enough of a loan to enable you to trade using unsettled trade proceeds. Without it you get like 2 days between a close and when you can start a new position. Like - uhm - yuck. Spread trading is the key for these vertical put or call spreads. It won't necessarily use exactly this terminology at your broker but that's the idea.
In an IRA the necessary margin / cash reservation is moved out of cash and into a Pending bucket / transaction. That's how IRA levels of safety are maintained - they'll reserve $10k in cash by taking it out of your cash balance and (at Fidelity anyway) put it into that Pending bucket. It'll stay there until the spread is closed.
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