Wiki Selling TSLA Options - Be the House

[⚡️ELECTROMAN⚡️]

I'm probably in the wrong thread for this question, But this is the only options trading thread I've been following (trying to follow, this stuff is really over my head, but I'm slowly learning). I bought my first call options on September 23rd. 500 strike expiring 10/30 for $22.35. I'm now down 37%. Should I hold, sell, or roll them? I mean what would you do? Obviously I'm not going to hold anyone accountable for anything they say. This is all on me, and I'm just trying to learn. I know I need to start watching that Free Options Trading Course too. Thanks for any help you can give me, even if it's to direct me to the appropriate thread.

 

[adiggs]

I'm probably in the wrong thread for this question, But this is the only options trading thread I've been following (trying to follow, this stuff is really over my head, but I'm slowly learning). I bought my first call options on September 23rd. 500 strike expiring 10/30 for $22.35. I'm now down 37%. Should I hold, sell, or roll them? I mean what would you do? Obviously I'm not going to hold anyone accountable for anything they say. This is all on me, and I'm just trying to learn. I know I need to start watching that Free Options Trading Course too. Thanks for any help you can give me, even if it's to direct me to the appropriate thread.

Definitely the education course - at least for me, once I got started, I found it enthralling, so getting through all 3 tracks took me less than a week, and it wasn't "work" to get through it.

To your question - first thing to realize is that I suck at doing well with buying calls as you've done - my ability to predict direction, magnitude, and timing of the share price is bad. Along with when to sell the calls - my very good buy and hold mentality translates badly to buying calls (my bias is holding them to expiration, and the best profit is usually realized by closing early).


THAT being said - I expect we'll see earnings by 10/30. A very common pattern (which may or may not repeat this time around) is a buy the rumor and sell the news pattern. That manifests as something of a run up into earnings and a drop post earnings. On the option side, that also manifest as an increase in IV going into earnings, and an immediate drop in IV after earnings.

Therefore, a common trade is to buy an option going into earnings with the intention of closing it just before earnings. You gain the benefit of the run up into earnings along with benefitting from the increase in IV.

A different trade to make use of the same market dynamic is to sell options going into earnings (probably calls) on earnings day so you get as high of a share price and IV as you can, and then buy-to-close the next day to capture the post earnings "sell the news" plus IV drop.

By waiting to be closer to the earnings announcement, you are losing option value to time decay (Theta); that time decay might overwhelm the rest of the value gain.


The last observation I have is that by buying a call option, you have created unlimited exposure to the upside, while capping your loss exposure to the downside (you can lose all of your premium, but no more). You can earn a LOT if the shares go up a lot.

When selling options though (which is mostly what this thread is about), the upside is what you sell the option for in the first place - you can't earn more than that. The loss potential though is unlimited.


I think the Options Trading / Advice thread is probably a better thread for the specifics of your current position

 

[adiggs]

I haven't done my homework, according to this great thread - but roughly put I'm OK, 50/50 to risk/ lose half of my pot for any sizeable gains, meaning 3X on a 2 year time table. Doing the wheel regularly/ conservatively isn't going to work to get the profits I am looking for. Being aggressive now because it seems to me that the days of Tesla being under the radar of most investors is ending soon.

From what I've seen in my short (6 month) trading history along these lines, the wheel / selling options isn't a 3x in a year type of trading strategy. I approach it as an income strategy - I figure if I can earn 12% / year on the cash and shares I am using for this, then that is a fantastic result. Of course I like it if I can do better, but "better" is going to be more like 24-48%/year (2-4%/month).

it's also important to realize that this larger strategy (selling both puts and calls) performs best in a sideways market. If the shares are going up strongly, then the put sales will perform "best" in the context of this strategy, but will perform must worse than simple share ownership or by buying calls (probably - the call purchases have other dynamics better pursued in the Option Trading Strategy / Advice thread).


Recognizing the limitations of any trading strategy; the risk and rewards; is critical to accomplishing the outcomes you're looking for. It doesn't mean you'll get to the outcomes you're looking for, but at least it'll get you closer.

For 3x in a 2 year time frame I agree with your observation - there are almost certainly better ways to get there.

 

[adiggs]

Didn't want to risk being assigned, though would have liked to find what the odds were I could be during the day

I wanted to comment on this - I've seen statistics that I think have been posted elsewhere in this thread, about the outcomes over the entire stock option trading market. Virtually all options either expire (reach end of day on their expiration day) or are closed early. Very very few get exercised early (and therefore assigned to sellers early).

The reason for this has to do with the motivation around exercise. If the shares are trading at $425 on a $430 strike call option, then the option owner exercise their option buys shares at $430 (the strike price) that they can buy from the market at $425 (clearly a bad idea) AND also lose the time value remaining in their option (or if you like - give up that time value to the option seller). As the seller of the option, it can't get any better than that, and clearly won't ever happen (there's a window on expiration day where that gets a little tricky - leave that out for now).

Same situation, but if the shares were trading at $435 with a $430 strike call, then early exercise will allow the option holder to buy shares from you at $430 that are trading at $435 in the market at that moment. If they simultaneously sell the shares they just bought from you, then the will net $5, which certainly sounds good. However that option will also have time value. If that time value is $2 (total option premium at that point of $7), then the early exercise will actually cost the option holder $2 (they can exercise and sell for $5, or they can directly sell the option for $7).

When I've followed options right up to expiration on the final day that are very close ATM, I've been shocked at how much time value remains in the option right up to expiration.


SO - as long as your option is close to ATM, there will be a lot of time value right up to actual expiration. The likelihood of assignment will increase as the time value dwindles towards 0 - this is mostly something that will happen as the option strike becomes deeper and deeper ITM. The time value is the motivation on the part of the option buyer to NOT exercise early. Doesn't mean that early assignment to you can't happen - only that all of the motivations are aligned against early assignment.

 

[euro2012]

Well, got bored of all this nonsense, so sold a c432 for tomorrow ($430 is the MM's target I think), and two p429 for next week - expecting some ER buyers to finally turn-up, but kept the strike below this week's likely close for "safety".

Not big bucks, $3500, but better than nothing while we're in the doldrums.

Wow, as someone who is just getting started in this, I’m impressed! That takes some pretty good testicular/ovarian fortitude. I think my fear of losing shares if my covered calls get assigned still prevents me from being that aggressive. My first covered calls were sold last week for 10/16 500, and watching the stock price go up again makes me worry, lol. Thanks for the continued lesson.

 

[bxr140]

I think my fear of losing shares if my covered calls get assigned still prevents me from being that aggressive.

Remember, you don’t have to let your contracts execute and, with VERY few exceptions, if you act on Roll Thursday you won’t ever get executed.

Also remember that being ITM on covered calls is actually a good thing, “income” aside.

 

[CLK350]

@bxr140 - thanks for reminders

A note for die hard Wheelers: tomorrow could be another simple and safe way to use your cash (I can't, I'm mostly all in!) - opportunistic use of capital, I would think, altho not orthodox in this thread tradition

From well regarded PapaFox's note *IF* the MM's can manipulate the SP on Friday's close near 420
https://teslamotorsclub.com/tmc/posts/5054433/
" ...Normally, Fridays are the most heavily manipulated days of all as market makers and hedge funds seek to maximize profits, but with futures up Thursday night and with the new knowledge that only nine trading days exist before the 3Q ER, it's possible that TSLA could rally instead. OTOH, if manipulations pull TSLA close to 420 for Friday's close, I'll likely be buying trading shares about 2pm for Monday's open and possibly to hold through the ER.. "

 

[Towly420]

Hi all!

I’m still in my first covered call, c540 for a $10 premium (~2 weeks ago), expiration is 10/23. This one is playing out well, profit is already at 70%.

I thought about taking profits early, but I don’t think it’s an good idea with “low” IV, if I’d like to sell the next one right now. I’ll just wait some time and will sell the next one right before earnings. Do you guys have a rule for taking profits at a covered call? I know option alpha recommends mostly 70%, but they don’t mention the covered call strategy.

In addition I started a wheel with $NIO, another stock I want to own. The wheel strategy is not too expensive with this one and so I can learn some more about this strategy an try some things out, like being a little bit more aggressive.

Have a nice expiration Friday y’all ;-)

 

[adiggs]

I’m still in my first covered call, c540 for a $10 premium (~2 weeks ago), expiration is 10/23. This one is playing out well, profit is already at 70%.

I thought about taking profits early, but I don’t think it’s an good idea with “low” IV, if I’d like to sell the next one right now. I’ll just wait some time and will sell the next one right before earnings. Do you guys have a rule for taking profits at a covered call? I know option alpha recommends mostly 70%, but they don’t mention the covered call strategy.

Your question about profits - when to take them. As you mention, Option Alpha talks about profits at that 2/3rds level. For myself, I use that 2/3rds level for most positions (more like 90% on really long positions). My thinking is that I can realize those gains, free up the backing for a new position, as well as remove the risk that shares suddenly move drastically against me (which has happened - in post split dollars a >$40 share price move on expiration day).

You mention closing at low IV - generally speaking, closing at low IV is a GOOD thing for you as an option seller.


The questions I ask myself when looking at closing a position:
1) Is there a different position I would rather be in? This is usually focused on a different position with better day to day profit potential. In your example, you've got a $3 option that started at $10 with 2 weeks remaining. You can (upper end) earn $3 more over the next 2 weeks. Is there is a different position you would replace it with right now with a better risk / reward profile?

If yes, then this is easy. Close and open the new position.

And sometimes there isn't! I've ridden out positions like yours to earn that last $3 because there wasn't a 'better' position I wanted to be in. Because heck - $3 is better than nothing . Just think of the current position as a new position - knowing what you know now, would you open that $3 position today for expiration in 2 weeks?


2) Do I want out of the current position because I see an event coming that could push this against me? You mentioned your view that IV is low right now. In an option selling strategy, any time you can sell at high IV and buy to close at low IV, that is good for you. You'll sell relatively high priced stuff, and then buy it back at relatively low priced.

If I want out for risk management, upcoming event, etc.. - then I vote for ruthless. In this case (getting out to avoid a freight train I foresee arriving soon) then I'm out immediately and cheer for my 2/3rds profit.


3) Close a current position at a good spot, to get ready for a new position 'soon' that you believe will be better. This sounds reasonably close to what you're thinking, in which case how much risk do you want to take on to earn some of that last $3, before closing to be ready for the new position?

BTW - in this situation, I've cheerfully closed at a 50% profit. Either for getting ready for a new position, OR because I've already ID'd a position I would rather be in.


Some other thoughts. You mention that this is your first covered call. An important characteristic I optimize for is my "sleep at night / stomach churn" quotient (stress, or risk). If the position is high stress for you, then close it. I believe that important to this strategy, executed over many trades over time, is that it needs to be something you can readily repeat over many trades over time. Individual trades won't always be low stress, but the more you can make them low stress, the better you'll like it. (Or at least, this is true for me).

Or another way to think about it - if you think you'll be doing this regularly, then optimize for choices that enable you to continue doing this over many trades.

( I think my own bias, given the circumstances you've described, is pretty clear. But I'm not you - hopefully these are some useful things to think about ).

 

[Tslynk67]

Your question about profits - when to take them. As you mention, Option Alpha talks about profits at that 2/3rds level. For myself, I use that 2/3rds level for most positions (more like 90% on really long positions). My thinking is that I can realize those gains, free up the backing for a new position, as well as remove the risk that shares suddenly move drastically against me (which has happened - in post split dollars a >$40 share price move on expiration day).

You mention closing at low IV - generally speaking, closing at low IV is a GOOD thing for you as an option seller.


The questions I ask myself when looking at closing a position:
1) Is there a different position I would rather be in? This is usually focused on a different position with better day to day profit potential. In your example, you've got a $3 option that started at $10 with 2 weeks remaining. You can (upper end) earn $3 more over the next 2 weeks. Is there is a different position you would replace it with right now with a better risk / reward profile?

If yes, then this is easy. Close and open the new position.

And sometimes there isn't! I've ridden out positions like yours to earn that last $3 because there wasn't a 'better' position I wanted to be in. Because heck - $3 is better than nothing . Just think of the current position as a new position - knowing what you know now, would you open that $3 position today for expiration in 2 weeks?


2) Do I want out of the current position because I see an event coming that could push this against me? You mentioned your view that IV is low right now. In an option selling strategy, any time you can sell at high IV and buy to close at low IV, that is good for you. You'll sell relatively high priced stuff, and then buy it back at relatively low priced.

If I want out for risk management, upcoming event, etc.. - then I vote for ruthless. In this case (getting out to avoid a freight train I foresee arriving soon) then I'm out immediately and cheer for my 2/3rds profit.


3) Close a current position at a good spot, to get ready for a new position 'soon' that you believe will be better. This sounds reasonably close to what you're thinking, in which case how much risk do you want to take on to earn some of that last $3, before closing to be ready for the new position?

BTW - in this situation, I've cheerfully closed at a 50% profit. Either for getting ready for a new position, OR because I've already ID'd a position I would rather be in.


Some other thoughts. You mention that this is your first covered call. An important characteristic I optimize for is my "sleep at night / stomach churn" quotient (stress, or risk). If the position is high stress for you, then close it. I believe that important to this strategy, executed over many trades over time, is that it needs to be something you can readily repeat over many trades over time. Individual trades won't always be low stress, but the more you can make them low stress, the better you'll like it. (Or at least, this is true for me).

Or another way to think about it - if you think you'll be doing this regularly, then optimize for choices that enable you to continue doing this over many trades.

( I think my own bias, given the circumstances you've described, is pretty clear. But I'm not you - hopefully these are some useful things to think about ).

That's a super post, totally concur with your thoughts.

As for "sleeping at night", I don't get an issue too much when I've sold calls or puts - worst case scenario is that you lose out on some upside or you get the shares at a good price, but then need to wait for that price to come back up again (which it always does, usually sooner rather than later).

What was disturbing my sleep (really!), was holding 20x Oct 16 c360's since July that I would have sold for around $300k on August 31st, then dropped to almost nothing when we dropped to $330, then back up to $180k value at $450 again - could have sold last Thursday evening, but was out drinking and decided to hold, what with the P&D the next day. Then Trump C19 hit, but even then I could've got $160k for them at one point last Friday, but thought we'd recover - we didn't. Then on Monday, had a $150k chance, but was in meetings so could act at that moment. Finally bailed-out for $140k (3x premium at least) later on that day.

This situation is stressful. You need to get a feel for when you've hit the top of a run-up for bought calls, and be decisive and sell them. Set a sell order at least for a gain you're happy with, so that if you're not watching 24/7, you've got some backup.

They really kept me awake at night, especially after the P&D was lost in the Trump BS. There was a real chance of the SP dropping below $400 again, and those calls literally going to zero. $140k is a big amount for me, even more so as I needed to realise this fairly big, in order to pay my taxes next year - as I'd put most of the rest of this taxable account into 2022 LEAPS, which I don't want to touch.

Sorry, was a bit of a ramble...

 

[rexmakesbeats]

anybody mess with LEAPs?? I got in on some 2023 calls the other day way out of the money but I think they will print for me

 

[st_lopes]

So you sold the covered call for $3500 and then bought it back for $1200? What would have happened if you didn't buy it back?

I believe it was bought back for $120 (not $1200), which happened to be an excellent decision, since we ended at $434 which would have instead translated to a $300 contract (meaning would have lost $300 of upside on sold shares on exercising of the contract by the buyer).

 

[juanmedina]

This week was another weak one. I sold a bunch of c480s for Friday, some c490s and c510s and a p350 for next week but close them all but two c490s for around $750 .

It seems that calls for the 23rd are decent. I will probably sell some next week and the week of the 23rd, I hope the IV goes up.

 

[wnorris]

@adiggs Great thread!

I have been working this for the last few weeks w/ nice success and wondering if folks here are using a trade journal to track and analyze their trades. I signed up for TraderSync and am liking the look/layout, but not completely sold on it yet. Anyone got a fav?

My strategy has been to target out 10-15 days with a Delta of .10 or so selling both calls and puts. I'll deviate slightly depending on macros and what is happening in TSLAland.

 

[adiggs]

@adiggs Great thread!

I have been working this for the last few weeks w/ nice success and wondering if folks here are using a trade journal to track and analyze their trades. I signed up for TraderSync and am liking the look/layout, but not completely sold on it yet. Anyone got a fav?

My strategy has been to target out 10-15 days with a Delta of .10 or so selling both calls and puts. I'll deviate slightly depending on macros and what is happening in TSLAland.

I've made my own tracking spreadsheet where I enter each trade.

One thing I'll mention - something like my first 40 trades over a couple of months or is, I was 39 out of 40 profitable trades. The nature of this trading strategy can be a very high winning percentage. And like any trading strategy it has risks as well (all trades have risks as well as rewards).

Good luck with what you're doing, and good luck with your continuing education. As I've said many times in the thread, especially early on, it's nice to be paid to learn

 

[pz1975]

I don’t track individual trades with my strategy (I call it the funnel and it’s a variant of the wheel), but I track my weekly profit/loss amounts. I have using this strategy for almost 5 months now and have made a profit on 16/20 weeks. Only 1 week I had had what I would consider a significant loss but had 3 other weeks with greater profit than my worse loss week.

My main goal is to avoid a major loss during a big move up or down so I tend to close losing positions early during a big SP move to avoid that. In the end that reduced my ultimate profit if the big move reverses or stagnates, but it works very well for me. When the SP is flat (like the last few weeks), I narrow in the funnel as export nears and really maximize the profits.

 

[adiggs]

I don’t track individual trades with my strategy (I call it the funnel and it’s a variant of the wheel), but I track my weekly profit/loss amounts. I have using this strategy for almost 5 months now and have made a profit on 16/20 weeks. Only 1 week I had had what I would consider a significant loss but had 3 other weeks with greater profit than my worse loss week.

My main goal is to avoid a major loss during a big move up or down so I tend to close losing positions early during a big SP move to avoid that. In the end that reduced my ultimate profit if the big move reverses or stagnates, but it works very well for me. When the SP is flat (like the last few weeks), I narrow in the funnel as export nears and really maximize the profits.

I also get my weekly and monthly profits from my tracking. I tend to track at the monthly level but it is the same idea.

I believe you've got some previous posts in the thread (though at 46 pages, they might be hard to find) for those interested in more details about pz1975's funnel. I know I like the funnel idea - reminds me of that 1980s arcade game Tempest (even though it's different, at least the visuals seem similar in my brain ).

 

[juanmedina]

are you guys selling any calls right now? I sold two c505 and a c510 10/23 for an average of $8.3 yesterday. I want to sell more but I am wondering if it is still too early.

 

[Tslynk67]

are you guys selling any calls right now? I sold two c505 and a c510 10/23 for an average of $8.3 yesterday. I want to sell more but I am wondering if it is still too early.

I tried to sell a c505 yesterday, but set my limit slightly too high, after which the moment was lost, so I wait and see... This malaise can't last forever.

 

[adiggs]

are you guys selling any calls right now? I sold two c505 and a c510 10/23 for an average of $8.3 yesterday. I want to sell more but I am wondering if it is still too early.

I'm looking for an entry, but expect something next week just prior to earnings. I'll be going out at least 1 month (the Nov expiration), and might be going out more like 3 to 6 months (say Feb to April expiration).

I'm staying away from weekly calls due to having been burned pretty badly, twice, on sharp run ups in exchange for small premiums. By going out months, I can get strike prices where I can think of the position as pre-selling the shares while hoping I keep the premium and the shares (or of course, can roll later to keep the position going).


So as one example right now, I sold some Sep '22 840 strike calls for a $125 premium. That works out to about $5 / month on the premium (not as much as I'd like, but not bad either), while also getting a strike I think -might- be reached, and if it is, then the pre-sale at that strike leaves me pretty happy with the overall result (near doubling of the overall portfolio, and being paid cash now I can use for living expenses).

I don't think I'll choose to go out 2 years again, but I do expect call sales to be 3-15 months pretty normally (while put sales are more like 1-4 months).


(Reminder - I'm using longer dated options now specifically to reduce the daily / weekly effort I put into this, while still hitting good cash / income generation. I'm NOT optimizing for maximum growth / return).