Wiki Selling TSLA Options - Be the House

[CLK350]

Seeing the general direction of $TSLA, up with low volume, closed the 2x p429 for this Friday - 70% profit, and sold 2x p447.50 for next

$5400 cash, thanks very much!

OK - let me make sure I understand - so does that mean you believe that the MM's will most likely (95% say) kneecap (or be able to kneecap) the SP under 450 all the way till after 3Q Earnings ?

Bought an Oct 30 440 C for 37.00 last week, also with a Jan 15 540 C, intending to sell the 440 C a day or two before 3Q E, like in selling the news ... is that too basic and likely to be foiled somehow? I figure it gets me more leverage than just HODL, while not running too many risks till next week.

As I know this is the wheel thread, I also sold an Oct 30 480 C for 18.40 - to keep me motivated too.

[Still learning, won't hold anyone responsible for my education - made enough on Sep 25 covered call to fund more tuition for a few more trades ]

 

[bxr140]

are you guys selling any calls right now?

No. Bad time to be selling TSLA contracts, though covered calls are of course not so dangerous as they are just limiting. Volatility is likely hitting a pre-earnings bottom and, more importantly, the consolidating underlying price heading toward earnings is a recipe for a big move. Big moves, of course, are a Bad Thing for a sold contract if the price doesn't move your way.

Disclosure: I am still in a number of TSLA calendars that I opened when IV was just coming off the recent high. And I have a number of impressively DITM TSLA CC's that I've been rolling for months now.

 

[juanmedina]

No. Bad time to be selling TSLA contracts, though covered calls are of course not so dangerous as they are just limiting. Volatility is likely hitting a pre-earnings bottom and, more importantly, the consolidating underlying price heading toward earnings is a recipe for a big move. Big moves, of course, are a Bad Thing for a sold contract if the price doesn't move your way.

Disclosure: I am still in a number of TSLA calendars that I opened when IV was just coming off the recent high. And I have a number of impressively DITM TSLA CC's that I've been rolling for months now.

I see what you are saying the IV is really low right now. When do you think the IV will pick up with earning on the 21st?

On September 18th the stock was around $442ish with an IV of 125% and for example c575s for the 25th were $9.9s .

Ron Barron will be on CNBS tomorrow so we might have a run up...

 

[st_lopes]

OK - let me make sure I understand - so does that mean you believe that the MM's will most likely (95% say) kneecap (or be able to kneecap) the SP under 450 all the way till after 3Q Earnings ?

Not quite, selling a put generally means you believe the stock price will close ABOVE strike price (that’s how you get 100% of premium). That said, there naturally are some plays where you simply sell puts or calls purely for time decay, where you believe stock just trades sideways.

As I know this is the wheel thread, I also sold an Oct 30 480 C for 18.40 - to keep me motivated too.

My risk appetite is way lower than yours. I wouldn’t be selling covered calls below 500 with that short a term. You’re basically making a bet that the stock won’t be above 498.40 on October 30. The odds of a break out going in to or after earnings are just a little too stacked. Those calls would keep me up at night.

And since this is the wheel thread...

I clipped 430p 10/16 for 65% of premium (sold at 13, bought back at 4.50) of yesterday and re-sold 440p 10/16 at 8.4, which are now at 5.4.

I will let those ride this week, at which point I’ll clip and resell in to next week where premiums are very high given earnings. TBD at what strikes, but likely 430-450 range.

 

[bxr140]

I see what you are saying the IV is really low right now. When do you think the IV will pick up with earning on the 21st?

Soon? We're still a number of points above the post-corona IV30 low of ~60, but Its really hard to imagine maintaining this level of IV on the run up to earnings. Good news is that today killed it with put call ratio.

 

[Criscmt]

Soon? We're still a number of points above the post-corona IV30 low of ~60, but Its really hard to imagine maintaining this level of IV on the run up to earnings. Good news is that today killed it with put call ratio.

> today killed it with put call ratio
Were you saying put/call ratio influenced a change to IV today? Did you mean IV started picking up today, or the ratio killed the prospect of IV going up?
Are you referring specifically to Oct-23 put/call ratio?

Do you have any comments on IV of OTM LEAPs? IV of those has been down.
Those premiums are barely moving, even those which are 10% OTM, like Sep-2021 C490.

 

[Criscmt]

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).

> I'm using longer dated options now
I have been wondering why not many seemingly are considering long date options.
Here are two advantages I see

1. As you stated way less stress. And you still get a good premium. Similar to your trade, Jan-2022 C840 is $62. That's (62/445)*(12/15) = ~11%. Now IV is relatively low. On Aug-31, the same call was $100. Even at $500 SP, the return was 14.5%.
2. Taxes: I would think you will have to pay the taxes only for calendar year 2022, in other words you will have the full capital until 2023, that is until you file 2022 taxes in 2023. Would this also be a LTCG, instead of STCG?

 

[Criscmt]

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.

> This malaise
?

 

[Criscmt]

Strategy for ER day

I have several Sep-2021 calls, some ITM and many at $480 strike. I also have some ITM Jan-2022 calls, and some shares.
I don't have any short calls written against most of these calls.
I am planning to roll the Sep-2021 calls forward, and as part of this collect the needed additional cash by writing short call, thinking Jan-2021 ~$600.
My thinking is that even if the SP grows, I am assuming the call premiums of my short calls won't go up by much.

My only concern is S&P inclusion.
I am not worried about getting called, as I am planning to sell Jan-2021 $600 strike, and can buy back at loss.

My concern is about not being able to execute my "option-exit" plan.

• If the SP spikes up significantly and fast, I want to move out of options, go into shares + buy some more shares on margin + sell covered calls. Again, sell CCs like Jan-2022 C900.
• The amount of money I plan to borrow on margin is based on the scenario that SP might one day reach $300 and still not get margin call. In other words, if I have N shares after cashing out my options and buying shares on that day, I will borrow (N * 300), and buy however many shares I will get for that money. Besides, I also plan to use the premium from CCs to either buy more shares or write puts at a price I am happy to get assigned. I might use some/little money from CCs to buy "some" protective puts.
• I am looking at this plan to get out of options, and limit the time I have to spend on tending to TSLA.
• If I sell Jan-2021 $600 calls, and roll my Sep-2021 to Jan/Jun-2022 ITM calls, this plan to move from options to shares will take a hit, at least the number of shares I can exit with will be lower.

Any thoughts overall, and particularly any thoughts on the "option-exit" plan?

 

[bxr140]

> today killed it with put call ratio
Were you saying put/call ratio influenced a change to IV today?

My fault, bit of a nonsequetor there. Nothing really to do with IV. One of the tools in my technical analysis belt is the put-call (or call-put, if you prefer) ratio--the day's ratio and/or the open interest ratio can provide insight into possible short or long term price directions. Today for instance the C/P ratio was 2.3:1, which says that WAY more people opened call positions today, and that suggests that those folks are expecting upward price movement.

Do you have any comments on IV of OTM LEAPs? IV of those has been down.
Those premiums are barely moving, even those which are 10% OTM, like Sep-2021 C490.

I don't watch long expirations so this is mostly just general speculation, but: Vega has a huge effect on LEAPS (it is often 10 times or more the Vega on near term expirations), at times equalling or surpassing the effect ∆ has on the contract value, in both upside and downside directions).

 

[corduroy]

Please forgive if this is a basic question, but consider this strategy:

Selling 2 covered puts same expiration

Strike 1 is ITM
Strike 2 is OTM

The 3 outcomes: (ignoring roll outs or buying to close either or both)

Outcome 1: If the SP rises above strike 1, I keep both premiums.
Outcome 2: If SP is in range between 1 and 2, I am assigned 100 shares at strike 1 price - both premiums (lower cost basis than if I would have sold only the ITM put)
Outcome 3: If SP is below strike 2, I am assigned 200 shares at strike 1+2 - both premiums (slightly higher cost basis than if I sold only the OTM put, but very close to strike 2)

My assumption is that the SP will not drop below strike 2, and will end up near strike 1 resulting in outcome 1 or 2, which are both very favorable. Outcome 3 would still be entering the stock position at a lower cost basis than buying the stock now, which is also an acceptable to me (even if a slight unrealized loss).

Is there a name for this strategy? Does it make any sense? I already have the OTM put sold, thinking of adding the ITM.

 

[adiggs]

> I'm using longer dated options now
I have been wondering why not many seemingly are considering long date options.
Here are two advantages I see

1. As you stated way less stress. And you still get a good premium. Similar to your trade, Jan-2022 C840 is $62. That's (62/445)*(12/15) = ~11%. Now IV is relatively low. On Aug-31, the same call was $100. Even at $500 SP, the return was 14.5%.
2. Taxes: I would think you will have to pay the taxes only for calendar year 2022, in other words you will have the full capital until 2023, that is until you file 2022 taxes in 2023. Would this also be a LTCG, instead of STCG?

Not a tax attorney / accountant - I believe that option premiums are always short term capital gains (US taxes) when the sold options are closed for a net profit. That profit doesn't get taxed though until the year in which the position is resolved, so one advantage of the Sep '22 840c I've sold is that I most likely won't be taxed on that profit until '22. I would be taxed in '21 if I closed it in '21 of course. (Actually , there are no tax consequences for that particular trade as it's in a Roth IRA).

 

[Criscmt]

Not a tax attorney / accountant - I believe that option premiums are always short term capital gains (US taxes) when the sold options are closed for a net profit. That profit doesn't get taxed though until the year in which the position is resolved, so one advantage of the Sep '22 840c I've sold is that I most likely won't be taxed on that profit until '22. I would be taxed in '21 if I closed it in '21 of course. (Actually , there are no tax consequences for that particular trade as it's in a Roth IRA).

> STCG
You are right, I wasn't very sure when I posted my message/question yesterday.

> Tax year
That's correct, you have the full capital with you until the transaction is closed.

 

[adiggs]

That's correct, you have the full capital with you until the transaction is closed.

And I love this dynamic!

 

[Tslynk67]

How does it work in the US with rolling options - is that considered realised gains at the roll moment?

Maybe it depends on the transaction type? If your broker has a true sell-to-buy then it's arguable, but in my case it's not available, so it's a sell order followed by a separate buy order.

 

[Mokuzai]

How does it work in the US with rolling options - is that considered realised gains at the roll moment?

Maybe it depends on the transaction type? If your broker has a true sell-to-buy then it's arguable, but in my case it's not available, so it's a sell order followed by a separate buy order.

From what I can tell it looks like a loss immediately and then offset by the gain later if it expires worthless or gets exercised. I have a call that sorta got away from me in my IRA account that I've pushed forward all the way into 2022. The IRA doesn't allow selling options beyond covered calls and cash secured puts and even though I didn't have the cash to buy back the call it let the transaction go through as a roll. That account is showing a huge loss right now in the current year even though I'm up quite a bit as long as that option either exercises or expires worthless in 2022.

But all sold options are short term capital gains regardless of how long you hold them since the premium was delivered immediately. It looks like rolling can be a way to defer gains...though I'm not sure if you can claim that as a loss now then a gain later. I may have to hire somebody to do my taxes this year as these accounts are getting into "find every deduction possible" territory.

 

[adiggs]

From what I can tell it looks like a loss immediately and then offset by the gain later if it expires worthless or gets exercised. I have a call that sorta got away from me in my IRA account that I've pushed forward all the way into 2022. The IRA doesn't allow selling options beyond covered calls and cash secured puts and even though I didn't have the cash to buy back the call it let the transaction go through as a roll. That account is showing a huge loss right now in the current year even though I'm up quite a bit as long as that option either exercises or expires worthless in 2022.

But all sold options are short term capital gains regardless of how long you hold them since the premium was delivered immediately. It looks like rolling can be a way to defer gains...though I'm not sure if you can claim that as a loss now then a gain later. I may have to hire somebody to do my taxes this year as these accounts are getting into "find every deduction possible" territory.

@Lycanthrope - Mokuzai has articulated the dynamics I've seen. Even the roll in an account that didn't have the cash to do the close order separately from the open order.

So - even though a roll is entered as a single order with 2 legs, for tax purposes it goes into the books as 2 transactions. The close transaction realizes the gain or loss on that open position at the time of the roll, while simultaneously establishing a new open position with cash in hand and a liability equal to the cash (which then evolves normally from there).


On a roll, in a regular brokerage account, whatever the results from the first leg (a gain or a loss), that is what you'll be reporting on your taxes that year. I figure that this dynamic is going to make for some lumpy taxes - much lumpier than I'm accustomed to after all these years working for a paycheck. That lumpiness (big realized gains / taxes one year, little or no gains or even overall losses the next, etc.) is something I'll be cranking into my thinking after this year.

With a larger overall point of view - taxes are a worthwhile consideration, but are secondary. If I have a 6 figure tax bill some year, it comes from a good cause

 

[juanmedina]

are you guys still waiting for the IV to go up? I don't think is going to happen lol. I sold some more calls yesterday and early today. I still have a few more left to sell and I might wait until next week.

 

[adiggs]

are you guys still waiting for the IV to go up? I don't think is going to happen lol. I sold some more calls yesterday and early today. I still have a few more left to sell and I might wait until next week.

I've got a call position I've been planning to enter Tuesday or Wednesday of next week, before earnings. I'm hoping for increasing share price going into earnings plus an increase in IV.

My guess is those will be November calls - maybe a 600 strike (don't know yet); something far out there while still being a reasonably good premium. Whatever it is, it'll represent a new ATH.


I've also got put positions for November that I'm on the edge of closing early, with a plan to reopen after earnings assuming a sell-the-news reaction. If I get another decent drop in share price on Monday, then I'll probably close / open those puts then.

 

[Chenkers]

My guess is those will be November calls - maybe a 600 strike (don't know yet); something far out there while still being a reasonably good premium. Whatever it is, it'll represent a new ATH.

I would be wary of any calls expiry just after the election. A delay in declaring a result due to postal votes or Trump trickery could cause a short term market drop right around your expiry.

I have several 340/500 call spreads expiring on the 30th. I'm hoping for a decent post earnings bump by then. I also closed a bunch of covered calls for the 23rd on Fridays dip for a small profit.