Wiki Selling TSLA Options - Be the House

[MikeC]

Cross post from main investment thread

Need Help: Pardon for asking a question that might've been answered already.
This is in the context of tax fling in USA

• Can someone point me to the thread on TMC for personal income taxes discussion?
• May I know which software you use for preparing taxes? If you don't use any software, do you have any information you can share that you think can be helpful, do you use Google Sheets or Excel?
• Did you deal with having to deal with wash sale adjustments due to transactions in IRA accounts?
• I have TSLA stock and Options transactions. For Wash sale adjustment, do you treat each option (Expiry+Strike+OptionType) as independent unrelated security. For example, from wash sale perspective, do you treat TSLA stock purchase, sale as unrelated to an option (especially call options) on TSLA? How about the same question, if the options are different by expiry and/or strike and/or type (call/put)?
• Does anyone here have any experience with Gainskeeper or Tradelog or similar software? I have a Mac, unfortunately Tradelog doesn't seem to have native Mac support.

Tax discussion, strategies and questions

Job ending after 22 years do to Covid next month. Getting a severance package and paid for unused vacation time that could extend after the 39 week unemployment ends out to maybe almost another year. Already have 96 shares of TSLA at 400% gain. Its outperforming my 401k by miles. Completely...

teslamotorsclub.com

Your brokerage should just calculate wash sales automatically. You should be able to export your trades to an Excel file from your brokerage website. My CPA just writes "Various" for my trades and then just uses the overall gain/loss numbers.

 

[euro2012]

As a data point I successfully completed my switch from Qtrade (Canada) to IBKR. From the time the ATON transfer was accepted, to the holdings being transferred (TSLA stock, TSLA leaps and cash) was 1 week. Thank goodness it was not months that someone else had posted!
With the postions transferred, I was able to open BPS 10/15 650/700 for 3.10 this morning. Very good feeling to be trading again!

In other news, my oldest just turned 19 and is also looking into opening a TFSA (Tax free savings account in Canada), however, that limits you to only basic options trading (cc and the like). I believe it would be more beneficial long term to have him go through the options alpha course and begin doing what @Chenkers and @Yoona kids are doing. What brokerage are they using, given their net worth will be small to begin with?

 

[InTheShadows]

This week I wanted to try to get myself in a position where I'd have to adjust a losing BPS, but didn't want to risk too much with TSLA. So on Wednesday I sold 1 BPS on AMC, SP was 36 and I sold a 35/29 BPS, so not much to lose if I screwed up. Unfortunately, stock went up and closed the week over 37. So I made about $100 and didn't learn a thing. Maybe will try again on Monday.

What other group of traders say “I’m trying to trade a looser for experience”. No wonder the main thread calls us the “other thread”.

 

[EVCollies]

Very nice!
I wish i had the money to also sell that many puts. Are those cash covered? You should try spreads

I sadly missed my entry into the 100k-club this week due to -28k book-losses today.. -.-
But hey .. a years earning in one week - who am i to complain?

Yes, cash covered, I’m a noobie. I’m so tempted to try spreads but worried I don’t have the time to properly babysit them. Also my broker (Schwab) appears decrease my $ available to invest based solely upon the STO without accounting for the BTO leg of a BPS. I need to call them and understand what is happening.

 

[MikeC]

Yikes - Just got Fidelity notification that I have a Federal call of about 73K in my IRA account. What the heck is a Federal call?
I used up almost all the cash as put option reserve to open BPS yesterday - they are in the positive today. I don't see any negative numbers in the balances tab. Nothing to do about it till Monday I guess.

Edit: Just looked it up on google. So I guess using up ALL the cash to open BPSs was not a good idea . I thought having other equity in the account was fine, guess not. Let's chalk that up to a learning experience

Fed Margin Calls​

Regulation T states an initial margin must be at least 50%, although many brokerage firms set their requirements higher at 70%.1 This means an investor must pay 50%, or more if the brokerage firm requires it, of the security's purchase price upfront. This is known as a federal (or 'fed') margin call.


When an investor purchases stocks and does not have enough equity in the account to meet the 50% equity requirement, a fed margin call, also called a Regulation T margin call, is triggered. Depositing money or marketable securities will satisfy the fed call. If it is not satisfied, a liquidation violation may be placed on the margin account.

A friend got this same notice yesterday from Fidelity. What I don't get is why they would let you open the position in the first place if they were just going to do an immediate margin call?

 

[MP3Mike]

Also my broker (Schwab) appears decrease my $ available to invest based solely upon the STO without accounting for the BTO leg of a BPS. I need to call them and understand what is happening.

You probably only have level 1 options permissions. You need to apply to get the level that includes spreads, probably level 2, which may require getting approved for margin as well.

 

[ammulder]

Yikes - Just got Fidelity notification that I have a Federal call of about 73K in my IRA account. What the heck is a Federal call?
I used up almost all the cash as put option reserve to open BPS yesterday - they are in the positive today. I don't see any negative numbers in the balances tab. Nothing to do about it till Monday I guess.

Edit: Just looked it up on google. So I guess using up ALL the cash to open BPSs was not a good idea . I thought having other equity in the account was fine, guess not. Let's chalk that up to a learning experience

Fed Margin Calls​

Regulation T states an initial margin must be at least 50%, although many brokerage firms set their requirements higher at 70%.1 This means an investor must pay 50%, or more if the brokerage firm requires it, of the security's purchase price upfront. This is known as a federal (or 'fed') margin call.


When an investor purchases stocks and does not have enough equity in the account to meet the 50% equity requirement, a fed margin call, also called a Regulation T margin call, is triggered. Depositing money or marketable securities will satisfy the fed call. If it is not satisfied, a liquidation violation may be placed on the margin account.

I don’t understand why a broker allows a trade to be executed that would cause a Fed Call. If you lacked sufficient cash, how could they execute the trade? I feel like I must be missing something. In any case, if the put spreads are profitable, I assume you could close some to make this go away, but how are you supposed to know what threshold not to cross if your broker doesn’t tell you until it’s too late?

 

[MikeC]

I don’t understand why a broker allows a trade to be executed that would cause a Fed Call. If you lacked sufficient cash, how could they execute the trade? I feel like I must be missing something. In any case, if the put spreads are profitable, I assume you could close some to make this go away, but how are you supposed to know what threshold not to cross if your broker doesn’t tell you until it’s too late?

My friend with Fidelity who had the fed call yesterday was not able to close the spreads today, even though they were profitable. And he had deposited the money yesterday but it just hadn't cleared yet today. I wonder if it's a coincidence they are both Fidelity accounts.

 

[EV forever]

Yes, cash covered, I’m a noobie. I’m so tempted to try spreads but worried I don’t have the time to properly babysit them. Also my broker (Schwab) appears decrease my $ available to invest based solely upon the STO without accounting for the BTO leg of a BPS. I need to call them and understand what is happening.

First of all, as @MP3Mike said, make sure that you have a Level 2+ or higher Options trading account that allows trading spreads. Assuming you do have a spreads level trading account, I have a theory about this - something similar was happening to me a couple of weeks back on Fidelity, but did not happen this week when I opened my position. My previous post is below for reference.

I think if we enter the trade as a "combo" with 2 legs, the trading platform considers these are two separate transactions and holds margin to cover the STO leg. Once the full transaction goes through, the margin deducted is calculated correctly as a spread. Instead if we enter the trade by selecting the "spread" option on the trade ticket or "vertical" option on the mobile trading platform, it holds the correctly calculated margin.

Couple of weeks back, when I saw this problem, I was entering the trade as a combo with two legs. I could not even enter the order, as it would tell me not sufficient cash/margin. On Thursday, I entered most of my opening trades on my phone as "verticals" and had no problem placing the larger orders. Similarly, had no problem placing the orders as "spreads". So I am thinking this is a function of the way the trade ticket is compiled. Once the order goes through, the margin that is held is correct.

This brings me to a question about something very strange regarding margin in Fidelity in both the brokerage as well as IRA accounts. Maybe the more experienced folks here like @adiggs or others using Fidelity could comment.

At the beginning of Friday, I had ~ 450K in House Surplus in my brokerage. I planned to use half of that to open BPS - so my plan was 40X BPS with a spread of 50 which would use margin of 40*50*100 = 200K. Well, when I tried to place an order for 25X BPS for 675/625 the order would not go through with message saying I did not have sufficient margin. This was strange as I definitely did have sufficient margin. After checking all the numbers, I tried again, and kept getting the same message. So I reduced the order down to 20X, then 15X and then 10X. The order for 10X BPS went through, and when I checked, it had held almost $250K in margin. When the order was filled for $3, I checked the margin again and now it had correctly reduced my margin by about 47K (10*50*100 minus the premium received).

So, I tried to place another order for 25 - same story, would not go through claiming not enough cash/margin. When I placed orders in lots of 10 BPS, the orders went through and correctly reduced my margin. Eventually, I did get the 40X BPS as planned, with the margin (house surplus) reduced by the correct amount

Same problem occurred in my IRA - sufficient cash to cover the spread, but orders not getting placed for larger lots. I was easily able to place them 5-10 at a time, as long as the previous order was filled before placing the next one.

My guess is that when an order is entered, even though it is a BPS, Fidelity seems to hold margin/cash reserve as if it is a naked put till the order is filled. Once it is filled, it calculates the reserve required correctly and then deducts it from the available cash/margin.

Has anyone else noticed this? Is this something that can be fixed?

 

[EV forever]

My friend with Fidelity who had the fed call yesterday was not able to close the spreads today, even though they were profitable. And he had deposited the money yesterday but it just hadn't cleared yet today. I wonder if it's a coincidence they are both Fidelity accounts.

I think I am going to have the same problem. I was trying to place my closing orders which are not getting entered due to not sufficient cash balance. Typically I do GTC orders to close the positions when they reach 70-80% profit. This might need some babysitting on Monday

 

[Drezil]

Why aren't you on Reg T margin? I have about 25% more margin on Reg T than portfolio - or at least I did last time I checked. (100% TSLA on IBKR)

Was forced to switch after Brexit moved my account from London to Ireland.
That basically halved my available margin.
No switching back due to some obscure regulations.

 

[Yoona]

In other news, my oldest just turned 19 and is also looking into opening a TFSA (Tax free savings account in Canada), however, that limits you to only basic options trading (cc and the like). I believe it would be more beneficial long term to have him go through the options alpha course and begin doing what @Chenkers and @Yoona kids are doing. What brokerage are they using, given their net worth will be small to begin with?

TD Direct Investing WebBroker
Make sure to open tfsa "WITH OPTIONS"
otherwise, default is stocks only

also, we signed power of attorney with TD so that i can "link" my son's account to my login; this way, i can trade on his behalf or keep an eye out

double-check if put/bps are allowed on tfsa; if not, opening margin acct might be better (though taxable)

 

[dc_h]

So, bets for next week - opened most of these up yesterday which turned out to be a good thing. They are nicely in the green today.
Brokerage account BPS +p625/-p725 and +p645/-P695.
IRA account BPS BPS +p675/-p725 and +p645/-P695.
I am using 50% of available margin in the brokerage account. Larger spread for the more risky sold puts for @725 leaving room to roll if things go badly. I do not believe we will drop below 700 now, so 50 spread for the less risky p695. IRA account is cash secured, using up almost all available cash as put spread reserve.

Following @mickle example, I decided to do a risky BPS as learning the mechanics of 'Roll if ITM' strategy. I don't want to be caught unprepared like earlier in the year with naked puts. So opened a single +p685/-p785 BPS, but it may very well end up OTM by next Friday.

Regarding this thread going private or using slack account - as long as I am invited to join that is fine with me. (No idea what is a slack account, but will learn if needed). There are however lot of advantages of remaining public, so will defer to the more knowledgeable gurus here. I have been on he forums for a long time, but don't post often since I am still working full time. Today was a crisis day at work, and I didn't even have a chance to look at the SP since after an hour of market opening. I had already closed all positions for this week and opened new ones yesterday, so wasn't anxious about it. So I don't get to post often, but I want to be a part of whatever new forum is created.

I did all my positions Wednesday and Thursday this week. The input of this forum really has some great ideas on how to minimize risk, and for me, to minimize the trading time. I work full time and like to read everything I can, but don't want to be online trading all week. I find I'm making more money and spending far less time with some OTM bps trades.

Also note that the market is closed on Monday for Columbus Day, which is a bank holiday.

 

[generalenthu]

Also note that the market is closed on Monday for Columbus Day, which is a bank holiday.

It's a bank holiday, not a market day off.

NYSE: Holidays and Trading Hours

www.nyse.com

 

[AquaY]

I did all my positions Wednesday and Thursday this week. The input of this forum really has some great ideas on how to minimize risk, and for me, to minimize the trading time. I work full time and like to read everything I can, but don't want to be online trading all week. I find I'm making more money and spending far less time with some OTM bps trades.

Also note that the market is closed on Monday for Columbus Day, which is a bank holiday.

The market is open on Columbus day.’
Banks are closed

 

[ZenMan]

Why aren't you on Reg T margin? I have about 25% more margin on Reg T than portfolio - or at least I did last time I checked. (100% TSLA on IBKR)

Me too. 100% in TSLA and using Reg T instead of Portfolio.

 

[vwman111]

i would have waited until monday morning... because normally(tm) there is a spike & then it goes down.

OTOH i got burned with that tactic more than once -.-

Often IV is up on Monday vs Friday. So as long as we are flat, the increase in IV usually is more beneficial than the "weekend" theta.

 

[vwman111]

TD Direct Investing WebBroker
Make sure to open tfsa "WITH OPTIONS"
otherwise, default is stocks only

also, we signed power of attorney with TD so that i can "link" my son's account to my login; this way, i can trade on his behalf or keep an eye out

double-check if put/bps are allowed on tfsa; if not, opening margin acct might be better (though taxable)

Unfortunately, you can't trade BPS in a TFSA, only covered calls.

 

[BornToFly]

I don't recommend opening a BPS just below the SP to see what happens. If you look at the cost of the Puts, they go up dramatically when they go in the money. If you write a 690/740 when the SP is 790, you want to roll it when the SP approaches 750 or so. Then you can roll it out 1-2 weeks without losing any money and lowering the short leg 5-10%. If the SP gets 10-20 dollars in the money, the cost of the short leg and long leg really diverge and you will have to roll much farther out which puts you in the penalty box unable to make money for a while.

 

[M3Rider]

Ok I've thought long and hard about the name and have some ideas:

1. "Milking the sweet, sweet udders of the Options cow"
This one is very poetic, but maybe a bit long

2. "Drinking the salty, yet savory tears of option buyers"
Very inspirational but slightly vague

--
(Jokes aside I like the earlier suggestion of "TSLA Options Selling Strategies" - nice and generalized to premium selling)

RE: #2. I've been thinking about this for a long time. There are no "tears of option buyers". Maybe 1% of our sales get bought by some crazy TSLAQ. 99% gets bought by MM because they have to buy. They can't lose money, not an option. So, all those 100s of Ks or Ms that people talk about in this thread, they have to be made back with a vengeance, somehow. The spread on the options buy/sell price kinda looks insufficient to me to pay for these losses. What do they do? Delta hedging? I need to learn more on this and how MM can recover all those losses. The events we had in Mar/May with TSLA crashing to 550 could be a part of this payback that we need to be cognizant of. I.e. being $100 below SP on weeklies may reduce risk to these exposures.
Or, maybe, as @Lycanthrope says, if you make enough 9 times out of 10 to pay for the 10th when you get screwed that's a fair trade off too.
Just need to make sure you chalk up the 9 times .

Several posts about a private forum or slack channel. The challenge I see with these is that I think that people will rarely participate in both. If that private forum provided the participants with enough ideas, discussion, and input, then they are unlikely to also post in this thread. And I've seen today just how many lurkers and first time participants we're attracting (good thing - anybody reading the whole thread will quickly see the value of new participants adding their own observations, experiences, and insights).

Then again it'd be pretty easy for somebody to start a slack channel and start inviting people privately, and participants in this thread would never know. Except that maybe the post rate would go down and some people would disappear


We've also seen a number of observations about the challenge of so many accessible posts about specific trades. I'm confident that if our volume grows large enough, then we'll also get to experience some market maker efforts specifically designed to pick our pockets. I don't think we're anywhere close to that, and it might be we're multiple orders of magnitude away from enough volume to attract that attention, but its also the case that our total contract counts has skyrocketed with the spreads over the short puts and calls the thread started out with. I know mine have - like more than 1 order of magnitude.

I'm just always cognizant of the idea that if something looks like free money, then it isn't; there are always better funded market participants with better technology to exploit speed and quality of fill, than anything any of us have.
....

This and what @Lycanthrope said rings many bells. We know that WSB movement got taken advantage of by Hedge Funds that took a lot of profits on that movement...The WSB behavior got publicized and therefore used/abused by hedgies who saw a chance. It's inevitable this thread if expands any further will be taken advantage of as well.

We def need to devise some protective measures.

Additionally, all this talk of "walls" that MMs need to protect... Do we know this for real? Many of us can sell 100s of contracts(especially via spreads). How many of us does it take to build a 20k "wall"? 100 people? Why do MMs have to protect it instead of just rolling us over? Anybody can clarify?

This tweet reminded me of this thread. One could argue we're all now "self-employed" as options traders.

https://twitter.com/x/status/1446483018244399112

I keep thinking making money cannot be a self-fulfilling goal. Remembering a tweet here from @alex_avoigt who once said(approximately) that once you find your wealth it's still a struggle to find your purpose in life. I'm still far from some here making obscene amounts of money (but got a first taste of it this week with $85k profit), but starting to think more about it. Just retiring and making more money is a sucky goal.

Maybe some day some of us here can found some non-profit and make some difference with our unified power. Given that family may or may not be supportive.

Buy-Write is also known as a covered call (buy shares, sell the call that covers the shares).

For some here like me, selling long-dated shares is not an option, because it incurs 50% tax.
I had to call my broker and change my share lot selling order from FIFO to LIFO to minimize these surprises. Some brokers allow chosing the tax lot for selling, but not all. So, consideration has to be given to the possibility of having your sold CC executed. In my case, when I sell a bunch of CCs, execution and all these "wheels" are NOT an option. Might be nice for a single CC someone's playing with to gain experience. But the tax aspect of it needs more clearly communicated.

Gutsy call on those 810s! I wrote $880s on the upside, and $700s on the down. I really don't want to have to roll calls right now, so trying to strike a balance between conservatism and getting a premium that's actually worth something to me.

Woke up today, saw 850cc at @1.60 and put an order in to sell @2. Obviously, some did hit the target today. I slept too much and likely lost this much...the rest of the day the premium decayed to below $1. No CCs for me this week. Might still sell the next if we have spikes. Likely nothing for the week of ER unless there's a big runup to it.

I've taken a lot of risk for next week and sold $93k worth of bps for 750/740/735 short legs and 20/30/50 spreads. Hoping to cut this risk in half going forward. Also hoping for limited volatility before the ER, obviously