Wiki Selling TSLA Options - Be the House

[adiggs]

Many cautionary posts for newcomers (and those that have been here for awhile), with the additional idea of getting something into the first post about those cautionary ideas. I love 'em all...

Would anybody care to write something up along those lines? I or @Chenkers can add a link to the FAQ. For this particular subject this is probably worth editing directly into post #1 (I'd want people to see this right up front - not follow a link to learn more about the fine print ).

 

[Knightshade]

Simplistically - leverage.

A simple example, using an IRA (thus fully cash secured to make the math simple) - you can sell a single $700 strike put with $70k to back the position. That strike for this Friday expiration is $3.60.

Or you can sell 7x 600/700 put credit spreads (BPS) for 3.60 - 1.0 = 2.60*7 = 18.20 premium.

Or you could sell 14x 650/700 BPS for 3.60 - 1.60 = 2.00 * 14 = 28.00 premium.

Or there is the 140x695/700 BPS for 3.60 - 3.30 = .30 * 140 = 42.00 premium.

All of these examples use the same cash backing: $70k. Leverage is a sharp edged sword and can cut hard. That 700 strike put loses the full $70k when the share price goes to 0. The 695/700 BPS loses its full value when the shares drop below $695.

So reading this actually had me thinking I should sell those 90-odd shares in my IRA that aren't in 100-share blocks to play with this (all my BPS work thusfar has been in my cash account).

But I'm again stock blocked by my IRA not allowing spreads. Even cash secured apparently. "spread" isn't even an choice in the options page at all for that account.

Now that I'm back to simple shares in there I'm going to seriously look at moving someplace that allows that fake/limited margin in IRAs for spreads.

Probably planning to do Fidelity just because my HSA and 401k are already there, and I've got plenty enough back in my ML cash account to keep BoA Plat status even if I move the IRA away.


Anybody have a strong recommendation/reason to NOT use Fidelity- or to use someone else specifically for IRAs allowing spreads?

 

[adiggs]

So reading this actually had me thinking I should sell those 90-odd shares in my IRA that aren't in 100-share blocks to play with this (all my BPS work thusfar has been in my cash account).

But I'm again stock blocked by my IRA not allowing spreads. Even cash secured apparently. "spread" isn't even an choice in the options page at all for that account.

Now that I'm back to simple shares in there I'm going to seriously look at moving someplace that allows that fake/limited margin in IRAs for spreads.

Probably planning to do Fidelity just because my HSA and 401k are already there, and I've got plenty enough back in my ML cash account to keep BoA Plat status even if I move the IRA away.


Anybody have a strong recommendation/reason to NOT use Fidelity- or to use someone else specifically for IRAs allowing spreads?

I'm at Fidelity. On my IRAs I have what's called "Options Level 2 + Spread Trading" authorization. The Spread Trading was an additional application to Level 2. I can't remember if the 'margin' was a third thing I applied for if it came along for the ride - margin in the IRA is just the ability to trade on unsettled cash, not actual margin.

I would expect similar capability at most any brokerage, but I've only got experience with Fidelity, so what do I know

 

[adiggs]

Anybody have a strong recommendation/reason to NOT use Fidelity- or to use someone else specifically for IRAs allowing spreads?

I'm at Fidelity so clearly I'm not opposed . I get the impression from what other's describe regarding tooling that Fidelity isn't the greatest. The right first order approximation is that's a function of how little I try to use the tooling. I mostly enter my trades via the web interface - pretty primitive really.

That being said I'm increasingly of the opinion that I'm going to move my IRAs to tastyworks. I believe I'll have all of the capabilities that I want there and the commissions will be a lot lower for all of these contracts I've been trading. "A lot" on a 100 contract BPS is $20 at tastyworks vs. $260 at Fidelity (or any other broker with .65/contract commission).

 

[Boomer19]

i use IB because it’s cheapest for my account setup. i’m not a high volume trader so i can’t negotiate lower rates or tiered commission structure. but i don’t need to with IB. aside that pretty much all brokers are cheap for stock trades (i opt for IBKR pro rather than the $0 commission offering bc execution is better), IB is also cheapest for me with options trading, regular or IRA acct.

i don’t think you could go wrong with fidelity either. (i have 401k there). i like IBs UIs better (although no brokers are perfect)

ib and fidelity are generally 1 and 1a the last 8-10 years in ranking.

The Best Online Brokers for 2021: The Rise of the Individual Investor and Fintech Apps

Interactive Brokers eked out a narrow win over Fidelity under highly unusual circumstances: a pandemic, a crash and rally, and an explosion of new investors, culminating in the GameStop episode.

www.barrons.com

 

[InTheShadows]

So reading this actually had me thinking I should sell those 90-odd shares in my IRA that aren't in 100-share blocks to play with this (all my BPS work thusfar has been in my cash account).

But I'm again stock blocked by my IRA not allowing spreads. Even cash secured apparently. "spread" isn't even an choice in the options page at all for that account.

Now that I'm back to simple shares in there I'm going to seriously look at moving someplace that allows that fake/limited margin in IRAs for spreads.

Probably planning to do Fidelity just because my HSA and 401k are already there, and I've got plenty enough back in my ML cash account to keep BoA Plat status even if I move the IRA away.


Anybody have a strong recommendation/reason to NOT use Fidelity- or to use someone else specifically for IRAs allowing spreads?

I don’t like their trading app on my iPhone and there regular website is clunky for trades too. Their active trader is nice but I usually don’t use it because I’m not a day trader. Other than that, I like them. I do think I get better trades with them than the others. (Trade improvements)

 

[Knightshade]

I would expect similar capability at most any brokerage, but I've only got experience with Fidelity, so what do I know

Sadly at ML when I asked my "personal relationship manager" or whatever they call em he didn't even know spreads or the fake-margin things were POSSIBLE in IRAs... when I linked him to the details at fidelity and a couple other brokers he was like "Wow, that's cool- yeah we don't have anything like that"

I'm at Fidelity so clearly I'm not opposed . I get the impression from what other's describe regarding tooling that Fidelity isn't the greatest. The right first order approximation is that's a function of how little I try to use the tooling. I mostly enter my trades via the web interface - pretty primitive really.

Yeah, I don't care a ton about the tools stuff for the IRA, the fanciest things I ever expect to do is (relatively) simple options trading like cash secured spreads or (if premiums bounce back) selling covered calls.... and most of the time I'd need to do it I'd just be using the web interface on a PC anyway.

That being said I'm increasingly of the opinion that I'm going to move my IRAs to tastyworks. I believe I'll have all of the capabilities that I want there and the commissions will be a lot lower for all of these contracts I've been trading. "A lot" on a 100 contract BPS is $20 at tastyworks vs. $260 at Fidelity (or any other broker with .65/contract commission).

On the fees if I'm looking at it right Fidelity is 65 cents per contract on options, no cap (same as ML)... while Tastyworks is $1 per contract but capped at $10 per leg... so for anything more than 15 contracts in an order Tastyworks in cheaper, for less it's more expensive....

EDIT: Wait, no- Tastyworks only charges on the opening legs.. so it's still cheaper even for a single contract as long as you plan to close rather than let expire...



Hrm... so pretty much need to decide if I value somewhat lower commissions versus having a third account I have to use to manage investments (currently just ML (cash and IRA) and fidelity (401k and HSA)

 

[corduroy]

So reading this actually had me thinking I should sell those 90-odd shares in my IRA that aren't in 100-share blocks to play with this (all my BPS work thusfar has been in my cash account).

But I'm again stock blocked by my IRA not allowing spreads. Even cash secured apparently. "spread" isn't even an choice in the options page at all for that account.

Now that I'm back to simple shares in there I'm going to seriously look at moving someplace that allows that fake/limited margin in IRAs for spreads.

Probably planning to do Fidelity just because my HSA and 401k are already there, and I've got plenty enough back in my ML cash account to keep BoA Plat status even if I move the IRA away.


Anybody have a strong recommendation/reason to NOT use Fidelity- or to use someone else specifically for IRAs allowing spreads?

Adding one more data point. I've been using 2 trading accounts for the last year, one at Fidelity and one at TD Ameritrade, and just last week finished transferring everything to from Fidelity into TDA. I can do spreads in my IRA there. I don't think you can beat their Thinkorswim platform.

 

[MP3Mike]

Does anybody know how E*Trade calculates the "SMA" which forms the basis of the "Adjusted SMA" (SMA+cash) which limits buying power?

Here is what E*TRADE says:

 

[ammulder]

Here is what E*TRADE says:

View attachment 719890

Thanks… but that doesn’t help much.

If I had only shares, some purchased on margin, it seems like the SMA would be 50% of the share value minus the amount of margin in use. But I don’t know how SMA is calculated for puts/put spreads, and thus how it ends up being lower than maintenance excess. Maybe because the margin required to hold TSLA shares is 40% not 50%? Except the numbers don't quite add up.

It’s frustrating that the margin computation page shows the exact impact of each position on maintenance excess, but not on SMA, so the SMA total ends up being pretty opaque. It’s definitely not 50% of the value of all shares in my account minus the max loss for each put spread, for instance. Closer to 50% of all shares+cash minus max loss for each put spread, but that's still off by a few thousand $. What else would it be? I don’t know.

Why do they call it a high water mark? I also don’t know. I don’t think they’re saying if I had bought no shares this year I’d get an SMA based on TSLA at $900, the high water mark of TSLA shares under those conditions. But they don’t give an example of adjusting SMA if market value of shares goes down.

At the end of the day it’s not hugely important — I can figure my available put spread buying power in practice by observing the total SMA week to week, and make decisions based on that. But I wish I knew if there were specific things I could do (other than what’s in the table above) to adjust that total up or down.

 

[MP3Mike]

It’s frustrating that the margin computation page shows the exact impact of each position on maintenance excess, but not on SMA, so the SMA total ends up being pretty opaque. It’s definitely not 50% of the value of all shares in my account minus the max loss for each put spread, for instance. What else would it be? I don’t know.

It shows the impact to SMA for me:

 

[ammulder]

It shows the impact to SMA for me:

View attachment 719911

Sorry, it does when I use the "Margin Calculator" to analyze a single trade. It does not when I look at the "Margin Analyzer" to show the margin calculations on my current portfolio. So I don't know how the "current" SMA is calculated, but I do know by how much each future trade would reduce it.

P.S. I'll stop talking about this on this thread, in any case.

 

[Boomer19]

Sadly at ML when I asked my "personal relationship manager" or whatever they call em he didn't even know spreads or the fake-margin things were POSSIBLE in IRAs... when I linked him to the details at fidelity and a couple other brokers he was like "Wow, that's cool- yeah we don't have anything like that"






Yeah, I don't care a ton about the tools stuff for the IRA, the fanciest things I ever expect to do is (relatively) simple options trading like cash secured spreads or (if premiums bounce back) selling covered calls.... and most of the time I'd need to do it I'd just be using the web interface on a PC anyway.






On the fees if I'm looking at it right Fidelity is 65 cents per contract on options, no cap (same as ML)... while Tastyworks is $1 per contract but capped at $10 per leg... so for anything more than 15 contracts in an order Tastyworks in cheaper, for less it's more expensive....

EDIT: Wait, no- Tastyworks only charges on the opening legs.. so it's still cheaper even for a single contract as long as you plan to close rather than let expire...



Hrm... so pretty much need to decide if I value somewhat lower commissions versus having a third account I have to use to manage investments (currently just ML (cash and IRA) and fidelity (401k and HSA)

ibkr is .65 per contract as well if less than 10k contracts traded per month. then it goes to .50. assuming smart routing

this page gives a good picture of all the misc stuff under North America in the *Notes* section as well

Commissions | Interactive Brokers LLC

Interactive Brokers' commission schedules for stocks, options, futures, futures options, SSFs, spot currencies, metals, fixed income and Mutual Funds, as well as Trade Desk fees.

www.interactivebrokers.com

 

[EV forever]

I see BCS and BPS mentioned often, which I assumed was bull call spread and bull put spread. There seems to be tons of discussion on that, so let me know if I'm missing something in my terminology.

In any case what piqued my interest was the recent post about making $100k a week off $2M capital.

My take on bull call spreads vs put spreads is to go with whichever has highest volatility, because that's the one that will have the highest return. In my experience that's usually calls, which is why I don't normally deal with puts. For example, taking numbers today off TD TOS (Saturday) with 5 trading days left:

For Oct 15 600/700 spreads @ SP 785:
Bull call spread: costs 97.23 per option, so max profit $2.77, ROI is 2.85%
Bull put spread: needs $97.40 capital per option, credits $2.60, ROI is 2.67%

There's 6% more profit with the calls than puts, at least on paper.

For fun, I backtested the performance of investing in weekly spreads for TSLA from 2016 to 2021, assuming a weekly investment (ie capital risk) of $1M. Returns would be substantially better if the weekly investment was compounded by increasing it to be proportional to total gains. However, the increase would depend on tax situation, etc so a fixed $1M weekly is a start.

Spread cost and strike values for past weeks were adjusted proportional to SP today. Max profit would be the (strike spread - option cost) for call spreads or the credit for put spreads.

Although the max profit is higher for higher strikes, the returns are better when not being as aggressive because they're subject to losses more often when the SP drops quickly.

View attachment 719570
Caveat: I make mistakes on spreadsheets all the time!

Edit: The slightly better theoretical return for call spreads may be more than offset by better liquidity explained in this post / article.

Somewhere back there I recall saying something like "let's keep the thread title about selling options, rather than BPS as a specific technique" because, you know, in a year the BPS might be so last year.

I wasn't actually thinking that in a few days, BPS might be so yesterday


God I love this thread and the different ideas and insights that come along. I don't know about the DITM call debit spreads yet, but I've learned enough in a few posts that I'm going to try a test position out this week. This is my own decision and I'll experience my own consequence

I've got some other put credit spreads that I am hoping to enter. If I do get my entry on those then I'll just take some of the money that would have been directed into a put reserve (retirement account) and use it to make the purchase in the call spread. I am particularly interested to see what the position looks like in the position view. Is it equally easy to see progress towards max profit?

Are there difference in how margin gets handled?

My guess is that the purchase dynamic means that there is no comparable 'free' (margin) position on the other side of the share price as there is with an Iron Condor. Then again I don't make use of that very often (actually once, ever, so far) so losing access to the 'free' call credit spread isn't exactly crimping my style.


My first pass guess at which is better is to look at IV. I'd guess that whichever IV is higher is the better side to be buying / selling, with a bias towards the put side if one is also pairing it up with the call spread.


A random thought that's occurred to me is that with these having such similar behavior, I wonder if there's an arbitrage opportunity here. I.e. aggressive selling of put credit spreads pushes down their IV relative to the calls, enabling the deep pocket and high speed traders to buy the call side at a premium to the put side.

I wonder if the market makers have been perfectly content with their current pocket picking setup

I could easily be reading more into this than I think, and I'm currently in that early flush of OMG-what-a-cool idea like I had back when I started to grok the power of the put credit spread.


We might need new shorthand terminology, because DITM call debit spread, or maybe bCS vs. BCS / BPS vs bPS or something will be needed. *sigh*

I am finding this strategy quite intriguing as well - let us know how it works out. My 2 cents - this might be a good strategy for those using cash covered trades, but not so much if using margin to cover. If we are using margin For DITM call debit spreads, you would be using the margin to pay for the debit premiums - so the margin interest will start accruing immediately. The slightly higher returns of the DITM debit call spread may be nullified by the margin interest.

I cannot try it this week - need to get out of that Federal Call that was triggered on Friday - so playing in that account is out. Still trying to figure out how bad is the situation with Fed Call and if it is OK to wait till Wed/Thurs to close out the positions. Fidelity doesn't have any information other than the ominous warning. Previously, when I had the margin calls, there would be a deadline for clearing it - of course with a warning that Fidelity could liquidate securities at any time to cover the margin call. With this Federal call, there is no such deadline listed - so would prefer to let the theta burn do its job till Thursday and then close it. @adiggs mentioned previously that they had a Federal call at one time - is there a penalty for not covering it quickly?

 

[MP3Mike]

@adiggs mentioned previously that they had a Federal call at one time - is there a penalty for not covering it quickly?

Here is some of what E*TRADE says:

Additional notes specific to Fed calls:

• We are generally unable to extend the due date of Fed calls.
• After a Fed call is in effect for four days, we charge an extension fee to your account.
• You may not buy or sell securities in quick succession without submitting payment to E*TRADE Securities. This is called "free-riding" and violates Regulation T of the Federal Reserve Board. Free-riding could result in your account being restricted or closed.
• Meeting Fed Calls by liquidating securities may cause a liquidation violation to occur on the account. Whether a liquidation violation has occurred is determined by the Margin Department, in its discretion, in a manner consistent with applicable securities regulations

So it sounds like you get four days. And then E*TRADE charges a $25 extension fee, of course they say they generally can't extend the due date...

Here is what Vanguard says:

Federal (initial) margin call
You'll get this call when you don't have enough equity to meet the FRB's initial requirement as determined by Regulation T.

The initial requirement is 50% of the total cost of the trade, including commissions, unless the stock is priced under $5. In that case, it's 100%. A federal call is only issued as a result of a trade.

What you should do: You must meet the call by the trade date plus 4 business days.

Sounds it sounds like you have 4 days from the trade date. (But is that calendar days, or market days?)

Also something to keep in mind is it takes one day for option trades to settle. And the Fed Call won't be met until the funds have settled. So that eats one of your days. (At least that is my understanding.)

 

[EV forever]

Here is some of what E*TRADE says:



So it sounds like you get four days. And then E*TRADE charges a $25 extension fee, of course they say they generally can't extend the due date...

Here is what Vanguard says:



Sounds it sounds like you have 4 days from the trade date. (But is that calendar days, or market days?)

Also something to keep in mind is it takes one day for option trades to settle. And the Fed Call won't be met until the funds have settled. So that eats one of your days. (At least that is my understanding.)

Thanks! Looks like I can wait till Thursday to close. This is very helpful - there is no information regarding Fed Calls on Fidelity.
Also, just as you mentioned, I cannot place an order to close the spread as there is not sufficient cash. However, I can place an order to BTC the sold put portion - so I placed a GTC order for that. In future, will remember not to go beyond the 50% cash reserve limitation, so only half the number of BPSs for me.

Now I am curious, if in this case it would be better to do the DITM Call Debit spread. Something to try at a later date.

 

[EV forever]

Adding one more data point. I've been using 2 trading accounts for the last year, one at Fidelity and one at TD Ameritrade, and just last week finished transferring everything to from Fidelity into TDA. I can do spreads in my IRA there. I don't think you can beat their Thinkorswim platform.

I personally prefer to use Fidelity over ToS - I find ToS to be too complicated. This may be simply due to not sufficient experience with the software.

I am able to do spreads in my both my IRA accounts on Fidelity - a large IRA account and a smaller ROTH IRA - you do need to get it approved for Level 2+ Spread trading. The various options tabs on fidelity (under news and research tab) are good for doing the profit/loss analysis and checking the options greeks and stats. Adding legs to multiple-legged strategies of options to a single ticket is also quite simple. And yes, you can directly open spreads and Iron condors as well as a variety of other strategies. However, these are not bundled together after the trade goes through, so for closing, you have to enter these as individual legs.

Recently, I tried out Robinhood - my husband has a small account he opened just to buy some Bitcoin. I got it approved for options yesterday and was trying it out in about 2 min - it is incredibly simple to use for placing trades. And it shows you the profilt/loss curves immediately as you are adding the legs of the ticket. Doesn't seem to do much analysis beyond that - though. Anyone else tried Robinhood?

 

[bonk3125]

tl;dr thanks. If you go private, send me an invite hah!


The possibility of “going private” has made me come out of the lurking shadows. Like many others, I’ve been following this thread with interest since it started way back in… wow just April 2020? Seems like so long ago. @adiggs et al have provided such a wealth of information and entertainment here that I just wanted to say thanks to all the contributors.

The bulk of my shares are distributed across tax advantaged accounts at Fidelity and Vanguard. I had been a staunch total market index fund investor for decades and somehow (actually, I do know how but that’s another story lol), I am now very much not so. As 2020 unfolded I watched as SP fluctuated wildly and how premiums were being collected by the various posters here. I dabbled in selling cc just as SP took off with split announcement. I lost a very decent amount (to me) by closing early as I had not yet learned about rolls. Luckily, my bought calls made up for many of my mistakes in 2020, and now I sell premium in my tax advantages accounts comfortably enough.

Recent talk of BPS certainly intrigued me. Unfortunately, my retirement accounts as they are currently located do not allow for spread trading (may have to change that eventually). Over the summer, as used car prices started rising, I ended up justifying selling my 2018 Model 3 and ordering a Y (it’s bigger! It’s newer! It has HW3.0!). So come mid-August, I now have some cash to sell BPS. My Y will not be ready until December, so I figured I had a good 16 weeks to collect enough premium to cover the difference in trading up to the Y.

Naturally risk averse and without margin use, I tended to go for the singles and doubles that @BornToFly wrote about some pages back. Looking at lower BB, max pain, various moving average supports, and others’ technical analysis here and elsewhere (YouTube, Reddit, etc), I would sell 25-30% of my “ammo” on Mon, then Tues, etc. at laddered strikes. I would add BCS Wed/Thurs once I was more confident on Friday close as “gravy”. I would close contracts at 90%+ profit since my strikes were fairly conservative. Selling contracts to hold over the weekend would depend on my outlook for the following week. All of this essentially with my model 3 sale proceeds. I am not yet comfortable with margin, nor do I hold many shares in my brokerage account.

All of this to say that I reached my goal to cover the 3/Y difference 8 weeks early. Now I’m wondering if I should go for a long range X instead! The power of compounding and all that. Thank you all. Learning for fun and for profit has been great this past year and a half. I find that exercising this part of my brain is enjoyable but yes, it certainly does require time and commitment to be comfortable with what you’re doing. I’m currently holding some 670/720 and 690/740 bps that I opened on Friday. Plan to open more Mon/Tues then possibly some BCS if we don’t have fireworks by the end of the week.

Not advice. I was and still am ready to lose this cash. I spend an unhealthy amount of time reading about Tesla, TSLA, and options strategies. I make mistakes but try to fix them early. Sleeping well at night is very important and we all have different goals and risk thresholds.

Kudos if you’ve made it this far. Thanks for reading. Hope to contribute more.

 

[djy]

I'm at Fidelity so clearly I'm not opposed . I get the impression from what other's describe regarding tooling that Fidelity isn't the greatest. The right first order approximation is that's a function of how little I try to use the tooling. I mostly enter my trades via the web interface - pretty primitive really.

That being said I'm increasingly of the opinion that I'm going to move my IRAs to tastyworks. I believe I'll have all of the capabilities that I want there and the commissions will be a lot lower for all of these contracts I've been trading. "A lot" on a 100 contract BPS is $20 at tastyworks vs. $260 at Fidelity (or any other broker with .65/contract commission).

I'm also at Fidelity and last week was able to get my commission for options trades down to $0.45. All it took was a simple ask of my regional brokers consultant (no negotiation involved) and it took effect the following day. If you are in private client group and your options trades are typically more than 20 contracts per transaction, it's worth inquiring about this.

I have accounts at both Fidelity and TDA. In my opinion, TDA's app is a much more trader friendly experience (and TOS is superior to ATP), while Fidelity's customer service is hard to beat. I like both and find benefits to each.

 

[djy]

I cannot try it this week - need to get out of that Federal Call that was triggered on Friday - so playing in that account is out. Still trying to figure out how bad is the situation with Fed Call and if it is OK to wait till Wed/Thurs to close out the positions. Fidelity doesn't have any information other than the ominous warning. Previously, when I had the margin calls, there would be a deadline for clearing it - of course with a warning that Fidelity could liquidate securities at any time to cover the margin call. With this Federal call, there is no such deadline listed - so would prefer to let the theta burn do its job till Thursday and then close it. @adiggs mentioned previously that they had a Federal call at one time - is there a penalty for not covering it quickly?

I was in a fed call (with Fidelity) 2 weeks ago and can confirm you have until Thursday to settle without penalty. (I ended up closing the BPS that got me into the call after a lot of its value had eroded away.) Good learning experience for me as I never paid attention to my SMA balance before this. It seems with selling naked puts, the house balance was always the one that got me into a call, and now with BPS's, it's the SMA balance which I have to watch out for.

If you're having trouble placing trades that would benefit your margin position, you can try calling the margin team directly at (817) 567-9009 and they can push trades through for you. Keep in mind that fed calls only settle at the end of the day, unlike house calls which can settle intra-day.