Wiki Selling TSLA Options - Be the House

[M3Rider]

Great minds, I need some advice. We're buying our dream house and I need a bit of cash for downpayment since we'll be carrying 2 mortgages for a while. I am running BPS weekly, but that wont generate enough to cover the amount we need by closing. Other possible options are to sell some CC for way off in future (Jan 2024 1600) against ALL my shares and then buy it back when we inevitably dip or just take a cash margin loan out from my account. For instance, I could easily cover what I need for the down payment now (with BPS active) w/ a margin loan. Im leaning towards the latter since I will be able to repay that in full via several means in < 6 months and also still sell options. This is a taxable account and I prefer to not sell shares since

This wouldn't be possible if I hadn't invested in Tesla, and listened to the collective TMC great minds...so thank you all so much for all your advice! It is truly amazing to think we are in the position we are because of this company and this forum.

This position is 1y.o. and locked up the margin. Also, keep in mind I held it through $550 dip and as an American option, it can potentially be exercised any time. You can sell it right back though. Otherwise, I thought $200k interest free 2 year loan is not too bad. I exercised some calls with the money, which is giving me more buying power.

 

[ggr]

Good morning everyone. I have a $860 covered call 10/22 exp. that I opened last week. I don't want to loose my shares as the tax consequences would be terrible. My plan was to roll them but I remember reading in this thread somewhere that if you sell a covered call in the money ( For example $870 cc 10/29 exp), then the underlying shares will reset from long term holding to short term holding (and be taxed at short term capital gains rate) Can anyone confirm this?

Yes, that is correct.

 

[Puff]

Good morning everyone. I have a $860 covered call 10/22 exp. that I opened last week. I don't want to loose my shares as the tax consequences would be terrible. My plan was to roll them but I remember reading in this thread somewhere that if you sell a covered call in the money ( For example $870 cc 10/29 exp), then the underlying shares will reset from long term holding to short term holding (and be taxed at short term capital gains rate) Can anyone confirm this?

I think covered call must be 30+ days out if you’re trading against the long term shares. Otherwise it’s how you described it.

 

[tradenewbie]

Today I am really tempted to sell the BCS -1000/+1000 if it hit $1 premium.....
(if it really hits 1000, I think the world is crazy)

Got greedy and set it at 1.5 instead of 1, so couldn't get filled and now drop. Greed is always the murderer

 

[BornToFly]

Well . . . this is unexpected. Stock is going the wrong direction.

LOL. We are getting the correction to the upper BB that I expected yesterday (I was one day off). This is good if you want the SP to rise after earnings. Now that I'm no longer a HODL guy, I no longer get excited about earnings and the dream of a big gain. I want 10+% over night moves off the table (a more stable stock) so I can sell my BPS and BCS....

 

[evermore]

Good morning everyone. I have a $860 covered call 10/22 exp. that I opened last week. I don't want to loose my shares as the tax consequences would be terrible. My plan was to roll them but I remember reading in this thread somewhere that if you sell a covered call in the money ( For example $870 cc 10/29 exp), then the underlying shares will reset from long term holding to short term holding (and be taxed at short term capital gains rate) Can anyone confirm this?

I am not a tax professional or a lawyer, but my understanding is that non-qualified covered calls (like weeklys) reset the holding period of short-term shares, but not long-term. 26 CFR § 1.1092(b)-2T - Treatment of holding periods and losses with respect to straddle positions (temporary). See (a)(2).

Fidelity has a publication that discusses many of these issues, but it is a little unclear on this point. I can read it either way: Tax Implications of Covered Calls - Fidelity

But their publication is a summary of "Taxes and Investing", and old publicaton from the OIC, which states:

There is a termination (and forfeiture) of the holding period during the period of offset for any position not already held more than one year (see Appendix II). The holding period for such a position begins again (at zero) when the position is no longer part of a straddle.

I think that agrees with the tax code above.

If anyone has better sources or information (like from a real tax pro) please share.

 

[doddiozil]

I am not a tax professional or a lawyer, but my understanding is that non-qualified covered calls (like weeklys) reset the holding period of short-term shares, but not long-term. 26 CFR § 1.1092(b)-2T - Treatment of holding periods and losses with respect to straddle positions (temporary). See (a)(2).

Fidelity has a publication that discusses many of these issues, but it is a little unclear on this point. I can read it either way: Tax Implications of Covered Calls - Fidelity

But their publication is a summary of "Taxes and Investing", and old publicaton from the OIC, which states:

I think that agrees with the tax code above.

If anyone has better sources or information (like from a real tax pro) please share.

Thank you for that information - that is my understanding as well. My question was more specifically directed towards selling CC in the money, as opposed to out of the money.

 

[Right_Said_Fred]

LOL. We are getting the correction to the upper BB that I expected yesterday (I was one day off). This is good if you want the SP to rise after earnings. Now that I'm no longer a HODL guy, I no longer get excited about earnings and the dream of a big gain. I want 10+% over night moves off the table (a more stable stock) so I can sell my BPS and BCS....

That's the disadvantage of moving from HODL to BPS/BPC spreads: you want the stock to remain within certain boundaries. That means you will start - unwillingly - to hope for some bad news or profit taking to keep a run-up in check. It's dangerous: that pull from the dark side can be strong.

 

[stealthyc]

That's the disadvantage of moving from HODL to BPS/BPC spreads: you want the stock to remain within certain boundaries. That means you will start - unwillingly - to hope for some bad news or profit taking to keep a run-up in check. It's dangerous: that pull from the dark side can be strong.

Just don't sell the call side and you can stay happy as an uber-bull

 

[evermore]

Thank you for that information - that is my understanding as well. My question was more specifically directed towards selling CC in the money, as opposed to out of the money.

I think (again, I have no special expertise) it doesn't matter for non-qualified covered calls. I found an old copy of "Taxes and Investing" from the Internet Archive: Wayback Machine

The appendix in the back looks helpful (page 42). Strategy #3 ("Long Stock-Short Call") has no subsections for in or out of the money, but the following sections on qualified covered calls do.

 

[BornToFly]

That's the disadvantage of moving from HODL to BPS/BPC spreads: you want the stock to remain within certain boundaries. That means you will start - unwillingly - to hope for some bad news or profit taking to keep a run-up in check. It's dangerous: that pull from the dark side can be strong.

I'm not selling any of my shares until SP3,000. What I "hope for" has no influence on the share price - I'm along for the ride. But if I have a choice, I would like a slow steady climb, rather than large pop and dips....

 

[corduroy]

Just don't sell the call side and you can stay happy as an uber-bull

I was trying to explain options to my wife, and how we have ranges of happiness each week. Yesterday she told me "OK, so we can only be excited up to $960 this week - got it"

 

[doddiozil]

I think (again, I have no special expertise) it doesn't matter for non-qualified covered calls. I found an old copy of "Taxes and Investing" from the Internet Archive: Wayback Machine

The appendix in the back looks helpful (page 42). Strategy #3 ("Long Stock-Short Call") has no subsections for in or out of the money, but the following sections on qualified covered calls do.

Awesome, thank you!

 

[bkp_duke]

That's the disadvantage of moving from HODL to BPS/BPC spreads: you want the stock to remain within certain boundaries. That means you will start - unwillingly - to hope for some bad news or profit taking to keep a run-up in check. It's dangerous: that pull from the dark side can be strong.

Then sell BPS only. Then all you want is upside.

There are 30 different shades to this argument.

 

[generalenthu]

Great minds, I need some advice. We're buying our dream house and I need a bit of cash for downpayment since we'll be carrying 2 mortgages for a while. I am running BPS weekly, but that wont generate enough to cover the amount we need by closing. Other possible options are to sell some CC for way off in future (Jan 2024 1600) against ALL my shares and then buy it back when we inevitably dip or just take a cash margin loan out from my account. For instance, I could easily cover what I need for the down payment now (with BPS active) w/ a margin loan. Im leaning towards the latter since I will be able to repay that in full via several means in < 6 months and also still sell options. This is a taxable account and I prefer to not sell shares since

This wouldn't be possible if I hadn't invested in Tesla, and listened to the collective TMC great minds...so thank you all so much for all your advice! It is truly amazing to think we are in the position we are because of this company and this forum.

I may be able to offer an idea here. It looks like taking the margin loan is the most straightforward approach, and coupled with how much margin you are utilizing for the BPS, if you think you have enough of a cushion just go for it. If you are writing BPS from the margin generated by your tesla holdings, you may want to play with a margin gaming tool your broker provides

An alternate idea I have been exploring to hedge downside risk, with reasonable costs for a short period, is what is called a pay later put hedge (PLP). This typically involves going far out in time and getting into a net zero credit 2x1 ratio put spreads. As an example you could do something like 2023 June +600 vs -800 in a 2 : 1 ratio. At expiry, if the stock price is above, 800, you end up paying nothing. and your downside breakeven is a little bit under 500, but the point is to never hold these to expiry.

The Pros:
1. Initially costless, and generates margin on a portfolio of long stock. especially if your broker gives you only 40% margin
2. Protects you from a downside move initially in multiple ways
a) Because you are long vol and
b) you are long skew
c) you are short deltas
3. Has much smaller negative theta than outright put purchases

The Cons:
1. spreads that far out have relatively less liquidity.
2. You are long volatility and skew. So a drop in IV from here here will be a bad guy
a) remember your continued earnings from deep OTM BPS are dependent on vol and skew staying high. you're doubly exposed with this.
3. A muddle around 800 is bad for this position

Its is hard to offer solid advice given the risk appetites of folks, but if you want to hedge your position for a short time due to an upcoming liquidity event, you could do much worse than above.

 

[Cherry Wine]

LOL. We are getting the correction to the upper BB that I expected yesterday (I was one day off). This is good if you want the SP to rise after earnings. Now that I'm no longer a HODL guy, I no longer get excited about earnings and the dream of a big gain. I want 10+% over night moves off the table (a more stable stock) so I can sell my BPS and BCS....

Those 10% moves are what keep the premiums nice, though.

 

[Discoducky]

Yes, that is correct.

And it does suck come tax time

 

[BrownOuttaSpec]

I'm not selling any of my shares until SP3,000. What I "hope for" has no influence on the share price - I'm along for the ride. But if I have a choice, I would like a slow steady climb, rather than large pop and dips....

If it was slow and steady wouldn't that kill the IV and hence the $ per contract? Just asking as a new options trader, I'm not trying to correct you.

 

[dl003]

Managing CCs or Bear Call Spreads with strikes at ATHs
Managing Covered Calls, or Bear Call Spreads can be different when the (short) strikes are over ATH so far.
I have -900/+920C expiring this Friday 10/22.
I also have BPS with short leg at 695P.
Here are the thoughts on managing the call side. Would appreciate your inputs.

• Keep rolling increasing the strike a bit, based on following some assumptions. Since the strike is at ATH, there's a good chance, at some point in the coming weeks or months, the SP will get below $900. If that can be counted on, and in the meantime if the SP doesn't go too far away from 900, keep rolling these spreads, likely moving the strikes higher with minimal credit. Rolling to Oct-29 -910C/+930C is at debit of .35. I don't mind moving my BPS higher for this week, to fund the .35 debit for Call spread roll to next week.
• Keep rolling at the same strikes, collect credit: This will give me credit as of now, but as weeks go, as the strikes get DITM, I will get no credit, and would be risk to not close the position at that time, or I should roll out by a few months.
• Play safe on Call Spread side & leverage BPS: Get aggressive with BPS, moving strikes higher. Moving the put side, 675P/695P to the same expiry 705P/745P would give enough credit to be able to roll the call spread to next week at higher strikes -920C/+940C.
• Take loss to roll to safer strike this week or next week (1000+)

@generalenthu @adiggs @bxr140 @dl003 @Lycanthrope @Singuy, @All...

I would either take the loss or roll that up to maybe 930/980 and then roll the BPS up also. I'm of the opinion that the stock will continue to run up from here, given a solid ER (which is all but guaranteed). When that is the expectation, I don't want to prolong the pain by rolling a losing call out until all the dust has settled. But again I'm probably on the skittish side of this board.

 

[Tslynk67]

Why not split it and roll the $600's to $800's, pocket the cash and immediately be able to sell CC's?
Or to $700's and have some room.

Because selling CC's isn't interesting right now, we need IV to increase and if IV increases, the c1000's would go ITM anyway

Good logic, eh?