Wiki Selling TSLA Options - Be the House

[Tathagata]

Just wrote the DEC18 380p for $13.50

Im still long DEC18 330p from the protective collar I put in place last week, so I sold an equal # of contracts effectively making this a vertical credit spread, which is a defined risk trade and keeps my margin equity in good shape

 

[adiggs]

My own observation is that Theta decay is based more on wall-clock-time than Wall-Street-time. Basically it's there to take into account external events, news, and other stuff that might happen at any time, not just while the market is open. So the difference between today and Monday is probably bigger than you're estimating.

I've wondered about that. It would certainly encourage being in on Friday, because 2 days of market closed with time decay ticking away sounds like heaven to me

I admittedly have a weird definition of heaven if one were to take me literally.

 

[juanmedina]

For those of you wanting to sell options puts.

Would pricing be better on Monday versus today (Friday)?

I am referring to Nov 13th (Weeklies).

I think for puts is better to sell them on Friday because usually the SP is up on Mondays. On the call side I like to sell them on Monday specially if we are up pre-market a good amount. I usually place the sell to open order before the market opens and sometimes the premium that collect ends up being the high of day for that contract. That is what I do for weekly or 2 week contracts.

 

[euro2012]

I have 100 shares bought on margin for $400 that I have been using to sell covered calls on, being aggressive to collect a higher premium, and not worrying about being assigned as long as the strike price is over my purchase price. This week, I had a sold covered call expiring at a $430 strike price. Since the price closed at $429.95, I am assuming it will not be exercised, since after hours the sp has drifted down some? My question is, how long after market close can a covered call be exercised on, if I do not close out the position? I'm getting lost between expiration date and expiration time...

 

[pz1975]

I have 100 shares bought on margin for $400 that I have been using to sell covered calls on, being aggressive to collect a higher premium, and not worrying about being assigned as long as the strike price is over my purchase price. This week, I had a sold covered call expiring at a $430 strike price. Since the price closed at $429.95, I am assuming it will not be exercised, since after hours the sp has drifted down some? My question is, how long after market close can a covered call be exercised on, if I do not close out the position? I'm getting lost between expiration date and expiration time...

It depends on the broker but I think as late as 1.25 hours after close. The owner of that option would have to choose to exercise it after hours - it isn’t done automatically. And they can choose to exercise it whether or not the option becomes in the money or not.

 

[euro2012]

It depends on the broker but I think as late as 1.25 hours after close. The owner of that option would have to choose to exercise it after hours - it isn’t done automatically. And they can choose to exercise it whether or not the option becomes in the money or not.

Thanks for the info, super helpful. I wonder why the contract still shows up in my account, still able to buy it out at 80%. Previous contracts that I have let expire take until Monday morning to disappear. This is qtrade in Canada.

 

[pz1975]

Thanks for the info, super helpful. I wonder why the contract still shows up in my account, still able to buy it out at 80%. Previous contracts that I have let expire take until Monday morning to disappear. This is qtrade in Canada.

I find expired options take up to 1 week to disappear from my account. The 80% buyout you see is probably just the last price of that option Friday. You won’t actually be able to trade on it anymore. In my account (iTrade in Canada), they are usually designated with a little “q” next to the position to indicate they are expired.

 

[corduroy]

I usually place the sell to open order before the market opens and sometimes the premium that collect ends up being the high of day for that contract.

How do you choose your limit order prices before the market opens? Are you basing your decision on the premarket?

 

[adiggs]

Thanks for the info, super helpful. I wonder why the contract still shows up in my account, still able to buy it out at 80%. Previous contracts that I have let expire take until Monday morning to disappear. This is qtrade in Canada.

I like to actively close positions like that very near the end of the trading day. Being out of the money, it should be closable for .01 or .10 at some point, even if it is RIGHT before closing. I took an option down to expiration to wring out the last few pennies - the time value was still $1 with about an hour to go; I was really surprised by that, and I wouldn't have learned that without riding an option down to the end (I think I finally closed that one for .10 with 5 to 10 minutes to close.

Then again, I also like to put myself in situations like you've got into specifically to see how it works. That's a learning example - you'll have a better idea of what happens after the expiration date than you had before. (I did that once - that was enough for me).


I like to actively close the positions even if it's for a .10 or .01 for two reasons.
1) It lets me sell the replacement position on that Friday, rather than waiting for the expired option to get closed over the weekend, and waiting until Monday to start up the new position.
2) It eliminates the possibility of anything happening over the weekend that is out of control (option holder deciding to exercise during the after market if there's a move that they can also sell immediately and earn a profit for example).

If I'm actively closing, then I am increasingly using the roll transaction rather than executing as two separate transactions. It's approximately the same end result, but the roll has a reasonable chance of reducing the sell / but slippage to 1 transaction worth of slippage vs. 2 transactions worth of slippage.

 

[juanmedina]

How do you choose your limit order prices before the market opens? Are you basing your decision on the premarket?

I look at how much the stock is up pre-market and then I look at the price of the contracts from the one that I want to sell offset by how much we are premarket. For example we are up $10 pre-market I want to sell the 500 strike call so I look at the 490 strike call to get a rough idea of how much I can sell the contract for.

 

[ReddyLeaf]

I look at how much the stock is up pre-market and then I look at the price of the contracts from the one that I want to sell offset by how much we are premarket. For example we are up $10 pre-market I want to sell the 500 strike call so I look at the 490 strike call to get a rough idea of how much I can sell the contract for.

Well, I tried this technique this morning, hoping/expecting a typical rocket Monday move. Unfortunately, I didn’t put the price up high enough. I put in a limit order for $4 (500C 11/27) and it filled at 4.50 upon open while I was asleep. It skyrocketed to $8 by the time I checked this AM, so I left a lot on the table. I tried another 600C 12/24, but missed the peak and it hasn’t filled yet. Oh well, my first options trade, so a complete newbie. I can’t expect perfection.

It took me a while to get my ROTH account converted over to a brokerage and then approved for options trading. In the process, I bought so much TSLA that I don’t have enough free cash to write any puts. I’m planning to follow @adiggs method of writing CC’s around 0.10 delta. I don’t really want them to exercise, so the writing profits are really low, but I’m limited in what else I’m willing to try.

 

[euro2012]

So an update to my covered call from last week. It was a 430 strike price, with the stock price closing at 429.95 and going down after hours. I left it open to see how long it would take to disappear. This morning I get notice that it has been exercised. Not a big deal since I bought those 100 shares on margin at 420, so still a gain (in addition to the options premiums) but still. Lesson learned. I have asked qtrade to see when it was exercised, just so I can learn. The problem now is, trying to do the other side of the wheel (selling a cash covered put) gives me an error message “this trade would violate the current position”. I do have several leaps in the same account, but those should not be affected, should they? I also have more than enough margin room to cover 100 shares. Thoughts?

 

[juanmedina]

Well, I tried this technique this morning, hoping/expecting a typical rocket Monday move. Unfortunately, I didn’t put the price up high enough. I put in a limit order for $4 (500C 11/27) and it filled at 4.50 upon open while I was asleep. It skyrocketed to $8 by the time I checked this AM, so I left a lot on the table. I tried another 600C 12/24, but missed the peak and it hasn’t filled yet. Oh well, my first options trade, so a complete newbie. I can’t expect perfection.

It took me a while to get my ROTH account converted over to a brokerage and then approved for options trading. In the process, I bought so much TSLA that I don’t have enough free cash to write any puts. I’m planning to follow @adiggs method of writing CC’s around 0.10 delta. I don’t really want them to exercise, so the writing profits are really low, but I’m limited in what else I’m willing to try.

haha I usually try to split my orders during the day and days of the week that I am looking at just in case. I did put some sell orders at open and I put the limit order too high so I didn't get them. I also had some issue with Vanguard so I was not able to get close to peak price either but I got a few later for this Friday and next Friday that are already down 45%. I might wait until later today or tomorrow to close them. Yeah trying to get the peak is almost impossible. I would say that obviously the more we are premarket the better; $10 bucks today wasn't that much to make a huge difference in premium. From the trades that I done it has work well for me if we are 10-5% premarket on weekly options. I am curious, how do you end up picking that expiration date and that strike? The contract that you sold didn't open at $8 they opened at $4.5 and later when the stock hit $451 it got up to $8.

I sold c505s for this Friday for $1.6 and c515 for the 11/20 for $3.7. Remember others have stated that right now is not a good time to sell options because the IV is really low; I just do it for fun.

As a disclaimer I would say that I am also a novice at options. I have done many trades and have been so far successful and have never lost any shares, I also mostly only trade weekly or two weeks options for small premiums/high probability trades which I can close easy if the trade goes wrong. I want to sell longer term contracts and LEAPs when the price is right.

 

[adiggs]

So an update to my covered call from last week. It was a 430 strike price, with the stock price closing at 429.95 and going down after hours. I left it open to see how long it would take to disappear. This morning I get notice that it has been exercised. Not a big deal since I bought those 100 shares on margin at 420, so still a gain (in addition to the options premiums) but still. Lesson learned. I have asked qtrade to see when it was exercised, just so I can learn. The problem now is, trying to do the other side of the wheel (selling a cash covered put) gives me an error message “this trade would violate the current position”. I do have several leaps in the same account, but those should not be affected, should they? I also have more than enough margin room to cover 100 shares. Thoughts?

My guess on the cash secured put is that your account isn't taking margin into account - it wants all of the cash to be available. That's a guess - the only real choice I can see is a phone call to your broker to find out what is actually going on. Since I haven't attempted to use margin, even a little bit, I don't experience with that.

 

[adiggs]

Well, I tried this technique this morning, hoping/expecting a typical rocket Monday move. Unfortunately, I didn’t put the price up high enough. I put in a limit order for $4 (500C 11/27) and it filled at 4.50 upon open while I was asleep. It skyrocketed to $8 by the time I checked this AM, so I left a lot on the table. I tried another 600C 12/24, but missed the peak and it hasn’t filled yet. Oh well, my first options trade, so a complete newbie. I can’t expect perfection.

It took me a while to get my ROTH account converted over to a brokerage and then approved for options trading. In the process, I bought so much TSLA that I don’t have enough free cash to write any puts. I’m planning to follow @adiggs method of writing CC’s around 0.10 delta. I don’t really want them to exercise, so the writing profits are really low, but I’m limited in what else I’m willing to try.

I typically don't try to sell options during off hours for fill the next day. It would actually be a good idea for me as I'm west coast and I'm not going to be up at 6:30 or 7:00 routinely and checking the market.

That being said, two observations. The first is that I've sold options during trading and watched them do exactly what you described. I would say that on the day of sale, I more often finish the day in the red on those options than green. Maybe I'm particularly bad at picking anything resembling the peak of the day, but this is also why I've landed on this as my trading strategy. I'm usually green within a couple of days.

The other observation is that this dynamic is one reason I put as much energy as I do into setting things up so that I am mostly indifferent to share direction. If I'm rolling a winning position to a new position (close and simultaneous open), then that helps me avoid figuring out if the timing is good for the close or the open. It will pretty much always be better for one side, and worse for the other side (so I usually trigger off of the closing position being sufficiently profitable).


A different observation - I started really far OTM, and only crept closer to the shar4e price over many trades. My mindset at the beginning was more focused on the learning. Entering the trading, exiting the trade. Picking each (I put more energy early on into finding a better open and close time). And I think mostly - starting to get experience with how option prices change in response to share price changes.

So education and experience. And if you're getting paid to acquire that education and experience, then where have you ever found that deal before!?!

 

[ReddyLeaf]

......Snip........A different observation - I started really far OTM, and only crept closer to the shar4e price over many trades. My mindset at the beginning was more focused on the learning. Entering the trading, exiting the trade. Picking each (I put more energy early on into finding a better open and close time). And I think mostly - starting to get experience with how option prices change in response to share price changes.

So education and experience. And if you're getting paid to acquire that education and experience, then where have you ever found that deal before!?!

IIRC, when you started IV was much higher than now. From reading this thread (wow that took some time!), and the Options Alpha videos, now is not the best time to be selling options. It is what it is and I must start somewhere. I thought about 600, but the premiums were barely enough to pay trading costs. I almost went out to 12/24, but decided to try the shorter term on my first one. There’s still lots of time for December. In the end, my first trade is minuscule, either for premium or shares if exercised. If exercised, I would still sell for a decent short-term profit, though would likely miss out on huge future gains. Hopefully I’ll gain enough experience and enough small profits to start selling puts. I might gamble on buying some 2022 LEAPS, but will wait for a decent pullback.

Thanks again for starting this thread and generating easy to understand techniques.

 

[bxr140]

I think for puts is better to sell them on Friday because usually the SP is up on Mondays.

I just did a 5 min excel exercise and, pretty consistently since 2015, price is up on Monday less than 60% of the time. So while the above statement is true, its hard for my risk profile to consider that statistically relevant enough to base a strategy. Also, especially this year but also last year, the average Monday down gap is larger than the Monday up gap, so that further weakens the "up on Monday" strategy.

Further analysis may provide some more statistically relevant patterns; all I did to come up with these numbers is excel them by year.

 

[adiggs]

IIRC, when you started IV was much higher than now.

It turns out that this is a pretty big understatement

I sold some 200 puts with shares a little over 400. That trade is still in my top few trades in % gain. I haven't been able to go out that far, with that good of results, since. Too bad I didn't get assigned on those 200's, eh? . And too bad (not really) that I didn't know then, what I know now. The 300s or 350s would still have been safe, with a LOT more premium available.

Not really too bad though - I didn't know, or have the experience, then that I have now, so that higher strike put wasn't actually available to me.


I thought of one other observation. Whatever we do, there are up and downsides. Most of those up and downsides are relatively minor, but there is also tail risk (reward) that can generate extreme consequences.

Selling options is a limited upside (can't earn more than the premium you collect up front) with unlimited downside trading strategy. So the tail risk to the good is pretty much unavailable. Tail risk to the downside though (in terms of option premiums going up) is effectively unlimited.

My point here is that we make decisions balancing the risks and rewards of each action, as well as each inaction, and decide on what we're going to do based on our own beliefs.

And most importantly, just because we believe something, doesn't mean that we are right. My own experience is that this is emphatically the case in the short term for me (I define that as 3 months and less).

But we do form opinions that are strong enough to act on them in the market. This is why I like to see trade posts, most importantly with the rationale behind them. The opinion and conviction behind the trade is strong enough to put money behind it in the market. I don't need to agree with them - but I do get exposed to ideas that I hadn't considered.

 

[bxr140]

My question is, how long after market close can a covered call be exercised on, if I do not close out the position?

Current rules are (I think) that assignment notifications must come by 5:30pm Eastern, and official expiration is still Saturday noon. That said, I'm not sure retail brokers will actually assign contracts that late on Friday...?

If you are in the money, usually by 1 cent or more by the time trading actually stops, you will be automatically assigned. This includes all after hours trading and I think that goes all the way to 8pm.

The way it shows up in your portfolio over the weekend seems to be broker specific; I wouldn't worry about it too much.

The good news is that after hours on Friday is like the least likely time price is going to wildly fluctuate so, Monday gap notwithstanding, your account balance isn't going to materially change if you were to be assigned.

 

[bxr140]

I like to actively close positions like that very near the end of the trading day.

This is the best way to do it. Remove the risk of random assignment and return capital to your portfolio for other positions. Even easier, just set a stop. More advanced platforms will actually let you send an order at a particular time, so you could send a market order at like 5 min before the closing bell or whatever.

FWIW, there are some platforms that will actually let you close a contract commission free if its value is under like 5 cents. They don't want the hassle of assignment either, plus they want to open your capital back up to other positions.