Wiki Selling TSLA Options - Be the House

[BornToFly]

(Do you have another proposal for how to make some income on $10K in cash?)

With only $10k, I would do only 1 $50 spread, very far out of the money, so you are basically making only .25-.5 or $25-50 dollars a week. If they lost it all they could try again one more time. But I probably would not tell a newbie with $10k to start selling spreads for $25/week in income.

 

[adiggs]

I notice a lot of new people posting about starting spread strategies. I think that was inevitable after the months of success many of us have had here and with results easily followed in this thread. I just want to add a word of caution to anyone who is new to this: start very small and very conservative (stay very far from the strike price and using only a small amount of your margin or cash). Also consider starting using just sold puts and covered calls and not spreads.

I started routinely selling options a couple years ago (previously only did it before ERs) and at first only sold very OTM puts (no spreads) and covered calls, and even doing that made mistakes early on and was lucky I was being so conservative. I also had 6 years or so of buying calls (short-term to LEAPS) prior to that so I understood options reasonably well. If I had just jumped in the deep end when I started selling options using spreads I would have been drowned very early. Even now I know that at any moment it is possible for me to lose all my margin I am using and so I am super careful to avoid this.

I'll add my emphasis to this.

We each make our own decisions and experience our own consequences. That being said there is a fundamental assumption in this thread that everybody has gone through the Option Alpha option education series linked back on the first post, or has equivalent learning from other sources. That education is the entry level knowledge and is a starting point to consider making some small trades to start getting your own experience.

And then reading the thread might be a good source of education, inspiration, and caution. And doing small trades for yourself. The thing to understand is that the right working assumption is that everybody doing anything in this thread at high volume is also doing so with a minimum of 1 year of further experience after that initial education. That 1 year of experience is also reasonably high volume - it's not just a few minutes each week. I'd say that if you combine the effort to follow Tesla closely with the options trading effort and research then it's probably on the order of a half time job (1000 hours over that year).

Not saying that it's actually that much - for some its more, for some its less. Only that it is the right assumption to be making. Maybe 200-500 hours worth of options specific experience - small trades of different kinds to gain experience, reading this and other resources, etc.. The point is that this isn't easy, despite how it might look from the outside, and none of us want to hear about you experiencing a bad consequence (we all make our own decisions and experience our own consequences - but the community likes it when those consequences are positive, and we try to help people down that path).


I wrote about this on the first or second page of the thread - my first trade was to sell some cash secured puts. I sold the 200 strike when the shares were $400. Then I had some incremental cash arrive and sold some more puts - these were 175s with the shares down slightly. I was 50% OTM at a strike price that I was eager to buy the shares at, and I still felt like I was getting onto a roller coaster (excited, adrenaline, ..). I got closer to the money after that, but to start - I was REALLY conservative. And I stayed that way until -I- felt like I could be really conservative AND closer to the money.

 

[Right_Said_Fred]

IV going up? Just saw a ~$20 price jump in SP but my unrealized sold puts profit dropped about 50 cents a share

Yes, saw that too. SP was pretty stable but the p860 for 11/5 went up from $3.80 to $5.80 in a short period of time. Really weird. So I immediately bought back my p810 en p820 10/29, which had hardly gone up in price, and sold p850 and p860 11/5. Thank you very much.

 

[adiggs]

With only $10k, I would do only 1 $50 spread, very far out of the money, so you are basically making only .25-.5 or $25-50 dollars a week. If they lost it all they could try again one more time. But I probably would not tell a newbie with $10k to start selling spreads for $25/week in income.

I like this.

If one is making $50/week on $5k at risk, then that's 1% per week or 50% per year. Every week won't be a winner - managing the losing positions to keep the loss small might be the most important contributor to overall gains. But if there is a 10% loss ($500) along the way then the overall gains are still 40% per year. So while $50/week doesn't sound like all that much, it's actually an unbelievably good result.

Heck - at $25/week the result is still unbelievably good. It's more like dividend income the way it comes in than capital gains from big share price moves, but the principle remains the same.

 

[Tslynk67]

So what’s with the 11/5 put premiums shooting up? Must be the buying ratio shifted?

 

[EV forever]

Tell me if what I am thinking of doing makes sense

I had 75 BCS -c1100/+c1200 for 10/29 this am which were in trouble as the stock spiked. I panicked a little, and rolled them out to -C1150/+c1200 for 11/12 at the worst possible time when the stock was at its peak at a debit. I realized later that I should have been rolling up the +c1200 to 1250 or higher, but didnt think it through at that time.
Anyways, later when the stock dropped, I closed out the -C1150 for a small loss.

Now I still have 75 +c1200 for 11/12 which are showing a big loss as the stock dropped further after that. If I simply close them out tomorrow, I will probably have a large loss enough to wipe out last few weeks of gains.

So I am thinking to converting this to a call debit spread. I have already spent the money on purchasing the +c1200, why not add short calls at -c1250 or so? I entered the numbers in Fidelity margin calculator and it does not seem to affect my margin as I already have the long calls.

Is there a better strategy to try? I am only trying to minimize my losses on the long calls at this point.

Quick update on my situation and question that I am hoping will get some answers before the end of trading day today.

After reading the responses here I had decided to sell most and take the loss and then do a debit spread with the remaining. However when I sold 10 of the calls it triggered a wash sale. I don’t understand why since I definitely have not traded this security before.

Anyways the reason I am hoping for a response before end of trading day is that if I cannot use the loss as tax deduction that pushes me more in the direction of taking the debit spread instead. Might as well get some gain to offset the loss.

 

[Ogre]

I like this.

If one is making $50/week on $5k at risk, then that's 1% per week or 50% per year. Every week won't be a winner - managing the losing positions to keep the loss small might be the most important contributor to overall gains. But if there is a 10% loss ($500) along the way then the overall gains are still 40% per year. So while $50/week doesn't sound like all that much, it's actually an unbelievably good result.

Heck - at $25/week the result is still unbelievably good. It's more like dividend income the way it comes in than capital gains from big share price moves, but the principle remains the same.

I have 2 accounts. One is my IRA, it’s where most of my investing funds are and it is generally held in long positions with a few naked bull puts for income and the occasional covered call. I’ve been playing a bit more with this account lately, but not too much.

The other account is my options/ play account. It’s been idle for a while but I added about 11k to it over the past 6 months and have been dabbling with vertical calls and lately bull put spreads and recently a failed bear call spread. Right now the account is floating around 20k so just shy of a double in the past 6 months. Wish my main account doubled in the past 6 months, but can’t complain about that.

In my experience, buying vertical spreads carefully works quite well for these small portfolios. The returns are perhaps not as good, but you can bite off multiple $2000-5000 positions and if you lose one you are only out that one spread and you don’t have these big loss days where you lose more than potential returns.

Transitioning this account more to selling BPS lately. Though at the moment… mostly just cash.

 

[OrthoSurg]

I notice a lot of new people posting about starting spread strategies. I think that was inevitable after the months of success many of us have had here and with results easily followed in this thread. I just want to add a word of caution to anyone who is new to this: start very small and very conservative (stay very far from the strike price and using only a small amount of your margin or cash). Also consider starting using just sold puts and covered calls and not spreads.

I started routinely selling options a couple years ago (previously only did it before ERs) and at first only sold very OTM puts (no spreads) and covered calls, and even doing that made mistakes early on and was lucky I was being so conservative. I also had 6 years or so of buying calls (short-term to LEAPS) prior to that so I understood options reasonably well. If I had just jumped in the deep end when I started selling options using spreads I would have been drowned very early. Even now I know that at any moment it is possible for me to lose all my margin I am using and so I am super careful to avoid this.

Please criticize my strategy.

this is my first week in option trading and opening very very small positions just to try to adjust if the stock price move against me. I’m not even at 0.1% of my margin.

this morning I sold a CC
TSLA211126C1325
CALL-100TSLA'21 26NV@1325

Yesterday I sold a Put
TSLA211217P705
PUT -100 TSLA'21 DC@705

So I opened a wide strangle

are the legs too close?
if the stock starts moving against me on one side should I sell one leg and buy is back closer to take a net credit?

I am just getting my feet wet and took 2 contracts on both side, didn’t not want to sell 20 contracts for my first try of trial and error trying to manage the stress of opti trading.
feel free to criticize and I prove my reasoning

 

[adiggs]

I think we're close enough to the end of the week, and I feel like I've got a better handle on what the shares will be doing ....

I've decided to go with some leap covered calls for next week at the 1200 strike and a 7.35 premium. All of the orders that I've entered are for leaps that selling at $1200 sounds (today) like a pretty good deal. And ignores my ability to roll these for strike improvement, so feeling good about these.

On the call side I think I'm going to stick to covered calls and stay away from call spreads. My one big spread 'disaster' was back in June when a small width call spread turned into a 50% loss seemingly in minutes. That's why I don't do small width spreads . That experience plus reading about others experience, plus my own emotional reaction when I think about or do call spreads, tells me "don't do that". But with call premiums making a come back and being at the top of the trading range - a few covered calls, covering maybe 10% of shares / leaps, seems like a good choice for me.


I also think I've found a BPS trade that I like. Sticking to this week I've got orders in for 750/950 spreads. I've intentionally doubled up on my spread width to keep my # of contracts (leverage) down. I tend to make use of most of my buying power - I just push it into wider spreads. I want these positions to behave a lot like short puts and previous experience with $200 wide spreads says this will work well.

I could go out another week and more than 2x the income, but I'm still feeling my way back into the market. I'm staying with this week and small credits (2.05 in this case as a good combination of risk and reward (at least in my eyes). I've had some of these 2.05 orders fill, and mostly not fill. I figure there's a pretty good chance that the remainder don't fill and I'm not going to chase the premium down (1.85 last I looked) on this one.

 

[MikeC]

Quick update on my situation and question that I am hoping will get some answers before the end of trading day today.

After reading the responses here I had decided to sell most and take the loss and then do a debit spread with the remaining. However when I sold 10 of the calls it triggered a wash sale. I don’t understand why since I definitely have not traded this security before.

Anyways the reason I am hoping for a response before end of trading day is that if I cannot use the loss as tax deduction that pushes me more in the direction of taking the debit spread instead. Might as well get some gain to offset the loss.

If there's a wash sale, they would have to add that loss to the cost basis of the new position. As long as you close that position (presumably without another wash sale), you should get the loss back for tax purposes. If there's really no other position that the basis was added to, you should call your broker.

 

[vikings123]

Yes, saw that too. SP was pretty stable but the p860 for 11/5 went up from $3.80 to $5.80 in a short period of time. Really weird. So I immediately bought back my p810 en p820 10/29, which had hardly gone up in price, and sold p850 and p860 11/5. Thank you very much.

That is crazy, there must be a lot of hedging going on. I’m going to stick to call selling until I see a red day.

 

[adiggs]

Please criticize my strategy.

this is my first week in option trading and opening very very small positions just to try to adjust if the stock price move against me. I’m not even at 0.1% of my margin.

this morning I sold a CC
TSLA211126C1325
CALL-100TSLA'21 26NV@1325

Yesterday I sold a Put
TSLA211217P705
PUT -100 TSLA'21 DC@705

So I opened a wide strangle

are the legs too close?
if the stock starts moving against me on one side should I sell one leg and buy is back closer to take a net credit?

I am just getting my feet wet and took 2 contracts on both side, didn’t not want to sell 20 contracts for my first try of trial and error trying to manage the stress of opti trading.
feel free to criticize and I prove my reasoning

NOT-ADVICE of course

This looks like a great place to start to me. Looks like you're using the November and December monthlies for your trades. There are pros and cons to doing so - I think that the primary con you'll hear around these parts is that you don't get to make adjustments to your strike price often enough. Come November that 1325 strike covered call may not look nearly as far OTM

Strictly speaking a strangle uses the same expiration dates. I have previously done something like this where I thought of what I was doing as a semi-perma strangle. That meant I was managing the legs separately, and sometimes meant they had the same expiration and sometimes didn't. My objective was to be in the market on both sides, so that I was making money either way. Well - in theory making money either way as I was trying for both to be OTM and by taking profits early I could enhance the likelihood of both finishing OTM.


So one idea to consider is whether more frequent trades on the current or next week expiration is sensible for you. An important benefit of the more frequent trades, is that you accelerate your learning curve. If you need 50 trades to gain a useful level of experience, then monthly trades will need 4 years, and weekly trades will need 1 year, to accumulate that experience.

And starting with monthlies and trying weeklies later is totally reasonable.

 

[UltradoomY]

Well,
I figured I would finally chime in now that everybody has the fires put out or hopefully under control.
Through sheer procrastination I was out this week after closing my BPS on Friday after holding for 2 hours for whiskey money.
Like some others I do need the income but have been doing well enough to sit out once and a while and feel like I caught the "lucky" bug this week as I was waiting till Monday to open an Iron Condor.
Do nothing saved my skin for sure as I would have been max loss.

Now with IV going back up pretty quickly (gotta be careful what we wish for right.....?) - I am going with regular old Boring Puts for next week.
STO $825 P for $5 each. Felt pretty good about these (famous last words right..) and thought that was a great premium for $200 away.
Cheers!

 

[vikings123]

Please criticize my strategy.

this is my first week in option trading and opening very very small positions just to try to adjust if the stock price move against me. I’m not even at 0.1% of my margin.

this morning I sold a CC
TSLA211126C1325
CALL-100TSLA'21 26NV@1325

Yesterday I sold a Put
TSLA211217P705
PUT -100 TSLA'21 DC@705

So I opened a wide strangle

are the legs too close?
if the stock starts moving against me on one side should I sell one leg and buy is back closer to take a net credit?

I am just getting my feet wet and took 2 contracts on both side, didn’t not want to sell 20 contracts for my first try of trial and error trying to manage the stress of opti trading.
feel free to criticize and I prove my reasoning

I think those strike prices are fine, perhaps you can get better value by selling calls/puts one week out instead on Nov 26. For example a 1200 call for next week is selling for around 13.50.

 

[tradenewbie]

After the huge loss of the BCS and have read couples of the guys in twitter (seems they are always quite right about Tesla), I am thinking to sell some shares at this price and wait for the dip. In fact, I was thinking to sell most shares yesterday when it almost hit 1100, but I was struggled about the loss making from BCS and didn't do it.

I am wondering, with some current covered call already in place, would the broker allow me to sell the stock while I still have the cover call in place? I remember I don't have permission to sell a naked call. (I just tried to submit a dummy order of selling it at 1200, and it does go through, so wondering how it works?)

 

[Cherry Wine]

Well,
I figured I would finally chime in now that everybody has the fires put out or hopefully under control.
Through sheer procrastination I was out this week after closing my BPS on Friday after holding for 2 hours for whiskey money.
Like some others I do need the income but have been doing well enough to sit out once and a while and feel like I caught the "lucky" bug this week as I was waiting till Monday to open an Iron Condor.
Do nothing saved my skin for sure as I would have been max loss.

Now with IV going back up pretty quickly (gotta be careful what we wish for right.....?) - I am going with regular old Boring Puts for next week.
STO $825 P for $5 each. Felt pretty good about these (famous last words right..) and thought that was a great premium for $200 away.
Cheers!

I'm super happy it worked out for you! Opportunities like Tuesday are rare and can be incredibly profitable.

In hindsight, I think holding any open positions over the weekend with the stock closing (not just crossing intraday) at an all time high was a mistake on my part. And while many on this thread would likely have been okay without the catalysts that we got Sunday night/Monday morning, maybe not - price exploration can be violent, and requires even more caution than normal.

Giving one's self permission to spend time out of the market is some of the best not-advice I've seen on this thread (thanks @adiggs ), and that really was one of the best times to make such a move. In hindsight, it was also an obvious time. I think it was made harder to sit out, and conversely easier to convince one's self that certain positions were "safe," by TSLA's relative placidity over the past few months, so even those trying to be conservative like myself with positions +15% OTM got burned. Personally, this temptation was compounded by the "easy" money made since September, and a desire to continue seeing at least a good chunk of those returns (I was targeting ~66% of average Sept-Oct returns this week).

These are some of my personal takeaways I will be trying to internalize going forward.

 

[Cherry Wine]

After the huge loss of the BCS and have read couples of the guys in twitter (seems they are always quite right about Tesla), I am thinking to sell some shares at this price and wait for the dip. In fact, I was thinking to sell most shares yesterday when it almost hit 1100, but I was struggled about the loss making from BCS and didn't do it.

I am wondering, with some current covered call already in place, would the broker allow me to sell the stock while I still have the cover call in place? I remember I don't have permission to sell a naked call. (I just tried to submit a dummy order of selling it at 1200, and it does go through, so wondering how it works?)

One could probably buy a long call at a higher strike to create a spread in order to sell underlying shares covered by a short call.

 

[tradenewbie]

One could probably buy a long call at a higher strike to create a spread in order to sell underlying shares covered by a short call.

At the moment, I have a BCS -1200/1300, CC 1200. Since the CC doesn't have a pair yet, I am wondering why the broker (IB) still allow me to submit a sell order of 1200? Or they will reject me when they execute the order (assuming the price is 1200 now)?

 

[Cherry Wine]

At the moment, I have a BCS -1200/1300, CC 1200. Since the CC doesn't have a pair yet, I am wondering why the broker (IB) still allow me to submit a sell order of 1200? Or they will reject me when they execute the order (assuming the price is 1200 now)?

IBKR allows me to sell naked short calls. There is a margin requirement, which is not fixed (see screenshot). More information is here. Naked short calls scare me though - something about unlimited losses. Presumably, they would allow you to sell the shares because your covered call would be converted to a short naked call. If you have questions, I wouldn't hesitate to reach out to them. I am only speculating.

 

[ninpb]

Yes, saw that too. SP was pretty stable but the p860 for 11/5 went up from $3.80 to $5.80 in a short period of time. Really weird. So I immediately bought back my p810 en p820 10/29, which had hardly gone up in price, and sold p850 and p860 11/5. Thank you very much.

Thanks! Closed my 11/5 700p for -$55 and sold 11/5 790p for 4.30.
Safe side of me didn't want to do this because of first write and more worried about fat fingering. 20hrs a week on Tesla brain said "just do it!".