Wiki Selling TSLA Options - Be the House

[adiggs]

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.

On the commission free close of a sold contract, Fidelity will do this at .65 and under. Pretty sure that eTrade is also .65 and lower. A pretty big window really for that commission free close.

My only caution there is I've learned not to chase the .65 premium level too hard. A commission free trade is nice - carrying a position a day longer that then moves a lot against you - ugh (ask me how I know ).

 

[Discoducky]

I'm looking at the maxpain charts for expiry in the next few weeks and am noticing that 11/20 (sorry, can provide a screenshot but here's the link Stock Option Max Pain) is noticeably flat while 11/27 looks normal (well, normal for TSLA anyway) as well as the following weeks. I wonder why it is so flat the week of 11/20?

 

[adiggs]

I'm looking at the maxpain charts for expiry in the next few weeks and am noticing that 11/20 (sorry, can provide a screenshot but here's the link Stock Option Max Pain) is noticeably flat while 11/27 looks normal (well, normal for TSLA anyway) as well as the following weeks. I wonder why it is so flat the week of 11/20?

Remember that the monthly expirations have a LOT more volume associated with them. They've been accumulating contracts for months (or years in case of the quarterly / LEAP expirations). That increases the value of hitting Max Pain, but is also often warped by large numbers of far OTM that have ~no chance of finishing ITM.

 

[juanmedina]

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.

well that was disappointing with the SP today I end closing the 11/20 calls and will close the 11/13s tomorrow

 

[ReddyLeaf]

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.

Yes, that makes sense. I put the order in around 9pm last night and it filled at the $4.5 open (while I was sleeping). The Friday close was 3.65 at 0.11 delta. Since I assumed we would see a gap up in premarket, I put in a limit at 4. Wow, I wasn’t expecting such a large SP rise and the effect on options price. Next time, I think I will go much higher, or wake up to the opening. I don’t have the knowledge or trading tools for sophisticated analysis, so I’m mostly guessing.

I looked at a bunch of incremental strikes 450/475/500/550/600 and then tried to find ones near 0.10 delta, calculated at that time. Others that I looked at were 12/04 c550, 12/11 c550, 12/18 c600, and 12/24 c600. All of my shares have a cost basis below 450, so I focused on the 500-600 range, which will give me a mental profit even if exercised. I like the idea of being 5-10 over a big interval like 505 or 510, but for my first trade I wanted a more heavily traded strike for liquidity.

As for duration, I think the SP is somewhat range bound until late Dec/early Jan unless early sales trends get leaked. I looked at max pain on each week and it looks very flat, like somebody wants to keep the SP stable. It wouldn’t surprise me if friends of Elon have large numbers of 400 and 450 strikes, just so the SP hovers around “the price that cannot be named.” Everyday looks like manipulation, today more than most. I plan to trade near-term options on this basis, hoping that my shares don’t get called away. I really believe that 2022 will see another significant rise, and plan to buy some LEAPS for then.

 

[adiggs]

I looked at max pain on each week and it looks very flat, like somebody wants to keep the SP stable.

I've found max pain helpful. However, I consider the weekly contract max pain information to be useless until the week of expiration. And arguably still worthless on Mon / Tues on expiration week.

You don't need to take my word for it though. Don't just look at the top line number - also look at the number of contracts and their $ value. For the weeklies that are 2+ weeks out, you'll see contract counts in the 100s (and 10s).

Sometime in the week of expirations, the volume can go into the 10s of thousands. In effect, the week before data is a rounding error relative to what will happen the week of expiration. And thus, of limited value.


Even the monthlies max pain is of more, but still limited value prior to the week of expiration.

In short - look at the volume and/or $ value on the line; not just the max pain value in isolation.

 

[bxr140]

I don’t have the knowledge or trading tools for sophisticated analysis, so I’m mostly guessing.

If you have a brokerage account that allows you to trade options in the first place, you have tools.
Knowledge is on you, your only goal is to manage your ambition vs your knowledge.

 

[Discoducky]

I've been dipping my toes in the water over the last 3 months and have come away with good returns while I feel (yeah, I'm biased) that my risk is very low.

1st - I'm only writing covered calls on shares that I already own at strike prices I'd be happy to sell at. No margins
2nd - I have a pretty good feel for the movement on a daily basis thanks to amazing folks on this forum as well as a tech background, a Tesla S owner for 8 years and a TSLA owner since the beginning.
3rd - I started with only risking 100 shares (1 contract) at a time, watching the price drop and then selling for a profit just to see how the whole thing works.
4th - I'm now comfortable doing weeklies, a few monthlies and a quarterly $560 March 19th
5th - I only have at most 1/3 of my shares in play at a time
6th (this is where I'm at now) - I'm writing some calls and hoping they'll get executed so I can see how that works to then allow...
7th - Writing some puts that I can use the proceeds from the executed calls to fund.
8th - Hopefully, rinse and repeat...

 

[ReddyLeaf]

Remember that the monthly expirations have a LOT more volume associated with them. They've been accumulating contracts for months (or years in case of the quarterly / LEAP expirations). That increases the value of hitting Max Pain, but is also often warped by large numbers of far OTM that have ~no chance of finishing ITM.

What’s up with the large number of $10 and $20 strike monthly puts? Is that some type of window dressing to offset paper losses/gains?

 

[juanmedina]

.
I looked at a bunch of incremental strikes 450/475/500/550/600 and then tried to find ones near 0.10 delta, calculated at that time. Others that I looked at were 12/04 c550, 12/11 c550, 12/18 c600, and 12/24 c600. All of my shares have a cost basis below 450, so I focused on the 500-600 range, which will give me a mental profit even if exercised. I like the idea of being 5-10 over a big interval like 505 or 510, but for my first trade I wanted a more heavily traded strike for liquidity.

I never had any issues closing any contracts of any strike but right now we do have some weird strikes after the split. Congrats on your first trade .

 

[st_lopes]

What’s up with the large number of $10 and $20 strike monthly puts? Is that some type of window dressing to offset paper losses/gains?

More likely to be people trying to defer margin calls. Buying deep OTM puts offsets your exposure on other sold positions.

 

[bxr140]

What’s up with the large number of $10 and $20 strike monthly puts? Is that some type of window dressing to offset paper losses/gains?

Puts are ridiculously cheap way down there so shorts buy a gazillion of them on the gamble that TSLA is going to crash a few hundred and payout multiple times their buy-in.

 

[dl003]

I have tons of 100 puts. I just buy them as far out as possible whenever they hit $0.01. The reason is as @st_lopes mentioned: to reduce my margin requirement. I have Portfolio Margin, which dynamically calculates the margin requirement on my holdings as I go. It allows me to leverage up very aggressively because I don't have to put up the entire cash/share collateral upfront. I currently am shorting about 50 puts and 150 calls. Far OTM of course. For every 100 put/800 call I spend $1 on, my margin requirement is reduced by $600 - 800.

 

[FS_FRA]

OK, so dipping my toes in finally....

Figuring we should see a pop in the SP next week, so wrote NOV13 415p for $6.05

Max Pain for NOV13 currently at 420, but there's a huge number (7708) of 500c


...off to the races

Interesting day..... up 65% intraday yesterday, down 150% or so intraday today... Friday seems both too far away and too close too...

Wondering if I should write a call on this dip to hedge a little....?

 

[ggr]

I have tons of 100 puts. I just buy them as far out as possible whenever they hit $0.01. The reason is as @st_lopes mentioned: to reduce my margin requirement. I have Portfolio Margin, which dynamically calculates the margin requirement on my holdings as I go. It allows me to leverage up very aggressively because I don't have to put up the entire cash/share collateral upfront. I currently am shorting about 50 puts and 150 calls. Far OTM of course. For every 100 put/800 call I spend $1 on, my margin requirement is reduced by $600 - 800.

I tried researching this, and have read all the posts here, but I still don't get it. My current understanding, probably wrong, is that if I hold a bunch of these "protective puts" (my term), I can sell puts at a higher price and not need margin to cover them? Or not as much? Can you or someone point to an example or a learning resource please?

 

[mongo]

I tried researching this, and have read all the posts here, but I still don't get it. My current understanding, probably wrong, is that if I hold a bunch of these "protective puts" (my term), I can sell puts at a higher price and not need margin to cover them? Or not as much? Can you or someone point to an example or a learning resource please?

If you own shares of Tesla, or sell puts, your worst case exposure is if the stock goes to 0. Then your shares are worthless or you pay out on the strike of the puts with no gained equity (retroactively buying the share worth $0).

If you have purchased $100 strike puts, then the worse case is they end up in the money and you offload the shares at $100.

With portfolio margin calculation, that reduces your amount at risk and increase the number of shares/ puts you can hold. So with TSLA is currently at $400 your exposure would be $300 instead of $400, freeing $10,000 in margin for each contract. That could be used to get another 25 or so shares.

My understanding is protective puts are OTM puts that are purchased as insurance for your holdings in case there is a big drop. They cost, but then you are guaranteed a minimum value for your portfolio. So $300 strike for instance.

 

[dl003]

I tried researching this, and have read all the posts here, but I still don't get it. My current understanding, probably wrong, is that if I hold a bunch of these "protective puts" (my term), I can sell puts at a higher price and not need margin to cover them? Or not as much? Can you or someone point to an example or a learning resource please?

In a margin account, to sell, say a 300 put, you'd need $30k of cash as collateral. With portfolio margin, you'd need about $1000 or so. Of course this number doesn't stay constant - the marginal margin (pun not intended) goes up with the number of puts/calls you're already short. If I sell a December 300 put I'll need to put up say $1000. Then I turn around and buy a $150 weekly put to reduce that $1000 to maybe $400. This $1 of expense keeps my account from getting margin calls for the week should the SP drops 20%. Of course this protection wears off come Friday and the 150 put expires. However, the December put I sold also takes up less and less margin with the passage of time. So, maybe the week after I don't need a protective put. Maybe if the SP drops enough to give me 2nd thought I can buy that protective put on demand. The thing about PM is that as the SP moves in the wrong direction, your margin requirement goes up, sometimes very quickly as the risks have now worsened.
Because I'm long shares, I try to do this strangle strategy with a 1 put : 3/4 call ratio. One way to look at it is instead of guessing where the SP might be in 2 months and then setting the strike price above (call) or below (put) that, I sell a ton of options at what I call impossible strike prices, like 700/800 calls and 230 put for December. The advantage is I can sell a lot of these vs just 1 set of each.
I definitely DON'T recommend doing this to everyone.

 

[ReddyLeaf]

Puts are ridiculously cheap way down there so shorts buy a gazillion of them on the gamble that TSLA is going to crash a few hundred and payout multiple times their buy-in.

Thanks all for those learning posts! This is certainly another reason why the single max pain number is often not valid, and one must look at the entire put/call spread.

 

[dl003]

In case anyone wonders what my account looks like... Barring catastrophic price drops, like the one we have today, most days I just sit back and let Theta chip away the value of these. I suspect this is what MMs do in order to sell a large number of options. Disclaimer: I don't have 15,000 shares or $1M of cash as collateral.

 

[bxr140]

I suspect this is what MMs do in order to sell a large number of options

Sort of, yeah. MMS basically constantly hedge against your positions with opposite shares and/or other contracts. A main source of their revenue is from the bid/ask spreads.