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Wiki Selling TSLA Options - Be the House

UnknownSoldier

Unknown Member
Supporting Member
Apr 17, 2017
2,244
14,065
Earth
So about a 4.2% return for a 2 week trade? Or 109% annualized?
I guess. I don't really want to claim "109% annualized" because once I close one spread and open another one, I'll naturally have a different risk/return profile for the new spread. Plus right now all the premium is on the put side, if the stock actually tops and starts heading down for any reason, and premium switches to the call side, then we'll all end up running bear call spreads instead and God knows what that will look like with a declining SP.
 
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InTheShadows

Active Member
Apr 20, 2013
2,387
2,005
USA
Last week was my first significant loss week in a couple of years of selling options.

I got a bit greedy, not allowing for that much of a rise and was overloaded with BCS c/w BPS with the BCS C- legs 820, 830 and 835. I was also expecting/hoping that there would be some defence of the Call walls when I got up in the early hours to sort everything about an hour before the close. What I found was the stock price climbing again and by the time I'd sorted out what to do, all the C- were well in the money and the loss rapidly increasing. I ended up closing everything out but didn't get time to STO any rolls or replacement positions. While the loss was significant it still equates to just 2 weeks worth of premiums, so shouldn't take too long to recover.

I aim to be a little more conservative and less complacent around events in future. I also need to listen to the danger signs and be prepared to close out positions earlier if needed to mitigate the risk of a larger loss. This was also the first week in ages I can recall seeing Call walls on the Open Interest get ignored on relatively modest volume. Perhaps the presence of all those massive 700 to 750 put walls gives the MM enough wins not to bother with the call walls. Whatever the case we should be more cautious about how much MM or others are prepared to defend call walls in future.
Yashu has been saying for a few weeks about interviewing this guy. I think it’s a must for all of us. Shed some light on max pain theory for me.

 

AquaY

Member
Supporting Member
May 30, 2021
483
1,566
Long Island NY
4.2% every two weeks is actually 199.45% annualized, because you have to compound, i.e. the gain of the first week contributes to the result of the next week, and so on..

So, not 4.2 times 26, but 1.042 to the power of 26, minus 1.
The flaw in your math you can't invest your profits until they are equal to a round lot investment
 

AquaY

Member
Supporting Member
May 30, 2021
483
1,566
Long Island NY
IRA 'margin' to make use of unsettled funds is how it works at Fidelity.

With Fidelity in my retirement accounts, I needed Level 2 with Spreads Trading to be able to sell these spreads we're having such success with. Without the Spreads Trading privilege I was restricted to covered calls and cash secured puts.
That's what IRA margin is at any broker because of legal requirements.
I believe Level 2 is standard as well but I'm not 100% sure. A broker can make rules stricter but not more lenient.
 
Last edited:

ninpb

Member
Jun 19, 2018
715
3,519
So Cal
The trend is your friend. This is why I have been 95:5 puts:calls sold the last month or so. If TSLA starts going down and it seems sustaining I will adjust in the other direction. I know I am sometimes giving up profit by not selling both puts and calls but my number 1 priority in these strategies is to avoid losses. That’s the only way I see myself being able to do this for years.

In the last 20 weeks, I only have one week with a loss and that amount was <50% of my average profits of all the other weeks. I also have a few weeks with <$1K profits. I definitely don’t hit the super-high profit weeks (>$100K) like others here, but I prefer to be the turtle rather than the hare. I’m not trying to sound preachy or all-knowing, I just want to provide a perspective to newcomers that it is fine to be safe and conservative with these strategies and not feel the need to fly to close to the sun in order to maximize long-term profits.
I'm a newcomer that you're talking about. Much appreciate your advice. I'm using cash from my wife's condo sale that's just been sitting in a savings account. I just want to beat the banks rate for now and see how I sleep at night. Ok maybe I'm not gonna be that conservative but you know what I mean.
 

PastorDave

Member
Jul 23, 2021
98
709
Virginia, USA
I had some time to do a little research this morning that I wanted to share with the group. I also want to share my plan for the week and results from last week, but I'll do that in another post.

Last week Gary Black had a tweet that really piqued my interest:

If institutions BMed to the SP500 are underweight TSLA, that could cause a ton more institutions to increase their positions if it looks like TSLA will be sustainably over the latest balancing price and consistently growing. Could there be a ton of institutions entering TSLA soon? I remembered some old Tesla Daily videos that covered the amount of the TSLA float that needed to be purchased as part of the inclusion being about 36%:

1634480770517.png


Here's a link to that part of the video, although there were several that covered this:

As I'm sure we all remember, this was a major driver of the stock price back in January. And I assume that BMed institutions getting out of TSLA was a major part of the subsequent fall, but I have no evidence for that. If retail has been buying all this time, but institutions are down or flat, then this might be a catalyst for the SP.

So according to the NASDAQ, here are the figures for institutional ownership for TSLA as well as other megacaps:
(see https://www.nasdaq.com/market-activity/stocks/tsla/institutional-holdings)
TSLA: 40.98%
AAPL: 57.85%
MSFT: 70.88%
GOOG: 66.15%
GOOGL: 78.72%
NFLX: 80.90%
FB: 79.58%
NVDA: 65.46%
V: 95.04%!
JPM: 71.02%

And NIO is 34.77%, just for an EV comparison.

40.98% is pretty low compared to other megacaps, so there looks like there's a ton of room to grow. Interesting that AAPL is the next lowest %; I assume this is from extreme retail interest in the stock? I'm a PC guy, so I have no clue.

But what's TSLA done this year for institutional holdings? Have they gone up or down since the huge run earlier this year?

According to this pretty cool website I found, they've pretty much stayed the same:

1634481804796.png


I also redid Rob's math from the spreadsheet above based on current values to check and see how far off we are.

Current S&P500 Market Cap: 40,300B

Friday's TSLA MC:
834.61B

Friday's TSLA Float MC (Rob's Float value is the "real" float; float - shares Elon and other insiders own and are unlikely to sell. I did not update this figure and have no idea how accurate it currently is.):
640.3B

TSLA Weight:
2.07%

TSLA Float Weight:
1.59%

According to Google, total value indexed and BMed to S&P500 was 13,500B as of 12/31/20. Multiply this by YTD 19.04% return (I'm not confident of this, because BM funds could under or over perform, but this is the data I've got):
16,070B

TSLA Weight:
332.65B

TSLA Float Weight:
255.51B

Current institutional ownership:
342B

Given that there are lots of institutions that own TSLA for reasons other than benchmarking, I think Gary's theory holds water, but it's not a really huge effect like back in the middle of 2020 (see graph above). Also, Gary mentioned in another tweet that growth funds who are benchmarked to the R1000G may also be underweighted:

No clue how many assets are under management BMed to that, but it may be significant.

Anyway, I found this interesting. Maybe someone who's more knowledgeable can pick this thread up and figure out how much institutional buying is likely in the next few months as TSLA starts looking less risky.
 

PastorDave

Member
Jul 23, 2021
98
709
Virginia, USA
Ok, so plan and performance.

I don't have a lot of time left to post, so I'm going to try to make this quick. I did about 40k last week, mostly from puts, and this was in line with my best weeks. I mostly sold BPS around 750, but a significant amount of ATM or ITM BPS on the way up that I then closed early. Calls for the week were about even for me; I thankfully closed a huge pile of 830cc on Thursday for 50% profit, as I thought we might have another run on Friday. I honestly thought we'd end the day at 829.99 at most though, with 819.99 more likely. Glad I didn't bet on that though.

For my plan, I've got a ton of long calls that I'm going to convert:
11/26 600c
I'm going to roll these up to:
11/26 700c
This will free up 9.3k or so per contract, while delta exposure goes from 1 per contract to .91. To make up the difference I'm going to add a few contracts to bring me back up to the same delta. I should still be able to roll each contract for about $2/wk, as per my plan, and this will allow delta to increase if the SP goes up. If delta = 1, I feel like I'm wasting money in the option. I'm not sure what I'm going to do with the rest of the capital that is free up, but most likely sell safe (by my definition) BPS or IC for income.

Positions for next week:
1634489842606.png


1634489874682.png



I already closed out my 1:1 credit trades for next week at 50% profit, and I'm a bit worried about that IC, and might close it early, but otherwise things are looking good.
 

Right_Said_Fred

Moderator
May 11, 2012
4,107
36,999
The Netherlands
Although I've been driving Teslas since 2013 I only started investing in TSLA in 2018. I was lucky with my timing as from 2019 the sizeable investment turned into millions. Over the last year I've been focusing on selling naked puts (cash covered), which has also produced excellent results. But those naked puts require of lot of cash for the maintenance margin, so I'm looking to expand to the spread strategy.

I'm not a newbie to options, I wrote naked strangles and straddles on the Dutch AEX index 15 years ago, covered with futures. Those futures made it very stressful. I had to buy and sell via phone, and if the investment banker was out for lunch I was toast. The spreads sound a lot less stressful, as the risk is known in advance and there are ways to react to mitigate that risk. Another advantage ofcourse is the much lower maintenance margin.

When choosing spreads that are far OTM - even less stressful - premiums however are low. Many here compensate this by opening a lot of spreads (50, 100, 200 and more). I'm not looking to start with such large numbers. But I don't rule out that eventually I will also end up with that many spreads. At first sight a lot of spreads looks more risky. But is it? This weekend I've been giving that question a lot of thought and my conclusion is that spreads that are far OTM (15% or more) are not very risky.

The only real risk is an event that causes the SP to drop (in case of BPS) or rise (in case of BCS) by 15% or more overnight, making it impossible to close the positions with a limited loss or roll them further OTM. Which events can cause such a huge movement?

For a sudden large drop I could think of:

- Something happening to Elon
- An earthquake destroying the Fremont factory
- A flooding destroying Giga Shanghai
- A sudden attack by China on Taiwan
- A terrorist attack like 9/11

For a sudden large rise I could think of:

- Another stock split
- A take-over (unlikely given Tesla's market cap) or merger
- A substantial collaboration (Apple, VW)

But what are the odds of such an event happening? I give it a chance of less than once per year. So that would mean a complete loss of the value of the spreads once every 52 weeks, at most. Which means that if you manage to earn more premium per week than 1/52 of the total risk of a weekly position, you will be safe. And I think it should be possible to earn much more premium, as many here have proven. If each week you earn premiums that equal 1/30 or 1/40 of the risk, it means that after 30 or 40 weeks you've earned enough to mitigate the risk of one trade that is a complete loss. And if you open both BPS and BCS, which cannot be hit by the same event, you can earn enough after 15 to 20 weeks to mitigate that risk. (I'm a Tesla bull, but the stock doesn't go up in a straight line, so I don't think you need to be a bear to open bearish call spreads).

The above examples are for spreads that are far OTM. Opening spreads closer to the SP increases the risk of a complete loss, but also offers the chance to earn more premium with a smaller spread. It will therefore take fewer succesful weeks to mitigate the risk of a trade that is a total loss.

I'm still trying to figure out which position I would be most comfortable with. I suppose trying different strikes with a limited number of spreads will provide more insight.
 

pz1975

Active Member
Supporting Member
Aug 30, 2013
1,646
10,401
Langley, BC, Canada
Although I've been driving Teslas since 2013 I only started investing in TSLA in 2018. I was lucky with my timing as from 2019 the sizeable investment turned into millions. Over the last year I've been focusing on selling naked puts (cash covered), which has also produced excellent results. But those naked puts require of lot of cash for the maintenance margin, so I'm looking to expand to the spread strategy.

I'm not a newbie to options, I wrote naked strangles and straddles on the Dutch AEX index 15 years ago, covered with futures. Those futures made it very stressful. I had to buy and sell via phone, and if the investment banker was out for lunch I was toast. The spreads sound a lot less stressful, as the risk is known in advance and there are ways to react to mitigate that risk. Another advantage ofcourse is the much lower maintenance margin.

When choosing spreads that are far OTM - even less stressful - premiums however are low. Many here compensate this by opening a lot of spreads (50, 100, 200 and more). I'm not looking to start with such large numbers. But I don't rule out that eventually I will also end up with that many spreads. At first sight a lot of spreads looks more risky. But is it? This weekend I've been giving that question a lot of thought and my conclusion is that spreads that are far OTM (15% or more) are not very risky.

The only real risk is an event that causes the SP to drop (in case of BPS) or rise (in case of BCS) by 15% or more overnight, making it impossible to close the positions with a limited loss or roll them further OTM. Which events can cause such a huge movement?

For a sudden large drop I could think of:

- Something happening to Elon
- An earthquake destroying the Fremont factory
- A flooding destroying Giga Shanghai
- A sudden attack by China on Taiwan
- A terrorist attack like 9/11

For a sudden large rise I could think of:

- Another stock split
- A take-over (unlikely given Tesla's market cap) or merger

But what are the odds of such an event happening? I give it a chance of less than once per year. So that would mean a complete loss of the value of the spreads once every 52 weeks, at most. Which means that if you manage to earn more premium per week than 1/52 of the total risk of a weekly position, you will be safe. And I think it should be possible to earn much more premium, as many here have proven. If each week you earn premiums that equal 1/30 or 1/40 of the risk, it means that after 30 or 40 weeks you've earned enough to mitigate the risk of one trade that is a complete loss. And if you open both BPS and BCS, which cannot be hit by the same event, you can earn enough after 15 to 20 weeks to mitigate that risk. (I'm a Tesla bull, but the stock doesn't go up in a straight line, so I don't think you need to be a bear to open bearish call spreads).

The above examples are for spreads that are far OTM. Opening spreads closer to the SP increases the risk of a complete loss, but also offers the chance to earn more premium with a smaller spread. It will therefore take fewer succesful weeks to mitigate the risk of a trade that is a total loss.

I'm still trying to figure out which position I would be most comfortable with. I suppose trying different strikes with a limited number of spreads will provide more insight.
I would say start very OTM with wide spreads and smaller number of contracts. That allows for the safest entry into the strategies for learning purposes. As you learn more and especially how to avoid the big losses then you can get more aggressive.

Even the once per year (or maybe more) week where you are at risk of a huge loss, there are ways (described in this thread many times) to avoid them by rolling out and up/down, increasing number of contacts at narrower spreads to lower the loss threshold point, etc.

My main goal is to safely earn decent profits each week and be very aggressive to avoid losses by rolling as soon at the sold option nears or becomes ITM. Even if I think it may rebound the other way, I prefer to be proactive and roll quickly. This way I do lose out on possible profits but almost always avoid the devastating loss.
 

EV forever

Member
Supporting Member
Apr 23, 2016
833
6,362
Irvine, CA
Since it is still the weekend and no trading going on, I am posting this question here hoping for some information.

My question is regarding Wash Sale rules - Do they apply to Roth IRA and Regular IRAs?

In my brokerage account, Fidelity clearly designates which transactions fell under wash sale and the losses don't qualify for deduction. So that is simple to transfer to tax filing to show the gains/losses. But what if I have a similar transaction in my IRA? Does it need to be accounted for along with the brokerage account?

With the Roth IRA, since the entire amount is tax free, is there any wash sale adjustment to be done for this one?
 

mongo

Well-Known Member
May 3, 2017
13,811
44,352
Michigan
Since it is still the weekend and no trading going on, I am posting this question here hoping for some information.

My question is regarding Wash Sale rules - Do they apply to Roth IRA and Regular IRAs?

In my brokerage account, Fidelity clearly designates which transactions fell under wash sale and the losses don't qualify for deduction. So that is simple to transfer to tax filing to show the gains/losses. But what if I have a similar transaction in my IRA? Does it need to be accounted for along with the brokerage account?

With the Roth IRA, since the entire amount is tax free, is there any wash sale adjustment to be done for this one?
Wash (deferred tax deduction) isn't relevant to pure IRA or Roth situations since in an IRA nothing is taxed until withdrawal, and in Roth, nothing is taxed (unless under 5 years). Losses and gains stand on their own.

However, if you trade the same stock in a taxable account and an IRA, you can lose the loss tax advantage because the wash rules apply, but there is no basis change to the IRA position. You will need to track and report this yourself as it is outside any single account.
 

Drezil

100k/Day-Club Wannabe
Jan 14, 2021
593
5,639
Germany
Although I've been driving Teslas since 2013 I only started investing in TSLA in 2018. I was lucky with my timing as from 2019 the sizeable investment turned into millions. Over the last year I've been focusing on selling naked puts (cash covered), which has also produced excellent results. But those naked puts require of lot of cash for the maintenance margin, so I'm looking to expand to the spread strategy.

I'm not a newbie to options, I wrote naked strangles and straddles on the Dutch AEX index 15 years ago, covered with futures. Those futures made it very stressful. I had to buy and sell via phone, and if the investment banker was out for lunch I was toast. The spreads sound a lot less stressful, as the risk is known in advance and there are ways to react to mitigate that risk. Another advantage ofcourse is the much lower maintenance margin.

When choosing spreads that are far OTM - even less stressful - premiums however are low. Many here compensate this by opening a lot of spreads (50, 100, 200 and more). I'm not looking to start with such large numbers. But I don't rule out that eventually I will also end up with that many spreads. At first sight a lot of spreads looks more risky. But is it? This weekend I've been giving that question a lot of thought and my conclusion is that spreads that are far OTM (15% or more) are not very risky.

The only real risk is an event that causes the SP to drop (in case of BPS) or rise (in case of BCS) by 15% or more overnight, making it impossible to close the positions with a limited loss or roll them further OTM. Which events can cause such a huge movement?

For a sudden large drop I could think of:

- Something happening to Elon
- An earthquake destroying the Fremont factory
- A flooding destroying Giga Shanghai
- A sudden attack by China on Taiwan
- A terrorist attack like 9/11

For a sudden large rise I could think of:

- Another stock split
- A take-over (unlikely given Tesla's market cap) or merger

But what are the odds of such an event happening? I give it a chance of less than once per year. So that would mean a complete loss of the value of the spreads once every 52 weeks, at most. Which means that if you manage to earn more premium per week than 1/52 of the total risk of a weekly position, you will be safe. And I think it should be possible to earn much more premium, as many here have proven. If each week you earn premiums that equal 1/30 or 1/40 of the risk, it means that after 30 or 40 weeks you've earned enough to mitigate the risk of one trade that is a complete loss. And if you open both BPS and BCS, which cannot be hit by the same event, you can earn enough after 15 to 20 weeks to mitigate that risk. (I'm a Tesla bull, but the stock doesn't go up in a straight line, so I don't think you need to be a bear to open bearish call spreads).

The above examples are for spreads that are far OTM. Opening spreads closer to the SP increases the risk of a complete loss, but also offers the chance to earn more premium with a smaller spread. It will therefore take fewer succesful weeks to mitigate the risk of a trade that is a total loss.

I'm still trying to figure out which position I would be most comfortable with. I suppose trying different strikes with a limited number of spreads will provide more insight.
Also with BPS you can always do anchor throwing.
Just sell as many shares as you have delta-exposure. This is cheap because you just have to pay interest, but get loads of cash with no further downside.
The gains on the short shares cancel the loss of your BPS, but you get not exposure to the upside anymore.

With BCS this does not work as you have to borrow the money for the shares, but those shares only give 50% margin - not offsetting your debt.
 

AquaY

Member
Supporting Member
May 30, 2021
483
1,566
Long Island NY
However, if you trade the same stock in a taxable account and an IRA, you can lose the loss tax advantage because the wash rules apply, but there is no basis change to the IRA position. You will need to track and report this yourself as it is outside any single account.
I'm not following this.
Are you saying if you have a regular taxable account AND an IRA and buy and sell say TSLA shares in both and in the IRA you sell at a loss and buy them back that it's somehow reported to the IRS for your taxable account?
 
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BornToFly

Active Member
Supporting Member
May 8, 2013
2,243
17,544
43,000 feet
The only real risk is an event that causes the SP to drop (in case of BPS) or rise (in case of BCS) by 15% or more overnight, making it impossible to close the positions with a limited loss or roll them further OTM. Which events can cause such a huge movement?

For a sudden large drop I could think of:

- Something happening to Elon
- An earthquake destroying the Fremont factory
- A flooding destroying Giga Shanghai
- A sudden attack by China on Taiwan
- A terrorist attack like 9/11

For a sudden large rise I could think of:

- Another stock split
- A take-over (unlikely given Tesla's market cap) or merger
In my mind, the biggest knowable Tesla related events that can cause 10% swings overnight are Production and Delivery numbers, and Earnings reports. Those have set dates every quarter, so they are easy to navigate. Macro issues can bring it down, but most of those we can't plan for/predict. Something happening to Elon has been my biggest fear since starting to go all-in back in 2013. Black swan events is why I try to be conservative with my BPS, and will shoot for 10-20% below the SP on my weeklies, even though I will make less money than I would by being aggressive if nothing bad happens.
 

BornToFly

Active Member
Supporting Member
May 8, 2013
2,243
17,544
43,000 feet
Also with BPS you can always do anchor throwing.
Just sell as many shares as you have delta-exposure. This is cheap because you just have to pay interest, but get loads of cash with no further downside.
The gains on the short shares cancel the loss of your BPS, but you get not exposure to the upside anymore.
You lost me. Can you explain this like I'm 5?
 

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