Wiki Selling TSLA Options - Be the House

[Bunky]

In my earlier post I omitted this but of course it is implied that, when choosing option #3, you keep actively searching for possible solutions to reduce risk.

Split-rolling is one tactic that took me out of a jam as well. For example if you have 10 cc's ITM: upon your weekly roll of the ITM cc's you roll 9/10 to the same strike or a lower one, and with the credit this move nets you, you roll the last cc up in strike hugely. That one expires the next week and you do the same next week, etc. (And this opens up the shares again, so you can then also start spreading the value of the 9 remaining cc's into 10cc's at higher strikes upon your next roll should you want to).

Beautiful. I was thinking of doing this and wondered if it was a thing. Not only is it a thing but it has a name. Seems like a good way to try to rescue ITM CC's, thanks!

 

[samppa]

Anyway, I’m not planning to sell $20 spreads, just performing the thought exercise. Middle ground, baby!

I think with thin spreads ($10-20-30) you need to prepare that only management choice is to take the max loss.. I sold some $30 atm spreads on a friday some months ago, monday opened so red that my whole spread was itm.. was ditm by friday.. there just was no choice but take the loss and buy them back. Back then premiums were so good that max loss wasn't that bad.. iirc premiums received was around $30k and max loss was -10k. (40k to buy the spreads back) did not break me.

 

[Tslynk67]

How does it do that?

(go from meandering to vertical at the click of a finger)

Leo's in the house...

 

[ninpb]

Are options actually assigned if they expire a penny in the money? There's a break even point that holders are just selling at day of expire? So for writers, shouldn't there be some lucky portion of you ITM but aren't assigned?

 

[adiggs]

Did you calculate what you would have had if you sold ATM puts each week until you got your shares back? Opportunity cost is a real thing.

I would be a trillionaire if I would have bought TSLA stock instead of a $167,000 P100D 5 years ago; but the joy I’ve experienced from that vehicle was way better than being like Sawyer Merritt and watching a stock from the side lines and hoarding shares while not owning the car. (No offense to sawyer, he loves that stuff) but there is more to life than being mega rich and having lots of stock.

Options and investing is time consuming and very hard, with the steepest and most punishing of learning curves. Especially if you learn by doing. Sounds like you have a successful skills and education where you actually do something with your life! Rejoice!

How many of us are truly happier or healthier since option trading? Depends when you ask me I suppose. Things that make you go hmmmmm.

In addition to this observation about the 'cost' of the Model S purchase, I like to add on that I personally consider ownership and daily driving of a Tesla to be an important component of a TSLA buy and hold strategy. Yeah - it costs money that could have been invested, but it also provides some of that confidence to keep on holding whatever happens.

My ah-hah was my original test drive back in the Fall of 2012 - nearly the first test drive available in Portland, when it was hard to get the test drives. I tried 3 times to keep my foot on the floor 0-60 and could only get to about 50. The world just started moving so fast - I'd never driven anything even remotely like that. It was amazing, it was insomnia inducing (I couldn't stop dreaming about it, asleep or awake). So I get the Model X reservation and after 6 months found the Roadster pictured to the left, and I've been driving electric (Tesla) ever since. And getting into the car every day to go to work, run errands - whatever - was it's own bit of reinforcement to hold through some amazingly big ups and downs. I never thought of selling during the 2013 run - my investment horizon said that whatever it did, it was still just the beginning, and I only walk out of movies early when they're bad

 

[adiggs]

Are options actually assigned if they expire a penny in the money? There's a break even point that holders are just selling at day of expire? So for writers, shouldn't there be some lucky portion of you ITM but aren't assigned?

Yes - they are assigned. Or at least Fidelity assigns / exercises them, but I'm pretty sure that's an Options Clearinghouse thing, not a broker thing. And some of the 1 penny OTM options will also get assigned but those take effort on the part of the option owner.

I had some BPS expiring today - my order to close the position for .10 was filled earlier this morning. I always actively close, and as a bonus - now those resources are freed up should I be ready to open my BPS position for next week.

 

[MP3Mike]

Are options actually assigned if they expire a penny in the money? There's a break even point that holders are just selling at day of expire? So for writers, shouldn't there be some lucky portion of you ITM but aren't assigned?

Yes, they are automatically executed if they are at least a penny in the money, unless the owner submits a request to not execute them in advance. (Or they sell them before close.)

 

[JustMe]

Beautiful. I was thinking of doing this and wondered if it was a thing. Not only is it a thing but it has a name. Seems like a good way to try to rescue ITM CC's, thanks!

Samesies. I did this yesterday- splitting one out of six contracts. I wondered if it was a good idea or not. Felt like sending one person out from a sunken submarine to go get help

 

[Bunky]

Samesies. I did this yesterday- splitting one out of six contracts. I wondered if it was a good idea or not. Felt like sending one person out from a sunken submarine to go get help

Yes! Totally feels like sending one person off to get help for the group
Gonna be needing all the brave volunteers I can get over the next few months.

 

[adiggs]

At ATH, shouldn't strategy be more of selling BCS rather that selling BPS?
At some point SP will drop. Clearing 1100, 1200 etc will need multiple attempts. cheers!!

ATH is price discovery. We don't know how high it could go, and we can't trust call walls or put walls as much. Selling BCS either far out in time (3 weeks?) and/or money (1300s?) then manage it if we breakout is what I'd do. It will probably find a ceiling next week or the week after and then we can all get back to business as usual with a newly defined channel and trading range, but I think the risk of it going to 1200 next week is very real if we break 1100 on Monday.

NOT-ADVICE

Yeah - my feeling is that the closer to an ATH we are, then the stronger the bias I have towards selling BCS or covered calls. As @PastorDave rightly observes this is also risky due to being in a period of price discovery. Or as I like to think of it the share price has detached from the previous trading patterns (and company valuation) and is off seeking the new balance between buyers and sellers.

Related - I've personally decided that I'm staying away from BCS. Maybe once we settle back into a trading range, but probably not even then. I got burned badly with a narrow width BCS back in June, and its helped me to read about the pain others have been experiencing with their BCS (I grieve for your difficulties as I've experienced them myself; and I appreciate your telling us about them as it's reinforced my decision to not do BCS).

That means I don't do Iron Condors, either by legging in or by opening them directly. The other side is 'free' from a margin perspective, but it also doubles the likelihood of a bad event occurring. The bad events are already expensive so the impact doesn't change.


That being said I AM back to selling covered calls. Those premiums are back to being useful and with the share price so high, selling off my leaps or shares at these prices isn't a bad thing FOR ME. I don't expect I'll be seeking out assignment but I also won't be really, really conservative with them. By selling covered calls I can't get into a bad situation on the call side that costs me money - I can only get into a 'bad' (#firstworldproblem bad) situation in which I sell shares/leaps at a much lower price that is still profitable. The benefit of steady income is worth the risk of opportunity cost when the shares take off on me (again - FOR ME).

 

[ammulder]

I don't know, folks, I think if I add up all the money I've ever made from selling covered calls, which was like a buck at a time while the stock price was pretty level and IV pretty low, it might add up to less than I lost Monday when they ran away from me. And you all have some way more painful stories. I'm ready to swear them off forever.

In theory I guess there should be an even-ish balance between puts and calls around a slow-moving stock price. It's just that I see way more chances for Tesla to gap up than to gap down in the next couple years in general.

There might still be an immediate pullback after this crazy rally, sure. And we may see some red flags that indicate trouble coming -- slow ramps at the new factories, poor production numbers from China, Elon sounding increasingly nervous or frantic about deliveries toward the end of a quarter... but absent some trigger, calls just have me way more nervous.

Is someone willing to make a case for why they're truly valuable / really not that bad?

Oh, yeah, just got my alert that we hit $1100 again.

So tell me again, calls?

 

[tradenewbie]

Have a question about the spread.

Originally I am doing BPS -720/+620 for $1 premium, and I also find that BPS -780/+580 has a premium of $2. Since you all have been suggesting a wider spread for safety, would it be better to do 2 X -720/+620 or 1 X -780/+680 since the premium would also be $2?

I decided to try both, on a 2:1 ratio (ie. 2 X -720/+620 + 1 X -780/+680 combination), but not sure which way makes more sense though if things get worse.....

 

[scubastevo80]

Trade no.2 for the family - opened a BPS -900/+815 and a BCS -1350/+1425 for next Friday. Had difficultly closing out my IC this morning, which took about 3 hours longer than I'd had hoped, so this rolled trade gave up quite a bit of premium from the morning. I'll work on rolling this earlier on Friday next week.

 

[adiggs]

Have a question about the spread.

Originally I am doing BPS -720/+620 for $1 premium, and I also find that BPS -780/+580 has a premium of $2. Since you all have been suggesting a wider spread for safety, would it be better to do 2 X -720/+620 or 1 X -780/+680 since the premium would also be $2?

Uhm ... Yes!

NOT-ADVICE
Similar question as earlier, and I have the same answer now. The balance is one you'll need to choose for yourself. The benefit of the 780/580 spread is that you have better management choices baked into the position. BUT the 780 strike is more likely to get ITM than the 720 strike and thus has a higher likelihood of needing those management choices.

The 720/620 is less likely to go ITM in the first place, and will be more limited in management choices once you're there.

The other benefit of the wide spread, at least for me, is that I open fewer positions (1/2 as many in fact!) and that keeps my rate of loss lower when I go ITM.


But that is also free of how you choose your short put strikes. If your short put strike selection leads you to the 720 strike, then (at least for me) the choice is between 520/720 and 620/720. I take the 520/720 because I'm looking for steady income and this position keeps my leverage down and for each spread increases the income generated.

But I'm past accumulation and looking for steady income. I want my income to be steady whether the share price is 600, 1200, or 1800. The portfolio value is changing (to the good) with the share price going up so quickly these days. But it doesn't directly help me with steady income as I'm still emotionally unable to sell shares or the long calls for living expenses.

 

[adiggs]

Trade no.2 for the family - opened a BPS -900/+815 and a BCS -1350/+1425 for next Friday. Had difficultly closing out my IC this morning, which took about 3 hours longer than I'd had hoped, so this rolled trade gave up quite a bit of premium from the morning. I'll work on rolling this earlier on Friday next week.

NOT-ADVICE

Don't hesitate to close either side earlier than Friday. With these types of positions I find that one side starts winning bigly while the other is flat or losing. The positions gets riskier by rolling the winning leg closer to the share price. But an early close on the winning leg and then waiting will frequently give you a great re-entry position later in the day, or on the next day.

Worst case you don't earn the remainder of the winning position. Best case you get premium on the winning side 2x (or more!) during the week. Well - worst case is the shares turn around and bite hard, but if you closed early and then stayed out, then the early close also lowered risk which turned out to be important.

 

[corduroy]

Did the MMs all quit working TSLA?

 

[adiggs]

I used to have 700 shares of Tesla pre-split. That's 3,500 post split. I sold covered calls to make extra income, and buy extra shares... Eventually I couldn't roll my covered calls far enough out into the future to cover them all, and lost shares. I never lost money. I've made $250,000 on an initial $60,000 investment. Yep, I've been the house, making that consistent income...

What did I lose? Let's see.. 3,500 * $1,088 = $3,808,00 - $250,000 = $3,558,000 in potential gains lost.

I played it safe, I played the house as it were, and as a result I missed out on $3.5 MILLION!

I'm back on dice.com and linkedin looking for jobs in the IT field where I was working previously. I seriously messed up, I could have a larger home that fits all my things and a Plaid Model S to boot, doing a bunch of nothing but fun, and instead I'm job hunting with a big gap in my employment that it seems is holding me back from being employed...

Too smart for my own good, and I should have just HODL? I'll go crawl back into my hole, and try not to vomit when I think about what I could have had.

Wow - thank you for sharing.

This is the risk we take by selling options against our resources. We're trading potential access to big gains for access to steady short term returns now (that can also go bad!).


I also had 3500 shares at one point that my CC on them went deeply ITM. I had to roll them out to Sep 2022 to get enough time value to get the CC OTM. I rolled out to $4200 ($840 post-split) and then thankfully cleared out those CC about 1-2 months back. Thankfully / lucky.

But I've also been in income mode, so the opportunity cost if I hadn't updating the position to clear the $840 strike CC wouldn't have hurt in the way you've been hurt.


It's cold comfort, but telling your story will hopefully help at least 1 other here avoid that outcome. Because its real. The closest thing I have to advice on this for others - if you're still accumulating then use a portion of your resources for this activity, with a significant focus on learning this and experiencing a range of good and bad conditions. By focusing on the learning, you are in effect training yourself for your retirement income activity. But that also means you have most of your resources accumulated for the big purchases (such as retiring).

 

[TheTalkingMule]

Did the MMs all quit working TSLA?

Someone just decided they wanted a half million shares. Right now.

 

[bkp_duke]

Trade no.2 for the family - opened a BPS -900/+815 and a BCS -1350/+1425 for next Friday. Had difficultly closing out my IC this morning, which took about 3 hours longer than I'd had hoped, so this rolled trade gave up quite a bit of premium from the morning. I'll work on rolling this earlier on Friday next week.

Try closing out wings of the IC separately next time. Often that will go faster than getting the brokerage to close out the full IC at one time.

 

[pz1975]

There is a time for sold puts and a time for sold calls and a time for both and a time for nothing. The last 2 weeks was clearly a time NOT to sell calls. I sold a small number which was a mistake and regret it, but I am not going to swear off them forever. Eventually the SP will stabilize and/or drop and then sold calls will be a good idea again and maybe staying away from sold puts may be smart. If in doubt, do nothing or stay crazy OTM. The number one goal for everyone here should be to stay far away from the steamroller, not try to pick up as many pennies as possible just in front of it.

For next week, I will be selling BPS 15% away and maybe selling covered calls >50% away (no joke).