Wiki Selling TSLA Options - Be the House

[Right_Said_Fred]

Welp, decent week on the put side. I have some cc's that are now pretty DITM though. Will do a combination of split rolling and buying to close on dips with proceeds from BPS. If we ever get a dip again

Yeah, we'll get a dip (but don't tell anyone in the other thread). My recollection is that we've had 5 short and gamma squeezes before, in 2013 to $185, in 2020 to $960, $1800 and $500 post-split and in 2021 to $900, and in all of these cases we crashed or dropped back (to $115, $350, $1350, $340 and $530). The smallest drop was 30%, the biggest one 65%. So it will likely happen again. The only thing we don't know is how high the top will be this time.

 

[st_lopes]

Need some "not advice"....

Trying to decide what to do about another potential mistake I made this week. I was pretty shaken by my losses Monday and Tuesday, and I wanted to repair the damage as quickly as possible. My TSLA shares were all fine, but the cash in my account was wiped out. I was convinced that the SP had gone too high, so I sold 2024 CC against all my shares for 1500 and 2000 strikes with the idea of buying them back after a 25% gain. However, the continued SP climb has increased the value of those calls even more and they are underwater. If the stock pulls back to the upper 900s I will be able to buy them back. Do I

1) Buy them back now for a loss, because the SP is never coming back down....
2) Resign myself to the fact that my shares will get called away in 2024 (unless they are not so ITM by then that I can roll somehow) and just use the money for the next two years to sell BPS (hopefully without big mistakes) and make money to decrease the loss in value of my account if the SP goes to 3000 by 2024.
3) Be patient and see if the SP pulls back in the next month and I can buy them back with minimal loss, accepting #2 if I can't.

What would you guys do?

#3

I’m practicing a lot of #3

I have CCs against all my shares… LCCs against most of Leaps, a BCS that is now fully ITM, and another BCS that is sitting at 1200/1250. All with 11/5 expirations except the LCC which are 12/17. I’m practicing a lot of #3, and practicing leaving cushion for BCS management.

I haven’t “lost” anything because I haven’t closed anything. Though my paper opportunity cost is seven figures as of today.

Because:

Yeah, we'll get a dip (but don't tell anyone in the other thread). My recollection is that we've had 5 short and gamma squeezes squeezes before, in 2013 to $185, in 2020 to $960, $1800 and $500 post-split and in 2021 to $900, and in all of these cases we crashed or dropped back (to $115, $350, $1350, $340 and $530). The smallest drop was 30%, the biggest one 65%. So it will likely happen again. The only thing we don't know is how high the top will be this time.

Have I ever said you’re my favorite moderator?

 

[M3Rider]

...
the only dollar risk that i can think of that will blow up my acct is early exercise by someone, but it's not applicable(?) since it's a CC

It's very applicable, I posted a few times about it.
I just call my broker and ask to exercise my 2022 DITM calls when I have the cash.

Boom, done. No need to wait for expiration.

That's for American options. Can't do the same in Europe.

 

[Right_Said_Fred]

Have I ever said you’re my favorite moderator?

Hahaha. Just don't shoot me when this is the first squeeze that isn't followed by a drop. What's different this time is that Tesla the company is becoming very profitable very fast and a lot of funds and investors are taking notice. But still it's unlikely that the law of gravity will stop working. Stocks tend to overshoot in both directions and afterwards need to revert to the mean.

 

[OrthoSurg]

Need some "not advice"....

Trying to decide what to do about another potential mistake I made this week. I was pretty shaken by my losses Monday and Tuesday, and I wanted to repair the damage as quickly as possible. My TSLA shares were all fine, but the cash in my account was wiped out. I was convinced that the SP had gone too high, so I sold 2024 CC against all my shares for 1500 and 2000 strikes with the idea of buying them back after a 25% gain. However, the continued SP climb has increased the value of those calls even more and they are underwater. If the stock pulls back to the upper 900s I will be able to buy them back. Do I

1) Buy them back now for a loss, because the SP is never coming back down....
2) Resign myself to the fact that my shares will get called away in 2024 (unless they are not so ITM by then that I can roll somehow) and just use the money for the next two years to sell BPS (hopefully without big mistakes) and make money to decrease the loss in value of my account if the SP goes to 3000 by 2024.
3) Be patient and see if the SP pulls back in the next month and I can buy them back with minimal loss, accepting #2 if I can't.

What would you guys do?

I am knew to options however I have seen a pullback in every run up caused by squeeze like this. My bet was that there would be a pullback before it hits $1300 that’s why I sold a $1325 CC expiring end of November. However my loss will be light years away from your loss if this time is different that the last times where there were pullbacks. I wish a pullback for all the CC sellers. But as far as the investors roundtable goes, we are heading straight to $7240, or whatever number they can find.

 

[MikeC]

What a week. Had covered calls and call spreads at 1000 coming into the week with the rationale that, in the unlikely event it hit 1000, the rest of my position would do so well, I wouldn't even mind. Well, call spreads really suck and I closed them at a painful loss after rolling twice on Monday and picking up a good faith violation in the process. I rolled the CCs in my IRA to various 1100-1200 strikes expiring Nov-Jan. I could potentially lose more than half my shares if it keeps going up faster than I can roll, but I think I'm okay with that after being mostly all-in since 2013.

 

[adiggs]

Sold a few naked puts and used the proceeds early in the day to buy December calls 1100/ 1120. They are almost in the money already. Now I guess I gotta wait them out. Fortunately puts expire next week.

Semi-related. If you have a bull put spread, do you usually let it expire or cash it out before it closes?

Close the spreads - I always close my spreads and short options. Today I closed my BPS for 0.10. If nothing else it freed up those resources so I could also open next week's BPS (which I did).

I feel kinda stuck with my taxable accounts. I want to set stop losses on my leaps but if they trigger the tax man will come knocking. First world problems I guess.

You can do what I do. Except for the amazingly profitable shares in my taxable accounts, I deal with the tax man by plowing on through. That means something like a 50% marginal tax rate for me (#firstworldproblems) but that also still means that $10k of incremental realized profit is $5k of realized cash I can spend. Which is $5k more than doing nothing because of tax considerations.

Or when i withdraw from my IRA which I expect I'll do within the next year (big purchase), I'll cough up 60%! More #firstworldproblems.

Grin and pay it - that's how I handle it, and keep trading full speed ahead

Hahaha. Just don't shoot me when this is the first squeeze that isn't followed by a drop. What's different this time is that Tesla the company is becoming very profitable very fast and a lot of funds and investors are taking notice. But still it's unlikely that the law of gravity will stop working. Stocks tend to overshoot in both directions and afterwards need to revert to the mean.

There's always a drop. But will it be 1200 back down to 900? Or will it be 2000 back down to 1300?

The first one on your list - I remember it well as I bought some shares that I still have today on the way down from 180 to 130. Paid 160 for those and watched them fall 20% from there. I really caught a falling knife, eh?


That's the tricky thing about runs in general and Tesla more particularly. I've seen all of those runs Fred mentions and lived them all. That first one is my mental model for these - I still remember people in the thread bragging about locking in their 2x at $50-70 or so, planning to buy back in when the shares came back. Some of them never bought back in (or at least didn't mention it in the thread). Some of them bought back in at $90 or something like that - skipping over part of the run when they just couldn't stand it any longer.

I have no idea if this is yet another one of those epic runs. Sort of feels like one, but even epic runs need the occasional down day. When will that be? Will it be big? Will their be market participants that see an opportunity to set the TSLAQ folks on fire!?!

 

[BornToFly]

Here's a recap of my week.

Like many others, I opened BCSs first thing Monday morning, thinking we would come back down after the huge pre-market pop. When it started to run towards $1,000, my first instinct was to close everything immediately. But looking back on my trading spreadsheet, that is what resulted in the largest loss I have taken in the past. So this time I was going to be patient and use the "do nothing" strategy. I was absolutely convinced we come back to earth by Friday afternoon, so all I needed to do was wait it out until Friday. This was not an ordinary week though.

There were times during the week when I could have rolled the 1050/1150s for free with a strike improvement of 1090/1190, but I still felt they would expire OTM. Stomach acid was high all week, but I kept waiting, everyday watching us go higher. By Friday, 30 minutes to close, I finally had to take what I could get - free rolls for my 1050/1150s to 11/5, which are now $75 ITM. The 1100/1200s I closed for a $4 loss each (net $2) and was lucky to do that because 10 minutes later by the close they were $18. I was really not wanting to carry these positions forward over the weekend. By the looks of things, the remaining 1050/1150s could go to max loss which would be about 2 months trading income. Even though I actually hit my profit target this week, it was only by kicking this can down the road.

The thing is, I don't even know if I should change my trading style. I'm already conservative to the point where I haven't even had to manage a position for 5 months. How many times does a mega cap stock go up 20% in one week? Usually opening a position expiring only 4 days away at 18% OTM is safe, until it wasn't. This really was a "white swan event". It might never happen again with TSLA. Or it might happen again next week.

I still think we have to mean revert to the mid 1,000s at some point, so we'll see how long I can continue to roll these.

Please keep us updated. I think another stock split announcement could give us another +20% week. I think all my BCS in the future will have a stop loss order on the short leg, and with $200 spreads, the long leg won't be worth buying back right away and I can let it ride to see if it pays for the loss on the short leg should the SP keep climbing. The risk of the stop loss is that the value pops shortly after opening the position on a 5% jump that then goes nowhere, triggering an unintended, pre-mature sale. Later in the week the strategy should work. More research is needed....

 

[M3Rider]

Wondering.

With everyone and their mom expecting a gamma squeeze next week, wouldn't there be someone else with the means, who says screw all of you, this time I take your money?

 

[Knightshade]

With everyone and their mom expecting a gamma squeeze next week, wouldn't there be someone else with the means, who says screw all of you, this time I take your money?

There would- but he's the CEO of Tesla so seems unlikely.

 

[M3Rider]

There would- but he's the CEO of Tesla so seems unlikely.

CEO of Tesla needs to sell 12m shares to pay taxes, so he's not in a position to buy.
Whether he's the one who sells next week or later remains to be seen.

 

[Knightshade]

CEO of Tesla needs to sell 12m shares to pay taxes, so he's not in a position to buy.
Whether he's the one who sells next week or later remains to be seen.

Eh, he's still got like 10 months to do it (and plenty of ways to do so apart from dumping on the open market)

Or heck if you believe the "there's eleventy-pepsi fake naked short shares that are forced to be covered by real shares in a split" theory from the other thread he could double dip the fun by doing it then

 

[M3Rider]

Eh, he's still got like 10 months to do it (and plenty of ways to do so apart from dumping on the open market)

Or heck if you believe the "there's eleventy-pepsi fake naked short shares that are forced to be covered by real shares in a split" theory from the other thread he could double dip the fun by doing it then

If you watched Elon's interview talking about those options, he was concerned with his tax rate going up next year. If true, then logical decision is to sell this year, i.e. in 2 months, not in 10 months.

He exercises shares for, like, nothing. So more money 8mo later does not help as all that money goes to taxes.

 

[CHGolferJim]

If you watched Elon's interview talking about those options, he was concerned with his tax rate going up next year. If true, then logical decision is to sell this year, i.e. in 2 months, not in 10 months.

He exercises shares for, like, nothing. So more money 8mo later does not help as all that money goes to taxes.

How about a private placement to Ron Baron et al.? Would that influence the market price?

 

[pz1975]

I have never been so sure that there will be spike at/after opening Monday.

 

[ammulder]

I have never been so sure that there will be spike at/after opening Monday.

LOL, be cautious when others are greedy...

I agree all the signs were good at the end of the day today. But somethings can always come up over the weekend, whether Tesla-specific (FSD issue or plaid X delay confirmed) or macros (Dems unable to agree on building back better). Never say never!

But that said, I'm pretty comfortable with my 9xx put spreads.

 

[M3Rider]

How about a private placement to Ron Baron et al.? Would that influence the market price?

Ron Baron does not have unlimited money to put in TSLA. He gets money from investors, some of which may think think the market is overheated @ATH and not a good time to invest.
If it's 401k contributions, then I guess it's an average amount that's able to buy less than average numbers of shares due to inflated prices.

 

[Knightshade]

How about a private placement to Ron Baron et al.? Would that influence the market price?

Yup, private/discounted sale to banks or others is one method he could use... dark pools, etc. No need to dump a ton of shares on open market.

Presumably a lot of big boys would be happy to buy at a discount.

If you watched Elon's interview talking about those options, he was concerned with his tax rate going up next year. If true, then logical decision is to sell this year, i.e. in 2 months, not in 10 months.

He exercises shares for, like, nothing. So more money 8mo later does not help as all that money goes to taxes.

Heh, and last week they were discussing a wealth tax that'd nail him for unrealized gains anyway- though they seem to have dropped it for the moment.

Until they actually pass something he can't really know what his tax rate will be.

The other consideration is state tax treatment... If CA is gonna lay claim to 100% of the gains as CA taxable either way then that's not a factor- but if exercising them a bit later based on his Texas move saves him some at that level it might make some sense.

Anybody know how they determine state tax liability for options granted while a resident in CA, but exercised while a resident in TX?

 

[JustMe]

There's always a drop. But will it be 1200 back down to 900? Or will it be 2000 back down to 1300?

This is spot on. My irrational fear is it goes to $3000 then back to $2000 with half my shares trapped at $840

A nice period of consolidation would be welcome before that happens

 

[M3Rider]

Yup, private/discounted sale to banks or others is one method he could use... dark pools, etc. No need to dump a ton of shares on open market.

Presumably a lot of big boys would be happy to buy at a discount.





Heh, and last week they were discussing a wealth tax that'd nail him for unrealized gains anyway- though they seem to have dropped it for the moment.

Until they actually pass something he can't really know what his tax rate will be.

The other consideration is state tax treatment... If CA is gonna lay claim to 100% of the gains as CA taxable either way then that's not a factor- but if exercising them a bit later based on his Texas move saves him some at that level it might make some sense.

Anybody know how they determine state tax liability for options granted while a resident in CA, but exercised while a resident in TX?

If banks get a discount that discount will be dumped on the open market the next day.

Based on what I heard, his CA options require CA taxes. If he gets TX options tomorrow, those would be taxed @TX rates. So, his recent move is not helpful for past obligations.

The "unrealized" wealth tax rate is really a nonsense, because it's obviously going to screw up everyone. Billionaires tax only going to pay for 1 year of expenses. After that, its 500k- naires, 50k-naires. I.e. everybody.

If this passes, we're all screwed until Democrats are out, which is sad that they would want to achieve that.