Wiki Selling TSLA Options - Be the House

[bballshinobi]

One thing I thought about is how a lot of consolidation happens around January and February. Typically in January and February, there is tax selling. Those that made a lot of money in 2021 often wait until 2022 to cash in so they won't have to pay taxes on their gains until 2023. That likely contributed to the downward movement after the last peak when it got into the S&P-500. With a possible rewriting of how much people are taxed in upcoming legislation, there may be people willing to sell before these tax laws are enacted.

A lot of great news coming from November-December (Austin and Berlin, etc.) and COVID cases/deaths going down in the US. I could see it staying high for a while. That will contribute to market euphoria.

TSLA is such a big deal now that it really moves the NASDAQ-100. You can see how TSLA moves intraday usually show up in QQQ a few minutes later. I sometimes invest in TQQQ along with TSLA so like to watch both tickers.

I think we are already in a bit of euphoria right now lol. Ok, maybe not the market in general, but Tesla for sure. Everybody in the main investor thread is celebrating. Twitter people are saying TSLA will go to $2,500 in 6 months. WSB are buying calls. Even CNBC was pumping us. I guess I am just the type of player that likes to play in a hostile away game more than a cheering home game lol.

 

[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.

Final tally of P/L for week ending 29Oct & Learnings from this week

Finished my spreadsheet for this week - I did better than expected, considering the mess with these BCS.

1. Closed out all my BPSs for a good profit. I was able to get two rounds of BPSs in this week - the initial ones opened on 21st October were closed on Monday for over 75% profit. New BPSs opened on Monday were closed on Friday for ~90% profit. This was the saving grace for the debacle on the BCSs described below
2. Learning from this week - DONT PANIC! I realized later in the week that the panic rolling I did on Tuesday as described in the quoted post above was quite unnecessary. I would have been better off just holding those till Friday and then evaluating if taking loss was necessary. I had exactly the same spread -c1100/+c1200 for 10/29 in my IRA as well - but did not roll or close them early in the week. I was able to close these on Thursday with much lower loss. So in my IRA, I ended up with overall profit on par with the previous weeks!
3. In my individual account, where I did the panic rolling of the BCSs, now I have a debit spread with Nov 12th expiration with strikes +c1200/-c1250. Both legs were deeply in red by Wednesday, but I decided not to panic further and did not close them out. The long leg is recovering well and may turn green if we see a pop on next week Mon/Tues. My plan is to continue holding till middle of next week at which point I will close the long calls. The short calls will simply convert to covered calls against the shares and leaps in this account, so they will not need any margin. I plan to hold those till close to expiration - if the SP is above 1250 by then, I will close at additional loss as I don't want to lose any shares or LEAPS. For the week in this account, I am still showing a profit as the shares were rolled out and those positions are still open. I may still be able to salvage the positions to minimize realized loss.
4. I opened BPS positions in both accounts - the put premiums have become quite lousy now. In the IRA -p940/+p840 @$4.5 and -p990/+p890 @$6. In the brokerage account -p975/+p775 @$6.9 and -p915/+p815 @$3.3. Maybe closer to the sun than I would have liked, but had to go there to get some decent premiums.

Overall results for the month of October were slightly better than September - I am getting more confidence in this strategy! If I can salvage the debit call spreads next week, November will start off well. So hoping for a nice pop on Monday!

 

[Drezil]

No. They will always just deliver shares to the call holder. If you don't have enough shares they will buy them at the market price and leave you with a negative cash balance. Then you have to deal with covering that with selling/exercising your LEAP(S).

At ibkr they will just open a short Positionen on Tesla when you don't have the shares. Then you have -100 TSLA that will go away if you buy it exercise a call ..
But you pay interest on that position

 

[bonk3125]

I plan to hold those till close to expiration - if the SP is above 1250 by then, I will close at additional loss as I don't want to lose any shares or LEAPS. For the week in this account, I am still showing a profit as the shares were rolled out and those positions are still open. I may still be able to salvage the positions to minimize realized loss.

If SP is above 1250 by Friday, why not roll for credit instead of closing for loss?

 

[bonk3125]

Yuck!

Yuck indeed.

Recently I have been thinking more about closing this solo401k and rolling over into a traditional IRA. This would allow me much more flexibility in strategies to use (BPS, BCS, LCC). I would, however, then lose my eligibility for yearly backdoor Roth contributions. I think from a numbers perspective, this is a no brainer - potential gains from conservative spreads in a traditional IRA would dwarf the annual Roth contribution limits. I am hesitant to permanently close this door though.

Anyone else in this situation? I’d be curious to hear from anyone who is also contemplating this type of move and reasons for/against.

Thanks.

 

[ammulder]

If SP is above 1250 by Friday, why not roll for credit instead of closing for loss?

Uhhh… don’t want to speak for anybody else, but from my perspective: if the stock is up $150 in the next two weeks after being up $200 this week, how safe does a $10 roll for credit sound for the week after?

You can argue that there must eventually be a pullback, but if you’re wrong on the amount or the timing, you could be turning (say) a $3,000 loss into a $20,000 loss or more. At some point it makes more sense to take the loss (or part with the shares), and if you must carry on selling calls, start again $100+ out of the money instead of rolling for very small changes in strike.

I think this gets back to @adiggs‘ question of: if you were opening a new position instead of rolling, would you want to open the position you’re rolling to?

 

[InTheShadows]

Recently I have been thinking more about closing this solo401k and rolling over into a traditional IRA.

Could you roll it to a Roth? Pay the tax man now for the conversion, but with the earnings we can make it will be well worth it to pay him now than when you hit 60.

 

[InTheShadows]

I have been thinking a lot this weekend about the recent rally. Looking at all kinds of charts from 10 year weekly charts to the 3d 5m that I live in during the week.

The thing about where we are at now is when we get a pull back we don’t really know where support is. The last known support/resistance line is 900. I don’t think we will get there but that is the best I could come up with.

There are round numbers, 950, there is nothing. 1000, but we blew through that number for the most part too. We did have a small pull back on the 26th around noon that it offered support twice in about 30 minutes before resuming the climb.

1050 not much here either. Some sideways around 1060 for half of a day. And now we are at 1100, which seemed to be the strongest resistance for a day.

All being said, I don’t really consider any of these strong support/resistance points. I don’t know if we will really have any soils idea other than 900 until we get a good healthy pull back or can run sideways for 3 days.

I’m going through these thoughts because I am unsure of what strikes to use for my bps. I feel fairly safe because all of my midpoints in my spreads are below 900 except for one in a smaller account that is at 905.

I don’t think we will see 900 again, however I feel that there is a lot of no mans land between 900 and 1100.

Attached is 15d 5m chart

 

[AquaY]

I have never sold CC agains LEAPS. Can you help me understand this? Let's assume I buy 10 Jan 2024 LEAPS for 600 strike at $620. Then I sell Calls for Nov 12, 1200 strike for $24. If the SP is below 1200, I do it again the next week. If the SP goes up to 1300 on the expiration, what happens (assuming I don't roll the calls)? Do I have to call Fidelity and have them exercise my 600 strike Leaps and turn them into shares (by paying $600 per share on top of the $620 I already paid = $1220), that I then "sell" for $1200/each to the call buyer? So if it happens on my first trade, I break even? But if I survive the first trade, I basically start making money until the Calls finally end up in the money and I have to either roll or convert my Leaps to shares and start over?

Yup

 

[BornToFly]

I think that you're in the right ballpark. My own intent on these lcc (leap covered call) is that assignment really means "BTC the short call and STC the long (leap) call". I.e. - I decide when to 'take assignment' and don't allow the ITM short call to actually go to expiration.

If the short call does go to expiration and is ITM, then your broker will sell the shares that you don't have in the account to satisfy the short call assignment. Sometime over the weekend you'll see that you're short TSLA (TSLA position -100 shares). Those will be on your margin and you'll be paying the borrow interest for having sold 100 shares short (per contract). Presumably you will then BTC100 shares (per contract) to close out those short shares and neutralize that position. The LEAP call will NOT be exercised by your broker to satisfy the assignment on the short call.

But the rest of it - the numbers and financial rationale - that all looks right to me.

Oh - if you do have shares (so shares, leaps, short calls), then yes - your broker will helpfully sell enough shares to satisfy the covered call. That is, after all, what you committed to do when you sold the call; deliver 100 shares at the strike on demand or expiration (ITM).


EDIT to add: You should see the leaps and the short dated, sold calls, getting matched up in your account for margin purposes. Other names that I've seen for this:
- we call 'em lcc, or Leap Covered Call. They don't technically need to be leaps - they're really short calls (the cc) being matched up with long calls on a different date. When they're the same date then its a vertical call spread, aka call credit spread.
- More commonly known as a poor man's covered call. link
- They are actually and technically called diagonal spreads. link where the dates are different and the strikes are different
- Which is related to but different from calendar spreads. link where the two options have different dates but the same strike

The lcc that I have open right now are listed by Fidelity as Debit Spreads, and I expect that they always will be (the short calls I'm selling will always carry a smaller premium than the long calls I purchased). They are debit spreads because they are a +600c / -1200c, with that 600c way, way out in time. As a result I paid more to buy the 600c, than I received when I sold the 1200c, and thus a debit spread.

My plan in practice is to keep selling that lcc (the 1200 call) as many times as I can, hopefully week to week, until I get assigned or near expiration of the 600c. In this particular case, with a June 2022 expiration, I only get 6-8 months (max) before I need to find a new strike for the long call.

EDIT 2: added to FAQ

Thanks @adiggs.
1) Will Fidelity give me Margin from Leaps, like they do with shares, to sell separate BPS in addition to selling the lcc?

2) I'm still a little confused about what happens if the lcc is in the money and the owner exercises the contract early (because the SP is at 1300). Using the 10 contract example I used earlier (Buying 10 600 strike LEAPS and selling 10 1200 strike lcc). Since I'm buying the "short leg" (the 600 strike LEAP) in the beginning, and selling the "long leg" (the 1200 lcc), I don't actually need to have the cash sitting in my account ($600k for ten contracts) to bridge the difference of the two strikes, correct? Instead Fidelity will immediately sell the shares I called up by exercising my LEAPS (which I don't actually have the money for), and I will be left with $600,000 in my account?

 

[LightngMcQueen]

Welcome to the Canadian private banking world. I’m surprised they didn’t try to convince you to stack the LoC funds.

Take the 750 put it in BMA and they’ll give you up to another 1250. So actually 2x leverage if you reinvest the capital in a BMA.

All depends on where you are in terms of financial situation and what your risk tolerance levels are. It definitely is an interesting way to diversify. Especially when you also consider that some BMA will provide you structured pay out solutions with capital protection (eg 5-7% annual payouts with guaranteed capital). Compare that to the 1% interest rate and it’s an easy way to lock in cash flows while mitigating downside risk. Then again, so is real estate.

That said, 5-7% doesn’t FEEL impressive anymore… thanks Tesla…

Also anything in the BMA is untouchable from options selling purposes (may be able to sell CCs but not much else).

I am not sure I follow.
Based on my experience with "professional" wealth management, that $1000 in BMA will come with 1..2% in fees or $10-$20 fees a year. Thats a lot.

Wouldn't moving 2000 to IBKR be better option?
Park $1000 in a target date fund or index fund with MER under .5%
Use $1000 for aggressive stategies

Have margin available based on $2000 equity at 1..1.5% ?

I might have oversimplified something. Am I missing something here?

 

[st_lopes]

I am not sure I follow.
Based on my experience with "professional" wealth management, that $1000 in BMA will come with 1..2% in fees or $10-$20 fees a year. Thats a lot.

Wouldn't moving 2000 to IBKR be better option?
Park $1000 in a target date fund or index fund with MER under .5%
Use $1000 for aggressive stategies

Have margin available based on $2000 equity at 1..1.5% ?

I might have oversimplified something. Am I missing something here?

The 5-7% return I quoted was net of management fees, but yes their structured products all have fees, which is why they will extend LIBOR or bank prime rates on the leverage (eg Scotiabank Investor Solutions) because they make it up in management fees.

In the example being discussed, park 1000 to receive 2000 in leverage if reinvested at bank or 750 if you want to self manage. You also could put that 750 at IBKR and stack leverage, though that is flying close to the sun. So 3000 of exposure at 5-7% (150-210) annualized for 1000 of capital, 15-21% (“low risk”) before interest charge return on your pre leverage capital.

Becomes more a matter of do you want to continue self managing and navigating positions through any macro pullbacks or live with the 5-7% return with guaranteed capital (for future estate as an example). Trading off the risk for guaranteed return and capital for what may be better return if you self manage.

Talking about multigenerational wealth preservation rather than accumulation.

 

[MindOverMatcha]

I think we are already in a bit of euphoria right now lol. Ok, maybe not the market in general, but Tesla for sure. Everybody in the main investor thread is celebrating. Twitter people are saying TSLA will go to $2,500 in 6 months. WSB are buying calls. Even CNBC was pumping us. I guess I am just the type of player that likes to play in a hostile away game more than a cheering home game lol.

I feel you in that I like to play cautiously optimistic. I've sat on my hands this past week but may sell some BPS in the next week or two. The lack of support is what worries me but is outweighed by the heavy buying as the stock bounces off 1000.

I confess I'm feeling the pump from the crowd chanting $2500 for 2022. Indeed, you'd have to look at the weekly trend and extrapolate that to the next few months to get a break through 1800 by EOY. It wouldn't be an accurate use of statistical modeling to do that. However, the stock market has never yearned to be "rational", modest, and linear. Do humans do that too?

We've seen a lot of wild things come to fruition that seems disconnected from reality. Morgan Stanley is giving a "sensible" PT of 1200, which would've been 6,000 pre-split a year ago. The stock market can remain irrational longer than you can remain solvent is what my father used to tell me. He's lived through many crashes, bubbles, etc. He told me that we are "modest' compared to how things were in 2000 when stocks literally only went up for years until the big Dot-Com Bubble burst. At least now we have dips.

 

[mongo]

Thanks @adiggs.
1) Will Fidelity give me Margin from Leaps, like they do with shares, to sell separate BPS in addition to selling the lcc?

2) I'm still a little confused about what happens if the lcc is in the money and the owner exercises the contract early (because the SP is at 1300). Using the 10 contract example I used earlier (Buying 10 600 strike LEAPS and selling 10 1200 strike lcc). Since I'm buying the "short leg" (the 600 strike LEAP) in the beginning, and selling the "long leg" (the 1200 lcc), I don't actually need to have the cash sitting in my account ($600k for ten contracts) to bridge the difference of the two strikes, correct? Instead Fidelity will immediately sell the shares I called up by exercising my LEAPS (which I don't actually have the money for), and I will be left with $600,000 in my account?

Non-advice:
2) Definitely a Fidelity question since it involves IRA margin.Long Calendar Spread with Calls - Fidelity

It's complicated since the Jan 24 600C LEAP has time value of $83 to start, but moves at a fraction of the stock price 0.9 . Selling the leap to buy shares would likely be more profitable than having it executed.

If executed, yeah, you would have the 600k=(1200-600)*100*10 change in cash.

Early assignment should be a rare occurrence since the buyer would also lose the time value and the short time frame has minimal impact on turning options into shares for tax reasons so one could roll the short call ahead of expiry.

If you also have 1,000 shares in the account, those could probably be used to cover the assigned call in the short term.

 

[bkp_duke]

Even Fidelity does not allow spread trading in certain retirement accounts such as the Solo 401k in which I have a number if ITM ccs.

I'm hitting the same problem, but there may be a solution:

MySolo401k Review 2024: Self-Directed Solo 401k Accounts

MySolo401k is a solo 401k provider that allows you to invest in alternative assets such as real estate, cryptocurrency, gold, and more.

thecollegeinvestor.com

I'm looking into opening an account with them, keeping things "at Fidelity" but since they are the plan administrators hopefully the limits will be lifted. I've got a business trip this next week that is going to suck down my time, but when I get back I'm going to chat in detail with these people.

Fidelity also would not let us roll the Solo401k into a Traditional IRA without closing out the plan, being 59.5 years old, etc. Really a PITA.

 

[corduroy]

I've been trying to brainstorm all of the ways to deal with my problem BCSs next week. I wanted to get everything written down in one place mainly to help me organize my thoughts, perhaps this might help others in the same boat. Here are all the possibilities (good, bad and ugly) that I could think of:

#1: Close whole position for loss (before max loss)
#2: The ripcord - close the short call for a loss, let the long call run. (Possibly end up better than #1 if stock continues up, worse if it goes down)
#3: Roll/convert the short call out to an ITM short put, keep the long call. Both make money if stock goes up. (Both lose if it goes down)
#4: Convert to debit spread (More loss initially, better if SP rises fast)
#5: Split roll - half the spread, double the contracts - more time and strike improvement (hoping for a pullback in SP)
#6: Keep the spread open, sell the long call at what you think is top (for profit). At that point have a naked ITM call to manage (presumably easier to roll and manage than spread, but giving up defined risk)
#7 Convert to temporary inverse diagonal, then naked call? Roll short call for credit/strike improvement next week, keep the current long call open to run. Sell long call (for profit), then continue to manage ITM short call.
#8 Roll spread for debit to buy more time.
#9 Do nothing and wait, possibly hit max loss or no loss.

Which strategies have I missed and/or am wrong about?

If we have a "gamma squeeze" Monday, 2-4 could do well and resolve the positions quickly. 5-7 buy more time and could eventually end up with no losses if SP comes back to earth.

Assuming we do rise more and come back to earth, #7 is interesting to me, but I need to think on that more. A lot depends on how we are looking in the premarket. If I am feeling bold I might try #2, but #1 is definitely on the table.

 

[buttershrimp]

I feel you in that I like to play cautiously optimistic. I've sat on my hands this past week but may sell some BPS in the next week or two. The lack of support is what worries me but is outweighed by the heavy buying as the stock bounces off 1000.

I confess I'm feeling the pump from the crowd chanting $2500 for 2022. Indeed, you'd have to look at the weekly trend and extrapolate that to the next few months to get a break through 1800 by EOY. It wouldn't be an accurate use of statistical modeling to do that. However, the stock market has never yearned to be "rational", modest, and linear. Do humans do that too?

We've seen a lot of wild things come to fruition that seems disconnected from reality. Morgan Stanley is giving a "sensible" PT of 1200, which would've been 6,000 pre-split a year ago. The stock market can remain irrational longer than you can remain solvent is what my father used to tell me. He's lived through many crashes, bubbles, etc. He told me that we are "modest' compared to how things were in 2000 when stocks literally only went up for years until the big Dot-Com Bubble burst. At least now we have dips.

This is fascinating time, we have WSB meme stock euphoria combined with the obsessive diehard TSLA investor, I’m not sure us TSLA Uberbulls should consider ourselves allies with WSB. And it’s fascinating that people like Leo are telegraphing their buys to fuel gamma further. I’m biased, I want stock to consolidate in order to repair some positions. But even if I was buy and hold investor, I’d want these prices to stick. Nothing is worse than it going up to 1600 to crash back to 900. I’d rather it go to 1250 and consolidate at 1000 and keep marching.

 

[MindOverMatcha]

Yuck indeed.

Recently I have been thinking more about closing this solo401k and rolling over into a traditional IRA. This would allow me much more flexibility in strategies to use (BPS, BCS, LCC). I would, however, then lose my eligibility for yearly backdoor Roth contributions. I think from a numbers perspective, this is a no brainer - potential gains from conservative spreads in a traditional IRA would dwarf the annual Roth contribution limits. I am hesitant to permanently close this door though.

Anyone else in this situation? I’d be curious to hear from anyone who is also contemplating this type of move and reasons for/against.

Thanks.

I'm not a tax professional but I chose my solo 401k option because you can do a 401k loan (tax-free withdrawal without having to liquidate your shares). Essentially, take 50% of your portfolio or 50k, depending on which is less, while maintaining your share count. You then pay yourself back on the loan with interest. It's a sweet deal. Back when I worked for a company, I did a 401k loan and put that cash into TSLA, since my company didn't allow me to invest in it.

I chose Etrade as my solo 401k brokerage because they allowed me to do a 401k loan.

I don't think you can do the same with an IRA. My broker tried to convince me to transfer my 401k funds into my IRA so that I could do spreads (401k is limited to Lvl 1 options). But I decided against it because I didn't want to risk losing the option to take a 401k loan in case of an emergency or for future payment on a home. I would first talk to a tax person. The people working at the brokerage aren't pros at this kind of stuff, their job is to get you to trade options to collect fees. If they're wrong, well, the IRS doesn't care who told you the wrong information. You are still responsible for the actions taken, even if you were given the wrong information.

 

[buttershrimp]

I've been trying to brainstorm all of the ways to deal with my problem BCSs next week. I wanted to get everything written down in one place mainly to help me organize my thoughts, perhaps this might help others in the same boat. Here are all the possibilities (good, bad and ugly) that I could think of:

#1: Close whole position for loss (before max loss)
#2: The ripcord - close the short call for a loss, let the long call run. (Possibly end up better than #1 if stock continues up, worse if it goes down)
#3: Roll/convert the short call out to an ITM short put, keep the long call. Both make money if stock goes up. (Both lose if it goes down)
#4: Convert to debit spread (More loss initially, better if SP rises fast)
#5: Split roll - half the spread, double the contracts - more time and strike improvement (hoping for a pullback in SP)
#6: Keep the spread open, sell the long call at what you think is top (for profit). At that point have a naked ITM call to manage (presumably easier to roll and manage than spread, but giving up defined risk)
#7 Convert to temporary inverse diagonal, then naked call? Roll short call for credit/strike improvement next week, keep the current long call open to run. Sell long call (for profit), then continue to manage ITM short call.
#8 Roll spread for debit to buy more time.
#9 Do nothing and wait, possibly hit max loss or no loss.

Which strategies have I missed and/or am wrong about?

If we have a "gamma squeeze" Monday, 2-4 could do well and resolve the positions quickly. 5-7 buy more time and could eventually end up with no losses if SP comes back to earth.

Assuming we do rise more and come back to earth, #7 is interesting to me, but I need to think on that more. A lot depends on how we are looking in the premarket. If I am feeling bold I might try #2, but #1 is definitely on the table.

Split roll is best if patient it seems. Flip split is very intriguing too. Depending how far from the money you are. If far enough away, you can skip the part of making it a condor and just sell itm butterfly never taking loss. Then as stock price gets closer, convert to condors until it gets trapped between strikes. This is what I’m doing. I’ve regular rolled this cycle.

But flip split is intriguing.

 

[Bunky]

Split roll is best if patient it seems. Flip split is very intriguing too. Depending how far from the money you are. If far enough away, you can skip the part of making it a condor and just sell itm butterfly never taking loss. Then as stock price gets closer, convert to condors until it gets trapped between strikes. This is what I’m doing. I’ve regular rolled this cycle.

But flip split is intriguing.

I'm intrigued about #3. I don't see an option to flip the call to a put in one 'ticket' on Fidelity for me but could buy to close/sell to open the same value manually. At least then i'd feel like I was aligned directionally with my long position and the rampant bullish sentiment. I also feel better about rolling down and out of short puts than up and out for cc's. Might try this for one or two of my DITM CC's and try a combination of #5 #8 #9 for the others.

Would this be considered a flip split? Or am I missing the split part?