Wiki Selling TSLA Options - Be the House

[bkp_duke]

Has premiums from all cash beating SP appreciation been true even during sharp upturns like the recent 909->1200+ one?

For me it has, and here's how the math worked out.

Let's say you started with $10,000 invested in TSLA on Jan 1, 2020. Based upon Google Finance, that would be worth . . . $137,933.41 as of Friday close.

Now, with doing BPS/BCS/IC conservative trading of that $10,000 into TSLA options, it's pretty easy to get a 5-7% return per week, but let's say it's something even more conservative like 3% (and people here are doing multiples of that).

After the two years, you would be at $186,558.66 (assuming you take 2 weeks off per year from trading.

And year 3 . . . you would be up to $817,987.15.

Even with a modest return per week, it's exponential growth and the numbers get pretty crazy pretty fast.


Obviously if you start out with more than 10k and get a higher return than 3% per week, the numbers become staggering. Really REALLY staggering.

 

[Yoona]

Has premiums from all cash beating SP appreciation been true even during sharp upturns like the recent 909->1200+ one?

short-term, no
long-term, yes IF i stick with the formula (see bottom)

on a sharp spike up, the total account value (TAV) of all-cash will be way less than that of an acct with stock, but the real cash-on-hand will be more; from that point on and over time, the accumulated extra cash compounds regardless of SP direction

imagine SP going up 200 tomorrow:
- you won't sell if you're a HODLer, so that 200 is only a paper gain and not realized gain
- your TAV is inflated but it is full of hot air (unrealized gain that is temporary and fluctuating)
- even if you wanted to sell, you can't coz the shares are used as backing or you want to wait for the peak some more
- all that waiting means tied-up capital (as stock) isn't working hard
- temptation to open extra contracts is there coz new margin created (but you forgot that the new margin is from unrealized gain so the new contracts are on shaky ground and not cash-secured)
- the next day, SP is down 100 (you were happy, now you are angry, etc)
- now you have to babysit margin (ie focus is on preventative maintenance instead of making money)

meanwhile, in those 2 days the all-cash acct
- opened 2x more contracts
- has TAV that is just cash minus the value of open contracts (ie no margin and it is stable and everything backed by cash and and it won't blow up if positions are defined risks)
- TAV doesn't have hot air; it has doubled income and it's real cash (which i will then use as additional capital for next week)

my SECRET FORMULA to the all-cash scheme is to open Credit Spreads and make the decision-making MECHANICAL (ie remove emotions and temptations and guessing):
1. DO NOT BE GREEDY.
2. Aim for 15% OTM and be happy with the credit, whatever it is. Hopefully, that's $2, if possible. It's actually more nowadays.
3. Not happy with the credit? IC it at the same 15% OTM and aim for $1, if possible. It's actually more nowadays.
4. When it is safe to do so at 1-2 DTE, see if you can move to 10% OTM.
5. Roll at 80% profits (or whatever) and repeat.

imagine automating slow and steady profits while at the same time removing the noise from margin and SP swings; as a trader, consistently increasing real cash is more important to me than inflated TAV fluctuating at the mercy of the market

 

[buttershrimp]

Has premiums from all cash beating SP appreciation been true even during sharp upturns like the recent 909->1200+ one?

no comment

 

[Knightshade]

my SECRET FORMULA to the all-cash scheme is to open Credit Spreads and make the decision-making MECHANICAL (ie remove emotions and temptations and guessing):
1. DO NOT BE GREEDY.
2. Aim for 15% OTM and be happy with the credit, whatever it is. Hopefully, that's $2, if possible. It's actually more nowadays.
3. Not happy with the credit? IC it at the same 15% OTM and aim for $1, if possible. It's actually more nowadays.
4. When it is safe to do so at 1-2 DTE, see if you can move to 10% OTM.
5. Roll at 80% profits (or whatever) and repeat.

imagine automating slow and steady profits while at the same time removing the noise from margin and SP swings; as a trader, consistently increasing real cash is more important to me than inflated TAV fluctuating at the mercy of the market

Thanks- that was very informative.... one clarification- $2 as target premiums is on $50 spreads I'm assuming? (since that's what the last trade I can find you posting was) meaning 4% ROIC? (and available C being 2x what you'd have if you were just using margin on shares)



One other thought on the math-- and this is maybe just a US thing...

But gains from weekly options are gonna be taxed (assuming a taxable account) at roughly 40-50% depending on your state, and due annually- assuming pretty reasonable income to be doing this at all.

Whereas share gains aren't taxed until sold.... and even then only at 15-20% if held at least a year.... I'd think that would have at least some impact on the compounding math.

Not necessarily enough to change cash beating shares, but given it's compounding growth having to take 40-50% of the gains off the table for taxes has to make a noticeable difference? (in the US anyway you'd likely need to be paying taxes quarterly given the amounts we're discussing so I guess you get SOME full compounding in between quarterly payments but nowhere near the full yearly impact)

Still... in something like an IRA where there's no taxes to worry about for growth this is pretty compelling math for going all cash at this point.

 

[ammulder]

Well, if Elon sells 10% of his shares, this is going to be an “interesting” week for puts…

 

[corduroy]

Well, if Elon sells 10% of his shares, this is going to be an “interesting” week for puts…

What a week, straight from worrying about -c1,400s, to now hoping my -p995s are safe.

 

[juanmedina]

I know. I guess I will be closing all my BPS early morning I don't want to be infront of a max exodus.

Edit: I actually bought instead of selling a 11/12 $1100 put lol. It might age well.

 

[ammulder]

I mean... when Tesla did their last raise, I feel like the day/days they sold were down days but not giant ones. And I doubt Elon will just dump all these shares on the market at 9:30 AM Monday. So I feel more like we might get a "market reacts to Elon being quirky" vs. a "Fire! Run for the exits!" ...but I guess we'll see.

 

[vikings123]

I mean... when Tesla did their last raise, I feel like the day/days they sold were down days but not giant ones. And I doubt Elon will just dump all these shares on the market at 9:30 AM Monday. So I feel more like we might get a "market reacts to Elon being quirky" vs. a "Fire! Run for the exits!" ...but I guess we'll see.

I don't think this is so much about how Elon sells his shares. It just creates a lot of drama and hedge funds will feast on it. Volatility ensues and hurts retail investors and the folks who are active participants in this thread . He tried the Hertz no contract tweet and now this lol.

That said, I think @BornToFly is probably feeling better about the LEAPS he sold

 

[Cherry Wine]

I mean... when Tesla did their last raise, I feel like the day/days they sold were down days but not giant ones. And I doubt Elon will just dump all these shares on the market at 9:30 AM Monday. So I feel more like we might get a "market reacts to Elon being quirky" vs. a "Fire! Run for the exits!" ...but I guess we'll see.

This strikes me as the kind of thing that should be a nothingburger, but people freaking out / taking advantage might turn it into a bigger deal.

 

[ZeApelido]

So glad my sold put spreads are 40% OTM this week.

 

[juanmedina]

What is the plan for Monday? I assume IV will kick hard and maybe OTM LEAPs will hold decently for a short time. I wonder if I should sell January 23 $2000-1900's like @elasalle early against my shares in addition of closing all BPS and naked puts because I think we are going down.

 

[corduroy]

I know. I guess I will be closing all my BPS early morning I don't want to be infront of a max exodus.

Edit: I actually bought instead of selling a 11/12 $1100 put lol. It might age well.

It might be one of the rare times when BTC'ing the short put and letting the long put run would work out.

Although I do think the dip would be short lived and buyers would jump back in pretty quickly.

 

[Tslynk67]

Feeling for all you folks with short spread legs above 1000, 1100 even - not saying they'll get into trouble, but I wouldn't be sleeping well with that right now

Hell, my short are at p900 and I'm feeling a little queasy...

Not a great idea from Elon, plays totally into the Hedgies hands

 

[Knightshade]

Feeling for all you folks with short spread legs above 1000, 1100 even - not saying they'll get into trouble, but I wouldn't be sleeping well with that right now

Hell, my short are at p900 and I'm feeling a little queasy...

Not a great idea from Elon, plays totally into the Hedgies hands

Eh, mine are 795/895 spreads, easily managed down to ~845 SP, and if it dropped THAT much next week on just the Elon sells shares news I'd probably be happy to leverage into some mid-term options to ride the delta back up on the rebound when Q4 numbers come out.



BTW thought some more about the move-to-all-cash-and-compound thing.

Apart from taxes (in taxable accounts) the compounding won't be exact... because each weeks profits won't necessarily divide perfectly for new/added contracts...don't know if that'd be enough of a difference to impact the math significantly though, and since not every week would be "exactly" 3% or whatever gain you target it'd probably come out in the wash (sale)

 

[samppa]

Wow, been out, come back to see this tweet.. now my bull put spreads worry me.. I do believe this will not have much of an effect, but I'm trying to minimize risks..
So closing all bps first thing monday might be what I shall do.

 

[jeewee3000]

Wow, been out, come back to see this tweet.. now my bull put spreads worry me.. I do believe this will not have much of an effect, but I'm trying to minimize risks..
So closing all bps first thing monday might be what I shall do.

Same story. Read the thread, got word of the tweets, checked twitter and started cursing.

Highest short strike is 1000 so 18% OTM. Should be fine, right? RIGHT??

 

[Right_Said_Fred]

Never a dull moment with this stock. Well, we knew what we signed up for.

 

[JustMe]

It might be one of the rare times when BTC'ing the short put and letting the long put run would work out.

Although I do think the dip would be short lived and buyers would jump back in pretty quickly.

This is really good advice, so obvious in retrospect.

As my former vacuous manager proclaimed, ”be nimble and adaptable to change”

 

[samppa]

Same story. Read the thread, got word of the tweets, checked twitter and started cursing.

Highest short strike is 1000 so 18% OTM. Should be fine, right? RIGHT??

Mine is -1200.. but it's only one contract of -1200/+1150. Was trying to get myself into trouble, well this is starting to look like I might get what I wished for!

This one I will try to roll if needed.

I have more contracts at -1100/+900 and -1000/+800. These I'll most likely close.

If this crashes stock on monday, I worry this may cause a longer downturn (correction after thus huge bull run).