Wiki Selling TSLA Options - Be the House

[stealthyc]

As mentioned, max loss (black swan or not) is more about buying power used, not width of spread. If I’m using 25% of my buying power, max loss of 200 point spread is same as 10 point spread, I will just have way more contracts for the later. The difference is that if my short leg is 20% OTM from a stock price of 1000, then max loss is achieved at 600 for the 200 width spread and 790 for the 10 width spread. And the 200 width spread can have effective management down to 700 vs 795 for the other. Which seems less risky?

 

[samppa]

I assume the danger is like this: You start with 1000 shares at $1000 and for that you’re given $500k margin. You buy 50x $100 put spreads on margin at 20% OTM, using your $500k of margin. Fremont is destroyed by an earthquake and the stock goes to $500. Your spreads go to max loss and you’re at $500k margin used with nothing of value to show for it. But because the stock went to $500 your allowed margin is now $250k. So the broker liquidates 500 shares to cover the $250k excess margin debt, leaving you 500 shares worth $250k and a margin debt of “only” $250k, but new available margin of $125k, and I guess they just go on liquidating until you’re left with nothing?

The solution for put spreads would seem to be to not use that much of your available margin?

Shortly, though, Tesla will have four factories, and the team taking the earnings calls will have sufficient credentials with investors than even a black swan taking out one factory or Elon himself would hopefully not cut the value of the company in half. Will we really get more black-swan-y than a nearly 20% dump after Elon announced he’s selling? Wait, that has the ring of “famous last words”. Forget I asked! Maybe just use less margin.

After the 500 shares have been liquidated, you will have cash worth of that. So in this case 250k. And cash will cover margin in full, so 250k cash will give 250k margin.
But yes, never use all of your available margin.

 

[OrthoSurg]

When I first started visiting this thread last year I remember seeing (or at least that's what I think I saw) a lot of spreads with a small bandwidth: 20, 30 maybe 50 points. I'm now seeing spreads with a bandwidth of 100, 200 or even more points. I always thought spreads were meant to limit risk, with the longest leg being the safeguard, but do such wide spreads still do that?

What happens to such wide BCS in the unlikely but not completely impossible event of a 300 to 400 point overnight drop? There are some black swan events that can cause such a drop: something happening to Elon, a big earthquake destroying the Fremont factory, a hack which puts control of all Teslas in hackers' hands, and probably some scenarios I am overlooking.

I know that with my naked puts I also run a risk when such a black swan strikes, but that risk is that the shares get assigned and I am forced to buy shares that are worth a lot less than what I pay for them. But it doesn't wipe me out. If the shares are assigned I have enough cash to buy them. For each naked put that I sell I need a lot of initial margin and maintenance margin, so I can only sell a limited number of them. That means less premium earned, but also less risk.

The advantage of spreads is that they require a lot less initial margin and maintenance margin, which means you can sell many more and earn more premium. And a lot of people take this opportunity. But what happens with spreads that are a few hundred points wide if the stock opens lower than the longest leg? 100 BPS with a width of 200 points will then be $2 million in the red. Doesn't that mean that the maximum maintenance margin could be exceeded and the broker closes the positions, resulting in a total loss and maybe worse (a bigger loss than the cash and shares in the account, resulting in a debt)?

Am I wrong? I don't want to scare anyone, but would also not want any of my TMC friends to ever end up in such a situation.

I think it all depends on the % of margin used. If you have the same maximum risk if you use 25% of your margin for naked puts, 200$ BPS or 50$ BPS. However, the naked puts are easier to roll and then the 200$ spreads. But an overnight 20% drop from Elon Musk being gunshot by Bernie Sanders goes to make loss with the different spreads while you can roll the naked Puts indefinitely with available margin. However, using increasingly more margin 50% or more will lead to a portfolio collapse with margin call in case of a Blackswan. That’s how I understand it after 3 weeks of trading.

 

[vikings123]

When I first started visiting this thread last year I remember seeing (or at least that's what I think I saw) a lot of spreads with a small bandwidth: 20, 30 maybe 50 points. I'm now seeing spreads with a bandwidth of 100, 200 or even more points. I always thought spreads were meant to limit risk, with the longest leg being the safeguard, but do such wide spreads still do that?

What happens to such wide BCS in the unlikely but not completely impossible event of a 300 to 400 point overnight drop? There are some black swan events that can cause such a drop: something happening to Elon, a big earthquake destroying the Fremont factory, a hack which puts control of all Teslas in hackers' hands, and probably some scenarios I am overlooking.

I know that with my naked puts I also run a risk when such a black swan strikes, but that risk is that the shares get assigned and I am forced to buy shares that are worth a lot less than what I pay for them. But it doesn't wipe me out. If the shares are assigned I have enough cash to buy them. For each naked put that I sell I need a lot of initial margin and maintenance margin, so I can only sell a limited number of them. That means less premium earned, but also less risk.

The advantage of spreads is that they require a lot less initial margin and maintenance margin, which means you can sell many more and earn more premium. And a lot of people take this opportunity. But what happens with spreads that are a few hundred points wide if the stock opens lower than the longest leg? 100 BPS with a width of 200 points will then be $2 million in the red. Doesn't that mean that the maximum maintenance margin could be exceeded and the broker closes the positions, resulting in a total loss and maybe worse (a bigger loss than the cash and shares in the account, resulting in a debt)?

Am I wrong? I don't want to scare anyone, but would also not want any of my TMC friends to ever end up in such a situation.

You are not wrong and this is a good reminder for everyone that this game might seem easy but not necessarily without a lot of downside risk. One of the things I have been thinking about is hedge against such a black swan event by buying puts 2-3 months for let’s say something like a 600 strike price. Even better if you can fund these puts by selling way OTM calls.

For example Jan 2021 600 puts are costing around $3. Let’s say you have 1000 shares in your account you could potentially sell 10 Jan 21 1800 calls for 12$ Each and buy 40X 600 puts. Every month you continue to roll these positions 2-3 months out. In the meantime you leverage your available margin to sell spreads.

Isn’t it crazy that 1800$ Jan 21 calls are going for 12$? There is peak euphoria in the markets now.

 

[EVCollies]

11/22/21 todos....

At Mid Morning Dive, my new name for MMD given EM stock sale for the tax man:
Roll 11/26/21 -p950/+p750 hopefully to same strike. 12/3/21
Roll 11/26/21 CCP 950 also to same strike 12/3/21 in my last remaining options level 1 account.

Still processing the best spread for my conservative BPS strategy. Happy with 200 but when strikes rise above $1000 will increase proportionally.

Spread = strike / 5?

 

[Tslynk67]

When I first started visiting this thread last year I remember seeing (or at least that's what I think I saw) a lot of spreads with a small bandwidth: 20, 30 maybe 50 points. I'm now seeing spreads with a bandwidth of 100, 200 or even more points. I always thought spreads were meant to limit risk, with the longest leg being the safeguard, but do such wide spreads still do that?

What happens to such wide BCS in the unlikely but not completely impossible event of a 300 to 400 point overnight drop? There are some black swan events that can cause such a drop: something happening to Elon, a big earthquake destroying the Fremont factory, a hack which puts control of all Teslas in hackers' hands, and probably some scenarios I am overlooking.

I know that with my naked puts I also run a risk when such a black swan strikes, but that risk is that the shares get assigned and I am forced to buy shares that are worth a lot less than what I pay for them. But it doesn't wipe me out. If the shares are assigned I have enough cash to buy them. For each naked put that I sell I need a lot of initial margin and maintenance margin, so I can only sell a limited number of them. That means less premium earned, but also less risk.

The advantage of spreads is that they require a lot less initial margin and maintenance margin, which means you can sell many more and earn more premium. And a lot of people take this opportunity. But what happens with spreads that are a few hundred points wide if the stock opens lower than the longest leg? 100 BPS with a width of 200 points will then be $2 million in the red. Doesn't that mean that the maximum maintenance margin could be exceeded and the broker closes the positions, resulting in a total loss and maybe worse (a bigger loss than the cash and shares in the account, resulting in a debt)?

Am I wrong? I don't want to scare anyone, but would also not want any of my TMC friends to ever end up in such a situation.

Did we have spreads last year, or were we all cavorting around naked? Seems to me that BPS's are a bit "flavour of the month", no? A year ago we were just selling puts, next year, who knows...?

I deliberate on positions 24/7... in my REM this morning I was stressing about an ElonBS (Black Swan), I was stressed, I felt for my long calls (which are legion), I dwelt on his private jet, and missiles...

Life is hard...

 

[elasalle]

Did we have spreads last year, or were we all cavorting around naked? Seems to me that BPS's are a bit "flavour of the month", no? A year ago we were just selling puts, next year, who knows...?

I deliberate on positions 24/7... in my REM this morning I was stressing about an ElonBS (Black Swan), I was stressed, I felt for my long calls (which are legion), I dwelt on his private jet, and missiles...

Life is hard...

Didn't this thread start life as the wheel (seems things were simpler back then ? )
BPS seems to have worked great when SP was in the lows and climbing back and mainly sideways ...
For SP going ballistic I don't think BPS will give the best return, as compared to being Long stock or calls? And after a big run up one must always be wary of the reversion back to mean ...

(mainly distant observer on this thread until recently). ... cheers!!

 

[Yoona]

Did we have spreads last year, or were we all cavorting around naked? Seems to me that BPS's are a bit "flavour of the month", no? A year ago we were just selling puts, next year, who knows...?

cough... Yours Truly made it popular starting April this year

 

[ninpb]

Do I have this correct for those who have Vanguard? Trading options sucks on it? Cant do mobile app, can't roll.

 

[intelligator]

BPS is what I learned about a month ago, all here. Thanks to all !!! It's been a useful trade, good way to leverage margin, admit it can get you in trouble quick. I can't trade naked and CC are a bit risky short term... for me. I do have a decent long position, it's in a cash account, so don't want to sell for a while.

BCS, I have to better understand before I give that trade a try. At level 3, not sure I can enter some of the other trades like straddles and strangles. Probably best I can't given I don't know how those work.

Hoping for a climb, support, sideways, climb, support, sideways.... will trade BPS until they really get dicey.

 

[BornToFly]

Does plastic surgeon lady need a boyfriend?

Such a juicy story, would love to see the entirety of it posted on Wallstreet Bets.

I don't know why I do this because "no good deed goes unpunished" but I'm walking a friend through selling his first puts. Something sweet like 840 bucks for 2 contracts expiring next week.

Friend: That's it for 180,000 risk?!??!
Me: It's not 'really' 180,000 risk. Unless Tesla goes to 0. Is it going under 900?
Friend: No
Friend: 840 bucks still though..
Me: Who's going to give you 840 bucks..?

Friend: start's looking at premiums for 1100 strike puts.
Me: <sigh>
Friend: Don't you have 1100 strike calls?
Me: <sigh> Yes, but its not the same.

I'm having the same issue. Trying to teach someone how to make a little money selling options. Here is the problem though - To succeed you have to not be greedy. You can't look at the premium for 1100 strikes vs 900 strikes and get sucked in. Especially if you aren't experienced yet in rolling, and aren't following the stock closely to know when we are likely to keep climbing vs have a prolonged reversal. I think human nature creates more gamblers than not, so teaching other people to do this might end up costing those people their money, and then your friendship.

 

[EV forever]

And that is why the main thread tends to not like this thread.

You never want to be “net short” Tesla. People need to reevaluate their positions if a huge run up to 1500 hurts them more than it helps them.

Just being frank and honest.

Agree with this sentiment. This is the main reason why I have made the decision not to sell any CCs or BCS at this time. I have only tried selling BCSs twice to combine with my BPSs as an IC. However, each time I tried the BCS, the stock decided to spike up requiring me to scramble to manage the BCS side. I am only using 20-25% of my account for selling options - being the house. So while I was scrambling to manage the BCS, my overall account was going up rapidly in value. And still, I was hoping there would be a correction or SP would stop spiking allowing me to get out of the BCSs quickly.

At the end of the day, I am a TSLA bull - so I want to feel thrilled and happy when the stock takes off. Plus, with all the rumors and speculation going on in the main thread and the numerology threads, I feel something big is imminent. Even if there is no announcement or news on 12/09 - there is so much good news just a few weeks out with Giga Berlin and Giga Austin on the cusp of opening. I am not comfortable opening any CCs or BCSs with short legs within +30% of the current price with weekly expiration. For longer DTE, I would want even higher buffer for SP. The premiums of calls this far OTM are quite poor, and not worth the effort. So, I will not be touching any CCs or BCSs till probably late 1Q 2022.

With my BPSs, I do tend to fly a bit close to the sun - bullish mindset
So for next week - all my BPSs range from short legs 940 -995 with a few aggressive ones at -p1060. I am only using ~ 40% of available margin.

 

[Sanchezzz]

Thank you all for your great input and spending time on this thread. It changed my life. Not a millionaire but feeling comfortable to get there with enough perseverance.

I would like to take as much as possible out of the wheel strategy without loosing my hard earned shares. Since I am lucky to have about 300k I have enough margin to sell weekly 1 contract naked puts with an average premium of about 1000€ total. 4K€ a month. 48k€ a year (enough for living for me) The good part is the assigned shares are not really mine (I could not afford them without margin), so I do not care to get them called away at a decent premium of the 1 covered call contract. On top of the 48k€ I will earn the capital gains. If assigned 4 times a year of naked puts and selling 10 % higher covered calls I will earn additional 40% or about 40k€.

I don’t care about 40% drop of share price when I own the stock via margin because I will still have margin cushion of about 10% left (it is not much and risky I know). But I am certain That latest end of year 2022 share price will be 2000+, that I am more than fine again.

In total I know it is more risky and aggressive but if I am not wrong I will earn about 27% (80 of 300) cash on my investment. And my initial 300k€ worth of shares will be worth 600k€ end 2022 due to rising share price and if I start the same strategy over and over again, gains are exploding exponential. Just on margin.

Certain Not recommended for everyone, but I feel to take the risk.
I am open for recommendations because I am reflecting all the time to make the most out of my investment and not loosing it.
But I read especially in the beginning of the thread that some folks did exactly that if I am not mistaken. And for me it seems the most lucrative.
PS: i am from Germany and only need to pay about 25% on the capital gains from the sold assigned stock. And I am hyper bullish on Tesla, also owning some leaps in addition to my stocks.

Thank you all, you are awesome!

 

[OrthoSurg]

Thank you all for your great input and spending time on this thread. It changed my life. Not a millionaire but feeling comfortable to get there with enough perseverance.

I would like to take as much as possible out of the wheel strategy without loosing my hard earned shares. Since I am lucky to have about 300k I have enough margin to sell weekly 1 contract naked puts with an average premium of about 1000€ total. 4K€ a month. 48k€ a year (enough for living for me) The good part is the assigned shares are not really mine (I could not afford them without margin), so I do not care to get them called away at a decent premium of the 1 covered call contract. On top of the 48k€ I will earn the capital gains. If assigned 4 times a year of naked puts and selling 10 % higher covered calls I will earn additional 40% or about 40k€.

I don’t care about 40% drop of share price when I own the stock via margin because I will still have margin cushion of about 10% left (it is not much and risky I know). But I am certain That latest end of year 2022 share price will be 2000+, that I am more than fine again.

In total I know it is more risky and aggressive but if I am not wrong I will earn about 27% (80 of 300) cash on my investment. And my initial 300k€ worth of shares will be worth 600k€ end 2022 due to rising share price and if I start the same strategy over and over again, gains are exploding exponential. Just on margin.

Certain Not recommended for everyone, but I feel to take the risk.
I am open for recommendations because I am reflecting all the time to make the most out of my investment and not loosing it.
But I read especially in the beginning of the thread that some folks did exactly that if I am not mistaken. And for me it seems the most lucrative.
PS: i am from Germany and only need to pay about 25% on the capital gains from the sold assigned stock. And I am hyper bullish on Tesla, also owning some leaps in addition to my stocks.

Thank you all, you are awesome!

How much of margin do you have used actually and what is your average cost of shares?
You’re plan works perfectly fine if everything we are expecting happens and we see the stock rise to $2000-$3000 over 2-3 years like we all expect here.

you’re plan might fail in case of a stock collapse from a black swan and if you get margin called if the shares go -50% which has very very low probability. This is why I am paying my margin as fast as possible to lower this probability of being margin called in cas of a disaster. 10% margin left is really low IMO. It doesn’t let you much room to roll if the share price goes against you.

 

[OrthoSurg]

Agree with this sentiment. This is the main reason why I have made the decision not to sell any CCs or BCS at this time. I have only tried selling BCSs twice to combine with my BPSs as an IC. However, each time I tried the BCS, the stock decided to spike up requiring me to scramble to manage the BCS side. I am only using 20-25% of my account for selling options - being the house. So while I was scrambling to manage the BCS, my overall account was going up rapidly in value. And still, I was hoping there would be a correction or SP would stop spiking allowing me to get out of the BCSs quickly.

At the end of the day, I am a TSLA bull - so I want to feel thrilled and happy when the stock takes off. Plus, with all the rumors and speculation going on in the main thread and the numerology threads, I feel something big is imminent. Even if there is no announcement or news on 12/09 - there is so much good news just a few weeks out with Giga Berlin and Giga Austin on the cusp of opening. I am not comfortable opening any CCs or BCSs with short legs within +30% of the current price with weekly expiration. For longer DTE, I would want even higher buffer for SP. The premiums of calls this far OTM are quite poor, and not worth the effort. So, I will not be touching any CCs or BCSs till probably late 1Q 2022.

With my BPSs, I do tend to fly a bit close to the sun - bullish mindset
So for next week - all my BPSs range from short legs 940 -995 with a few aggressive ones at -p1060. I am only using ~ 40% of available margin.

I have the same feeling about CCs. It’s been 2 weeks straight I have been closing them with some little profit however I feel I am flying too close to the sun with what has been going on with the stock price recently. I was a little bit more bearish with Elon selling putting pressure down on the SP but for now it turned out to be exactly the opposite. Friday close at $1140 was 1% away from my $1150 CC. I already regret the $1355 CC I sold Friday for 26/11 with the +2.9% premarket we saw this morning. I sold a small amount of contracts at $1355. 30% OTM premium are l’est interesting but overall safer. I might stick to those for a while.

 

[tradenewbie]

I haven't opened any BPS / CC / BCS this week yet. Last friday I was thinking to open a BPS for 12/3 as everyone suggested, esp. it's a short week this week, but at that time I was worried about 3 things: 1) The FED decision of Powell, 2) The uncertainty about Baiden / Kamala, 3) Anything that Elon may say during weekend.

Maybe this week I would just take a rest.

 

[BornToFly]

I have the same feeling about CCs. It’s been 2 weeks straight I have been closing them with some little profit however I feel I am flying too close to the sun with what has been going on with the stock price recently. I was a little bit more bearish with Elon selling putting pressure down on the SP but for now it turned out to be exactly the opposite. Friday close at $1140 was 1% away from my $1150 CC. I already regret the $1355 CC I sold Friday for 26/11 with the +2.9% premarket we saw this morning. I sold a small amount of contracts at $1355. 30% OTM premium are l’est interesting but overall safer. I might stick to those for a while.

Yeah, I think anything less than 20-30% above the SP is risky for BCS. Personally I'm sticking with 30%, and only one week out (not sold any for 12/3 yet). Berlin should get approval and start production any day now. I know a lot is already priced in, but there seems to be a pop when ever something that is supposedly "priced in" actually happens.

 

[traxila]

Is Elon selling today?

I think chances are good.

He did make a promise for 10%….Elon is not one to mince words or backtrack. Usually…

 

[scubastevo80]

Yeah, I think anything less than 20-30% above the SP is risky for BCS. Personally I'm sticking with 30%, and only one week out (not sold any for 12/3 yet). Berlin should get approval and start production any day now. I know a lot is already priced in, but there seems to be a pop when ever something that is supposedly "priced in" actually happens.

This is what I'm doing going forward. I wrote a BCS 1200/1300 on 11/16 when the stock was around $1025 and now I'm sweating already and the market isn't open yet. ~17% safety margin isn't enough on the top end, especially given the volatility lately and more than 5 trading days to stand in front of the freight train.

 

[TheTalkingMule]

We're green in the premarket, but I'm predicting a $1099 close for Friday. Short holiday weeks are usually the dominion of the unencumbered MM's who can do what they want on low volume.

Is this prediction influenced by my $1105 CC's? No way!

Edit: Well...........not so much. Lol!