BrownOuttaSpec
Active Member
I'm probably going to close out my 12/3 805/905 late tomorrow at +70%, I am assuming the "snakes and ladders" selling strategy by Elon will resume on Wednesday and we get a dip to buy back in for cheaper.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
I believe Elon’s selling is limited to Mon/Tue based on the pre-approved plan and he’s not selling discretionary shares anymore.
So, later in the week can likely be Tue only and no selling the rest of the week.
I noticed my 1095cc had a $35-40 strike improvement available for 12/10 today.
Was torn on whether to do it, the problem is the last 2 times when I could have had these CCs closed off for free or min expense were the week of Elon’s selling, close was around 1030 and the last week 1080, if I didn’t roll they’d be @1070 so $10 to buy.
Unfortunately, both times rolled on Mon/Tue and missed my chance on Fri.
Since I did not roll, fully expect SP to run away, so I can continue rolling $20/week.
All very correct. Just wanted to add that I tend to sell naked puts much closer to the share price than I do with spreads.
I’ll sell naked puts at prices I would never consider selling spreads. Generally my personal strategy tends to be selling puts as close to the share price (SP) as I am comfortable buying shares. Right now I have some 1085s which I’ve been rolling forward for a few weeks. If my naked puts go upside down I get a little anxious. I probably run a lot closer to the SP than most.
With spreads I only sell well away from the SP where there is little to no risk of getting upside down. Often if a spread even goes a little underwater you lose money fast.
(Lots of folks here with more experience here, so feel free to correct)
Well, a big thank you to everyone who chimed in and gave some great not advice to this noob over the past few weeks. Closed out 12/3 840/940 BPS for 85% profit. I’m well above my original income target for the month at this point and now I’m doing my best to not get too greedy. I may open another spread during any pullbacks but I’m sitting on my hands for now.
At first when I was watching optionalpha I thought BPS were safer until I realized the power it had to do margin requirement management and had the potentiel to make some trader leveraged to the tits and realize max loss on a $50 wide spread over 10x or 20x more contracts with the same margin impact as 1 naked put. Then, with the Hertz black swan even, I saw the power of the leveraging and its impact on BCS. Can be pretty devastating.How does a BPS pay better than a put when you have to buy the long leg? The thought is that if I am able to allow the trade to expire worthless, the long leg debit isn't returned, just the short leg premium. Sorry, I have a momentary mental block
10 BPS have the same margin requirement impact as 1 naked put so you can ramp up the contracts and profitability. However, the loses are also 10Xed if they go underwater and are harder to roll than naked puts. They require quick attention and management in case of a significant event. They can’t be left unwatched. I would be more comfortable selling 5 naked puts at 1100 and going for a 2 weeks bike trip and come back with a premium or 500 extra shares at a price I will find cheap in 2 years down the road than leaving unattended 50x 1000/1100 and going 2 weeks away and coming back with $500k max loss in my portfolio because Elon Musk died of Omega-Delta-Theta variant the day after I took the plane for a country with no network.
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Yep, did exactly that... sold a multiple of BPS, then panic rolled my way into a corner out to 12/17 and moved the remaining to 12/10. I have three weeks to clean up my act, either buy back and keep some of the premium or ride out if we can stay above 975 at expire.... will do what it takes. As you said, have to be on top of these until expire. Thereafter, will minimize my exposure to what I can cover. Thanks for sharing this insight, learning a lot ... the hard way.
I had the luck to start selling options the week after the Hertz deal announcement. The first week, I wanted to learn how to use the platform so I was selling options as far as someone can think of just to learn how to open and close positions. That’s where I saw a mega cap stock could blow out the roof and have terrible effect on unattended leveraged positions. I did not have to manage losing position on TSLA because I stayed out of the money enough to feel safe. However, I managed to score the biggest losing position someone could ever make by selling covered calls on AAPL the day before the announcement of their EV. I have seen and experienced the premiums and the stock running away from your strike. Probably could be listed on the wallstreetbets worst trade of all time going -8000% withing one week. Didn’t know it was even possible going from a $100 cashed premium to a $8000 loss so fast. At least I learned to manage the most stupid trade of all time and learned more in the process than through all my winning trades. Hope you learned too!
Just want to note that 1:10 assumption is not true. Just checked, my broker removes $48k margin for 1 $1150 put.
So, if I sell 100-wide bps, I can sell ~5 instead of 1 put. Further, b/c of higher risk/exposure we go more OTM and collect less commission per contract.
If we remove most of volatility, I’d say $3/contract was around average for the relatively safe $100 spread; weekly puts that are just a bit OTM were around $10/week.
So, I’d say bps gives you 50% more income with much less chance of needing to roll and missing some of the income(in case of straight out).
Now with all the volatility we’re seeing higher numbers for commissions, but I’d think it’s about the same math.
Of course you can take a lot more risk on with spreads and make a whole lot more money or you can lose it all too.
This thread has a recurring fixation on the various prospects of Mr. Musk’s death. While we all understand the key man risk inherent in being a TSLA shareholder or trader and we all know the descriptions of Mr. Musk’s demise are only being used as convenient shortcuts to describe a ’black swan’ event for the company and stock, please allow me to go on record and state that the optics SUCK.
Perhaps we can all agree to take a break from discussing how catastrophic a dead Elon might be to our latest trades?
You go Elon! Shine on!
Perhaps we can all agree to take a break from discussing how catastrophic a dead Elon might be to our latest trades?
You go Elon! Shine on!
Btw, after seeing these 2
I’m sorta thinking Q4 might be the last waking moment for the rest of the market after which we may not have much more “insider” knowledge than the rest, who will finally figure out how Tesla’s growth and margins work.
I’m thinking about how to profit from this, but also not to get burned. How can you get burned?
- in the past MMs or HFs would do their best to nullify all bullish option bets for weeks after a blowout quarter. Somehow, I suspect it may not work this time around.
- market correction. The market is at the top for a while and feels a bit bubbly. I don’t know when, thinking maybe early next year?
We tend to think that Tesla performs well during recession, yet the stock keeps falling with the market with the usual 2-3x multiplier most of those times.
- Austin/Berlin will cause sucky margins in Q1/Q2. Will the market overlook it as understandable or will it be treated as underperformance that does not justify the current SP? And when might this start being priced in? I think the idea is on the surface and does not need to wait for Q1 ER published to confirm it.
I probably won’t invest a whole lot into it, need all the cash to exercise my calls, likely I sell some OTM puts for end of Jan (1300?) and buy some calls with that money(1400?)
If I get unlucky, I’ll have some rolling to do, but, hopefully, nothing extremely destructive for the portfolio. Also, the question is when to do this. In the past, literally a week before an event was the best time. So, a week before 1/3 P&D?
Any better ideas?
I’m sorta thinking Q4 might be the last waking moment for the rest of the market after which we may not have much more “insider” knowledge than the rest, who will finally figure out how Tesla’s growth and margins work.
I’m thinking about how to profit from this, but also not to get burned. How can you get burned?
- in the past MMs or HFs would do their best to nullify all bullish option bets for weeks after a blowout quarter. Somehow, I suspect it may not work this time around.
- market correction. The market is at the top for a while and feels a bit bubbly. I don’t know when, thinking maybe early next year?
We tend to think that Tesla performs well during recession, yet the stock keeps falling with the market with the usual 2-3x multiplier most of those times.
- Austin/Berlin will cause sucky margins in Q1/Q2. Will the market overlook it as understandable or will it be treated as underperformance that does not justify the current SP? And when might this start being priced in? I think the idea is on the surface and does not need to wait for Q1 ER published to confirm it.
I probably won’t invest a whole lot into it, need all the cash to exercise my calls, likely I sell some OTM puts for end of Jan (1300?) and buy some calls with that money(1400?)
If I get unlucky, I’ll have some rolling to do, but, hopefully, nothing extremely destructive for the portfolio. Also, the question is when to do this. In the past, literally a week before an event was the best time. So, a week before 1/3 P&D?
Any better ideas?
One of the subtle problems that I've realized about selling spreads vs selling options, is that spreads always resolve as cash. Assuming that one is using the leverage that spreads makes available, then in something like a call spread that has the insurance go ITM (max loss), one won't have enough shares or leaps to take assignment. Of course you can settle as many of those call spreads via share and leap assignment (sales), but the point here is that resolution happens in cash.
The more leverage the less partial assignment via shares and leaps, and the more assignment / position resolution happens in cash.
Same thing for the put side.
The problem that I personally have with cash resolution is that is how I experience capital loss, and that's the kind of loss that I care about these days. Opportunity cost / loss is also real, but if I'm taking assignment on covered calls at $1300 with shares at $1500, then yes - I just missed out on a lot of gains. But I'm still generating an excellent income and I come out of that trade with more than I went into it with.
So my own solution to the problem of spreads resolving in cash. On the call side, I don't sell call spreads. When I've gotten into trouble with spreads it was call spreads. When others in this thread have gotten into trouble it was with call spreads. The lesson I get from this - don't sell call spreads
But I do want to be selling calls, so I'm doing poor man covered calls / aka leap covered calls / aka diagonal spreads. I buy far expiration and deep ITM calls, and sell covered calls against those purchased calls. If 'disaster' strikes and the shares move up faster than I can roll the call strike up, then I always have an out - I can take assignment and sell out those purchased calls for less than I'd like, yet still profitable and leave myself with more than I started with (plus some premium to close the gap on what I missed out on).
On the put side - I take on that risk of cash resolution and permanent loss of capital. I balance that possibility with really wide spreads. I tried $400s and have pulled back to $300s. I'll even consider $200s but at this share price I don't see spread sizes any smaller than that. But I'm going for income and avoidance of permanent loss of capital, not capital accumulation, and the wide spreads keeps my positions sizes smaller and reduce my rate of loss should I go ITM. My max loss isn't any different (I still use large positions), but the wide spreads / fewer contracts keeps the rate of loss lower.
I also use the wide spreads so that the sold puts, and the spread they are part of, behave as much like naked puts as possible. They won't behave fully like a naked put, but they'll retain a lot of those characteristics for $50 or $100 ITM (on a $300 wide spread). That's part of my safety net.
The other part of my safety net is I've got my accounts rougly in thirds, or at least aspiring to that. 1/3rd is in cash and being used for BPS. The other 2/3rds is in shares or purchased calls that I'm using to sell covered calls. I think of the 2/3rds as cash and the backup to a max loss on the BPS side. If that happens then I can sell enough of the purchased calls to get back to my desired cash level (except now at 50:50
) and keep on going.Of course I don't take max losses if I can help it, and I have a lot of tools for avoiding max losses.
Thank you for all your insights and knowledge sharing.
I am from Hong Kong and the people here always consider doing short side on option is dangerous - I cant even find friends doing Tesla options.
I only open naked put like 20% below the current stock price like 8 to 9 days before the expiry date. The more I read the more I consider to do BPS!
I am from Hong Kong and the people here always consider doing short side on option is dangerous - I cant even find friends doing Tesla options.
I only open naked put like 20% below the current stock price like 8 to 9 days before the expiry date. The more I read the more I consider to do BPS!
jeewee3000
Active Member
Nah.
We thought this would happen many times. Surely the "rest of the market" (i.e. Wall Street) would understand TSLA after:
- they ramped Model 3
- Model 3 became the best selling vehicle quickly, with highest margins
- TSLA built out Giga Nevada
- TSLA layed out their plans for Autonomy (Autonomy day)
- TSLA layed out their plans for Batteries (Battery day)
- TSLA layed out their plans for Insurance
- TSLA layed out their plans for AI (AI DAy)
- TSLA layed out their plans for Energy (Solar roof/powerwall/powerpack/megapack/autobidder)
- TSLA repeats the succes of Model 3 with Model Y
- Giga Shanghai becomes the best production facility in TSLA's arsenal
- ...
The "rest" is always behind, because they (stupidly) only want to buy the stock after 90% of the execution risk has passed.
After Q4 2021 and earnings, the market will probably react positively, but they STILL won't let TSLA run up too high since the market sees risk in:
- the competition (lol)
- FSD never panning out
- new factories not ramping fast enough
- batteries not reaching the desired cost/specs as promised at Battery Day
- etc
That's why it's quite safe for us to roll naked puts indefinitely. There will always come a point where TSLA leaps to a new trading range and your sold puts expire worthless.
Calls however
Closed out my 12/3 990 and 995 puts at 84% and 75% yesterday at the pop into close.
Looking at being a bit more conservative with 12/10 since who knows what is going to happen with the numerology stuff floating around....
Looking at being a bit more conservative with 12/10 since who knows what is going to happen with the numerology stuff floating around....
The margin required for the 1 $1150 put will increase rapidly if the SP starts to drop. AND your available margin will also drop with a drop in the SP. This can rapidly lead to a margin call (ask me how I know). The advantage to a spread is that the margin requirement is set by the width of the spread, so the only thing you need to worry about is how much margin you still have available as the SP drops. That is why it is important to never use all of your margin. But narrow spreads become almost impossible to roll without a debit once the short leg starts going in the money. That is why Adiggs recommends wide spreads of $200 or greater. I'm using $200-250 wide spreads for my 950 short legs, and $300 wide for my $1000 short leg BPS.
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Is this a no risk trade? for 12/10:
-1100C for 76.70
+1205C for 23.95
-1205P for 93.00
+1100P for 39.50
the option calculator returns this:
Estimated returns
As at 30th Nov 2021 (TSLA $1,136.98)
Entry credit: $10,625.00 net credit see details
Maximum risk: +$125.00 (at TSLA$0.00)
(calculator found no risk. This can be due to low or high implied volatility, or out of date prices)
Maximum return: $125.00 (at TSLA$0.00)
Max return on risk: -100% (-3318.18% ann.)
-1100C for 76.70
+1205C for 23.95
-1205P for 93.00
+1100P for 39.50
the option calculator returns this:
Estimated returns
As at 30th Nov 2021 (TSLA $1,136.98)
Entry credit: $10,625.00 net credit see details
Maximum risk: +$125.00 (at TSLA$0.00)
(calculator found no risk. This can be due to low or high implied volatility, or out of date prices)
Maximum return: $125.00 (at TSLA$0.00)
Max return on risk: -100% (-3318.18% ann.)
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