After being off by a factor of 10 yesterday, I'm scared to answer.... I think you can't lose money on that trade..., but one of the legs will eat into your profits. So if might not be very profitable if the SP doesn't stay close to 1205. Might be fun to try.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
bkp_duke
Well-Known Member
Interesting . . . when I put this into Fidelity, I get max risk also is nearly nothing.
Thoughts from more experienced here?
EDIT - when I try to place the order into Fidelity, it gives the following error. I'm guessing this is called a "Short Box" strategy or something.
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BrownOuttaSpec
Active Member
I think you broke the market: Options calculator link
Looks like "free money" but I am not willing to test it.
Edit: Looks like e-trade wont even let me test it:
Hmm, box spreads like this remind of "literally cannot go tits up" from WSB fame
bkp_duke
Well-Known Member
Learned something new today:
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www.investopedia.com
This appears to be the most substantial risk for this trade (from above link):
"A second potential danger, which is perhaps less obvious, is the risk of early exercise. American style options, such as those options listed on most U.S. stocks may be exercised early (i.e., before expiration), and so it is possible that a short option that becomes deep in-the-money can be assigned. In the normal construction of a box, this is unlikely, since you would own the deep call and put, but the stock price can move significantly and then find yourself in a situation where you might be assigned.
This risk increases for short boxes written on single stock options, as was the infamous case of a Robinhood trader who lost more than 2,000% on a short box when the deep puts that were sold were subsequently assigned, causing Robinhood to exercise the long calls in an effort to come up with the shares needed to satisfy the assignment. This debacle was posted online including on various subreddits, where it has become a cautionary tale (especially after said trader boasted that it was a virtually riskless strategy)."
Box Spread: Definition, Example, Uses & Hidden Risks
A box spread is an options arbitrage strategy that combines buying a bull call spread with a matching bear put spread.
This appears to be the most substantial risk for this trade (from above link):
"A second potential danger, which is perhaps less obvious, is the risk of early exercise. American style options, such as those options listed on most U.S. stocks may be exercised early (i.e., before expiration), and so it is possible that a short option that becomes deep in-the-money can be assigned. In the normal construction of a box, this is unlikely, since you would own the deep call and put, but the stock price can move significantly and then find yourself in a situation where you might be assigned.
This risk increases for short boxes written on single stock options, as was the infamous case of a Robinhood trader who lost more than 2,000% on a short box when the deep puts that were sold were subsequently assigned, causing Robinhood to exercise the long calls in an effort to come up with the shares needed to satisfy the assignment. This debacle was posted online including on various subreddits, where it has become a cautionary tale (especially after said trader boasted that it was a virtually riskless strategy)."
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A lot of people, including me, have been frying our brains in the past trying to find the 'perpetuem mobile' of option selling: a position that has zero risk and still pays out. You are very close. The max loss but also guaranteed loss for this one is 105.00. I think that with a bit of luck you could get 105.50 in premium for it, but that's a really small gain for a lot of hassle and for the maintenance margin it absorbs. Unwinding it after expiration, with two legs ITM, will require time that is better spent on other, more profitable strategies.
Knightshade
Well-Known Member
Short Box Explained | Online Option Trading Guide
What is Short Box? See detailed explanations and examples on how and when to use the Short Box options trading strategy.
Limited Risk-free Profit
Basically, with the short box, the arbitrager is just buying and selling equivalent spreads and as long as the net premium obtained for the selling the two spreads is significantly higher than the combined expiration value of the spreads, a risk-free profit can be captured upon entering the trade.
Expiration Value of Box = Higher Strike Price - Lower Strike Price
Risk-free Profit = Net Premium Received - Expiration Value of Box
So it is free money if you can get a premium above $105, but VERY little (esp with fees)
Sold some 12/3 1270cc for 2.00 this morning. Isn’t this supposed to be Elon selling day? I guess the day is still young.
I tried to sell the same yesterday, but they never triggered. Was too late entering the order.
I tried to sell the same yesterday, but they never triggered. Was too late entering the order.
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12/3 1240CC closed for 85% with a GTC order I had input yesterday morning, during the 11am dip. This was one part of my 11/26 1105CCs I had rolled to 1220 and 1240 recently.
Edit: The 1220CC also closed for 85%.
Pretty happy to be out of covered calls for now!
No idea what to do next... 12/10 900/700 BPS still running...
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BrownOuttaSpec
Active Member
I disagree, I think it is just a macro dump (MMD). Unless he is selling Nvidia and NIO too
Nah, whole market dumped pending Powell remarks, the moment they were reported, it bounced...
VIX over 28 now suggests more turbulence ahead. That should bode well for option sellers as premiums will likely stay elevated.
So i have some long term DITM calls (228) in an IRA account that were likely bough pre-split for January. As these are getting close to expiration, i need to do something with them. Previously I would have just sold enough to have $$ to exercise the rest. But with the strategies we've been using here, I have other options i wanted to explore (thinking out loud here).
- I have enough cash in that account to just exercise them all, and collect my super cheap additional shares. That significantly cuts down on the BPS i can write in that account though because with the IRA, can only use cash to back them.
- I could just sell them, collect lots of cash and use that to write many more BPS (or whatever the current strategy is).
- I've been toying with rolling them. I could roll out a year and up to say 700, increase my call count by a third and still have over $50k left to write additional BPS.
Knightshade
Well-Known Member
There's no reason at all in an IRA to exercise those rather than sell them and buy shares.
Sell them and buy shares means you still get some money back from the time value (though not much that DITM)- exercise means you lose that value.
So if you want shares, sell then buy shares with the cash.
Cash account is different as you'd have (potentially major) tax consequences from sell then buy rather than exercise.
As to your other two ideas- depends what you're trying to do and what you think the stock is gonna do as far as what'll offer the best return.
What I've been thinking of is replacing shares with 2+ year out LEAPs and taking the cash difference to back selling spreads so you still get exposure to SP increases with more cash for spreads.
Most folks who do something like this seem to prefer to roll their LEAPs out further each time a lot sooner than a couple months to expiration though- so they can better pick when to get the best roll and because there's more time value left to roll into the next one.
Sell them and buy shares means you still get some money back from the time value (though not much that DITM)- exercise means you lose that value.
So if you want shares, sell then buy shares with the cash.
Cash account is different as you'd have (potentially major) tax consequences from sell then buy rather than exercise.
As to your other two ideas- depends what you're trying to do and what you think the stock is gonna do as far as what'll offer the best return.
What I've been thinking of is replacing shares with 2+ year out LEAPs and taking the cash difference to back selling spreads so you still get exposure to SP increases with more cash for spreads.
Most folks who do something like this seem to prefer to roll their LEAPs out further each time a lot sooner than a couple months to expiration though- so they can better pick when to get the best roll and because there's more time value left to roll into the next one.
scubastevo80
Member
Closed the 12/3 900/795 BPS this morning right after the open since it was up 85% on the initial jump. When we reversed today we sold (2) 12/10 900/820 BPS at $4/each. This is the first trade for the parents doing more than 1 contract, so we weren't comfortable keeping the same lower strike with a max loss of over $20k. For you guys writing naked puts, I look forward to the day where I have an account with six figures in collateral to play with.
Opened 5x 10/12 -p1130 also
I am bullish for the 10/12
Let’s see how that plays out.
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