Absolutely true.
Tbh, I was eyeing 890p's for a few weeks while we were still in 1000-1100 territory, not really thinking twice on how close the SP has gotten, and OptionAlpha is all about narrowish spreads to limit exposure.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Tbh, I was eyeing 890p's for a few weeks while we were still in 1000-1100 territory, not really thinking twice on how close the SP has gotten, and OptionAlpha is all about narrowish spreads to limit exposure.
NOT-ADVICE
The narrowish spreads on OA to limit exposure are tied into the small position sizes as well - 1-2% per position sort of thing.
The key difference here, selling TSLA options, is that all of us are making use of our extensive knowledge and experience from following TSLA and Tesla to inform our position choices. We're not trading a random underlying, nor are we trading a bunch of underlying. At least in my case I've also been following the company long enough that I believe I have a significant information edge over Wall Street (which doesn't make me right - but I do trade based on that belief). It's not an oh-by-the-way thing.. it is foundational to the approach. It also means pretty large positions - we all vary - but most likely significantly more than 1-2% of trading capital.
The $20 wide spread only limits your exposure if you are using a small fraction of your trading capital. To make up some numbers if you have $100k that you are trading with then you might use $2k for an individual position; that $2k position size will support 10x $20 wide spreads, and in that case you have limited your exposure.
But if you use $20k (10%) and sell 100x of those $20 wide spreads then that position can go max gain to max loss really quickly (a $20 share price move from one leg to both legs ITM) and that will be 10% of your stake.
Or if you get really aggressive and use $50k for the position then you can sell 500x of those and again its easy to go from max gain to max loss where the max loss is 1/2 of your trading capital.
These vertical put spreads provide leverage relative to naked puts. With a $1000 strike price a $20 wide spread enables one to sell 500 spreads vs 1 naked put. That is really high leverage that will translate into big gains when you win, and a big loss - possibly a wipeout - on a losing position. This is one reason for that $400 wide spread mentioned above. Now you can sell 2.5 of those for the same $100k backing - that provides some leverage (2.5 spreads instead of 1 naked put). The amount of money at risk is the same, but now to achieve max loss the shares have to go from $1000 down to $600 compared to $1000 down to $980 with the $20 wide spread.
You can be a lot more wrong in my made up $1000 strike put example when its a 600/1000 spread vs. a 980/1000 spread and still have the trade work out via rolls or other management.
-341 points refers to the lowest point from ATH during the days Elon sold?
jeewee3000
Active Member
No. I think it means that the stock dropped 341 USD in all the selling days combined. Given that that number is higher than how much we've dropped from ATH, it shows :
1) that we got green days (i.e. buying interest) between selling days
2) that Elon selling very negatively affects the SP.
Meh. Not important stats IMO.
Hi all,
I’m still working on automate and deemotionalize my trading and risk management. I’d like to have some rules for my entry, exit and adjustments, which I have to check before doing something. Here are some for BPS:
• Delta < 0.15
• OTM > 10%
• Capital at risk 75%
• Return on Risk > 2%
• Return on Investment > 2%
• Roll out and down at 25% ITM of spread
• Take profit 50% at first half of the duration, 75% afterwards
• Stop Loss: None until now, read about 100%/150%/200%
I’m still learning on these, especially regarding the probabilities and I’m very unsure about a stop loss. Also right now I don’t start opposing BCS to reduce risk, I’ll test ICs with a small amount soon. Do you have different approaches?
Have a nice Sunday!
I’m still working on automate and deemotionalize my trading and risk management. I’d like to have some rules for my entry, exit and adjustments, which I have to check before doing something. Here are some for BPS:
• Delta < 0.15
• OTM > 10%
• Capital at risk 75%
• Return on Risk > 2%
• Return on Investment > 2%
• Roll out and down at 25% ITM of spread
• Take profit 50% at first half of the duration, 75% afterwards
• Stop Loss: None until now, read about 100%/150%/200%
I’m still learning on these, especially regarding the probabilities and I’m very unsure about a stop loss. Also right now I don’t start opposing BCS to reduce risk, I’ll test ICs with a small amount soon. Do you have different approaches?
Have a nice Sunday!
AquaY
Member
Personally I think 75% is too much to risk in case of a black swan event . Other levels are okay. I like a greater profit % for myself before closing but there's nothing wrong with your choices I think. I wonder what others will say.
At first I thought a naked put was really risky since the brockerage calculates a theoretical max loss if the stock price going to zero.
Then I realized that if you have a theoretical max loss of 100k if you sell 1 p1000 put compared to the same 100k max loss if you sell 200x 1000/995 BPS, the latter is an unsalvageable position.
When I was going through the OptionAlpha course, I told myself I would never sell naked puts because of the theoretical unlimited risk until I realized they are easier to roll and they are harder to leverage to the tits like the BPS than can easily wipeout an over leveraged portfolio in the situation max loss is happening.
?
Selling uncovered calls has unlimited risk (stock to infinity and beyond).
Selling puts 'only' has a max at risk of strike*100 in the event the stock goes to 0. Due to premium gained, this is slightly less loss than owning shares.
In fact the "naked put" is a +p0/-p1000 spread...
LightngMcQueen
Aspirationally Rational
It is my understanding that naked PUTs offer highest risk adjusted rate of return ( I welcome arguments to the contrary). It is because the PUTs at lower strike price range are most over priced ... have highest volatility (ie premium vs actual risk). This is reflected in so called volatility smirk.
Essentially there is large demand for protective PUTs which drives their prices (volatility) way above what probability of going ITM would indicate.
Those who trade BPS, buy protective puts handing over part of the return to naked PUT sellers, in return they get the leverage which allows for higher potential absolute returns.
Edit:
I get the impression that max loss is incorrectly used as a measure of risk without taking into account the probability of max loss actually occurring. I have tried to explain it here:
Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable
As of December 1, NIO has sold 80,940 vehicles in 2021 in China. Their battery swap is an option, not an issue, however a poor option IMHO. Tesla only surpassed 100,000 sales per year in 2017 and was selling in Europe and Canada well before then. NIO selling their vehicles in other...
teslamotorsclub.com
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Considering a more formulaic pattern of selling straddles (or tight strangle), all fully secured, two weeks out at about 5-10% above existing SP at 1:1 ratio. Also, trying to keep enough cash in each account to buyback and roll each Thursday. Trying to follow @addigs method of 33% cash/put/call ratio. For this week, I already have -1000p/-1005c and if I were to roll to 12/31, MaxPain is showing ~$86/$17 premiums vs ~$75/$6 for 12/23. In a constant SP environment one should be able to harvest ~$20 premium decay in one week. Since this would be fully secured, that’s about 1%/wk ($20/$2000). That seems less stressful, especially since I’m more worried about SP rise and losing shares. If the SP rose to challenge the CCs 10% OTM, then the puts are worthless and cash is released upon buyback. Seems like a good way to surf the theta decay and works well until the SP drops too much and I don’t have enough cash to buyback those DITM puts. Worst case, I get put shares at $200 over the SP (oh well, been there, done that).
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Definitely worried about an Omicron black swan to end the year. Young people are supposed to have extremely good immunity from the vaccines. My 22 year old son is vaccinated and was boosted 3 weeks ago (all Pfizer). Got sick yesterday and positive Covid test today. My colleague just told me he had 4 spine consults yesterday at the hospital. All patients vaccinated. 3 of them positive with Covid (but not in the hospital specifically for that). It appears that positivity rate is about to go through the roof even in the vaccinated. This makes me worry more about a market sell-off that will affect TSLA as well. The last two years TSLA climbed in December. This might be the year it doesn't thanks to Omicron. Just something else to worry about. I might take some risk off the table tomorrow. Fingers crossed that the market ignores the threat.
bkp_duke
Well-Known Member
We still have an estimate 4 tranches of shares that Elon is expected to sell as well. As much or more than Omicron, that one has me worried about pushing us down to the 800s by years end.
Sorry to hear about your son I hope he feels better. I think we should be worried about the markets but not because of Omicron. When you look at Omicron data from South Africa the cases have already peaked and hospitalization rate has stayed steady. Even if Omicron is a threat to the markets I trust JPow will come to the rescue.
The macro situation and inflation is probably of bigger concern to me. On the flip side Im actually glad that BBB did not pass, I actually think markets will react positively to this news.
Yes this is also a concern for me but Elon could easily to cancel his plan if he thinks his continued selling and any subsequent price drop will affect the morale of Tesla employee at quarter end. Very surprised not to see any selling on Friday quad witching day. Also my understanding is that the additional tax increase for next year was in the BBB so probably can sell early next year too? Can somebody confirm?
Like I said before, selling CCs(while IV is still high) into any strength is probably the way to go given the current situation. I’d much rather roll my CC instead of BPS.
I am so torn about Omicron, early data from UK mirrors your colleagues experience, increases in breakthrough diagnosis but no information yet on breakthrough admissions/deaths.
I was hoping that to be the case too, but it looks like tax laws can be written to go into effect retroactively.
Practically, it cannot come at the end of the year for the whole year, but it's too risky to assume a different version of the BBB bill with some billionaire tax won't pass later next year, effective from January 1st 2022.
More here.
Can Congress Really Increase Taxes Retroactively?
In somewhat of a surprise, the budget request assumes that the proposed capital-gains-related changes would be enacted retroactive to April 2021, which would effectively render a lot of the planning that could otherwise be done from now through the end of 2021 (when presumably the changes would o...
www.google.com
I am a bit more optimistic despite the macro headwinds. It looks like elon's selling is done for the year based on various comments (>50% likelihood imo)
Tesla had massively underperformed nasdaq, and there's bound to be some mean reversion without the selling pressure/overhang. And the 4q delivery beat with street quite below more informed estimates is pretty close too.
I am feeling less and less inclined to roll my short puts expiring this week for strike improvement even as they are slightly itm if we open at these levels.
Another tail wind is what's called the vanna trade, where a small relief can cause a drop in IV causing the market makers to aggressively buy the stock to hedge. This pushes the stock higher and the IV lower creating a virtuous cycle. This is somewhat of a similar dynamic to the gamma squeeze, but a bit less potent and a tad longer lasting.
Most of these are of course known catalysts but I think we have lost sight of them with the recent massive underperformance.
Hope you all are decently positioned to take advantage, while still being protected if SHTF. On my end it looks like trying to hold off my itchy fingers from selling any calls at these levels.
Tesla had massively underperformed nasdaq, and there's bound to be some mean reversion without the selling pressure/overhang. And the 4q delivery beat with street quite below more informed estimates is pretty close too.
I am feeling less and less inclined to roll my short puts expiring this week for strike improvement even as they are slightly itm if we open at these levels.
Another tail wind is what's called the vanna trade, where a small relief can cause a drop in IV causing the market makers to aggressively buy the stock to hedge. This pushes the stock higher and the IV lower creating a virtuous cycle. This is somewhat of a similar dynamic to the gamma squeeze, but a bit less potent and a tad longer lasting.
Most of these are of course known catalysts but I think we have lost sight of them with the recent massive underperformance.
Hope you all are decently positioned to take advantage, while still being protected if SHTF. On my end it looks like trying to hold off my itchy fingers from selling any calls at these levels.
This is pretty much how I feel, just want to avoid making any silly moves. It's all part of the experience and growth as an investor. I'm also sitting on a decent margin cushion so bring it on shorties!
It seems like you are a spot gamma subscriber now. Do you like their insights? I haven't spent the time to fully understand the terms they use. Hedge wall is 1000 based on the latest data they have on TSLA.
I hope you are right, because this sucker could use some succor
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