Wiki Selling TSLA Options - Be the House

[WattsHappening]

Just ask questions. We are glad to help


I heard that there are IRAs that allow Spreads. Even with something like a 1000/500 spread you get nearly the identical behaviour as a 1000 put - but only half the cash required. Managing the spread (with respect to rolling etc.) is identical to a simple put - but only down to ~750 (halfway) instead of 500.
Width is chosen so extreme to get the "normal short put"-behaviour.

Another possibility is to sell REALLY aggressive puts (like 1% OTM) each week and risk assignment. Use those to sell calls above that strike & get exercised. => calld "The Wheel". Why should you do that? you basically harverst IV every week and don't care about the shares. Currently this yields ~2k income every week for each contract ($ 100k backing) - so a weekly yield of 2%.
Downside risks: You get assigned, SP drops, you have to sell calls for less every week until SP recoveres (imagine getting assigned @900 in jan/feb, then have to hold all the way down to 550 & up to 900 again - just to miss out on the breakout to the upside.. and you would now be still hodling shares with 1240 cost-basis & selling 1250 CC for pennies every week until morale SP improves).

"The wheel" can be programmed & done automatically with several brokers offering an API. If i have to guesstimate i think you would have made around 30-40% in 2021 with this strategy (ignoring the paper-loss on the assigned shares).

Wow, this is exactly this kind info I was looking for; thank you!

My IRA is a Schwab Level 2, which allows for spreads, iron butterflies and iron condors (I have no idea what those last two even mean, but will learn).

I love the idea of the wide spread! I understand how it will work and it sounds like exactly what I'm looking to do, at least to start.

I have read the wheel thread but I probably don't understand it to the level I need. I'm still not sure it is better than just holding onto shares.

 

[WattsHappening]

why, hello there, cute-as-a-button-puppy-i-WANT-to-adopt-you

my not-advice is to trade at your own comfort level and risk tolerance; the important thing is the willingness to learn and not to gamble

i was daytrading TSLA and then the 5-1 split happened; suddenly i have more than enough to try "options"

my first trade was CC, then i learned BPS, then IC, then Short Strangle, then Iron Butterfly, then Short Straddle

along the way, i learned in this thread some tools of the trade - flip roll, roll split, flip split, wider spreads, IV, theta, margin, etc

that's it, that's everything in my bag but it's way more than enough for my needs

when this side gig started earning more than our combined household income, my significant other and i both quit our dayjobs and never looked back - no regrets!

my New Year's Resolution is
- to cut down on risk (ie absolutely 20% OTM regardless of premium and use wider spreads); all i need to wipe me out is a weekend black swan event and i'm your dollar store cashier
- focus on capital preservation instead of income generation (ie if my grand total income is 5k/week instead of 100k, that's still honestly amazing income for a retiree not drawing down nest egg principal)
- reduce trading income tax (this is in progress; paperwork is ongoing to "incorporate and produce dividends"); this is another way to slowly distribute wealth to kids now and reduce probate fees later

good luck!

Thank you @Yoona! Yes, you and I exchanged some PMs about our puppy. You should absolutely get yourself a goldendoodle. She is a treasure and brightens up our days.

I hope to follow in your footsteps wrt learning about these strategies. From what I've seen, I'm much more conservative than you. But I LOVE that you were able to quit your day jobs. That is also my hope. We are old enough and have enough assets where we could probably do that soon. Learning how to create a steady income stream would go a long ways towards that goal.

 

[Mokuzai]

This has been a rather stressful week...and I've employed one of the most anxiety inducing strategies available: doing nothing.

Going into this week had a good amount of -920/+870 bps expiring tomorrow. When it was dipping below the midpoint of $895 and the rolling opportunities disappearing before my eyes it was quite nerve wracking. But I resolved to not act until the day before expiration given that we weren't yet too deep ITM. Today being that day and the rally was a sigh of relief...but valuable lesson on spread width. Saw first hand the benefits of less risk to have a wider spread and take a lower premium.

Slow and steady wins the race.

 

[WattsHappening]

I was thinking the same earlier today. I decided to wait and see what tomorrow brings. I'm not trusting the head fake just yet.

This is an interesting situation though for opening into strength. At first blush today was a good day for closing puts as the shares were up by so much. But today IS strength if the closing price today is the low price for the next few days - if this is what happens then opening puts today is just right.


I'm curious to know more - is this something you've got a website to point to for more reading? I think that the way I understand this - you start with a vertical spread. At some point you roll the short leg out while leaving the long leg the same. At that point you would have (for example) an insurance put expiring on 12/31 and a short put expiring Jan 7. Does that keep the margin / spread reserve calculations happy?

As you approach 12/31 then you'd be rolling that insurance put out to the short put strike, and hoping for a reversal before that comes along so you don't need to buy the extra week of insurance. Is that the idea?


Read the first page of the thread if you haven't already. Lots of the original background there.

Others have responded with lots of good info. We're assuming that you're through the Options Alpha beginner education or equivalent about options.

When I started it was with cash secured puts. I think they're a great place to start.


And think about what your objective is. For me - I'm all about income, even when that means giving up growth. Giving up on some of the growth is part of the risk I take in pursuit of a more stable income stream each month.

Yoona had a good insight above. Priorities are capital preservation, then income, then growth (putting it into my words and my own context). I also have a couple of numbers in mind for monthly results I would like to achieve. The target and then 1/2 of that where life is still (very) comfortable. That's helpful because if I find myself beating the target by too much, that's probably a good indicator that I'm getting too aggressive.


Not advice (yet kind of advice ) - you might find that a good starting objective isn't so much an actual income as it is an education via skin in the game / experience. Start with small positions - big enough to get your attention - and ideally small enough that if you lose the whole position then its not a problem. Lots of stuff to learn here - mechanics of entering orders, mechanics on doing a roll when you decide that a position needs it, and on.

As I mentioned I like cash secured puts as a starting point. You can trade these in a brokerage or a retirement account.


An important idea to keep central in mind - many of us have been doing this for more than a year. If it sounds like we are sometimes speaking in a foreign language its because we've got a year+ of education and experience, mostly with weekly trades. I'd say by now that we've all suffered a big loss, big wins, and some close calls. All of which contributes to that experience.

An important component of this thread is our mutual ability to learn from each others experience. It accelerates our learning dramatically. My own experience - my results really took off over the summer about the time that the thread activity picked up a lot. Lots of new faces, lots of new trading ideas and techniques, and lots of learning for me. Its not like my results were bad before - I nearly doubled my paycheck salary last year as part of my education (being paid to learn - sweet). I had a month over the summer that was just about as good as all of last year, and its the mutual learning going on here that was necessary to that result.

So dive in, ask questions, read lots. And also let us know what you're doing, and more important why you make the decisions that you do. Its not the trades being executed that are interesting to me - its the thinking behind them that helps expand my view of things.

Oh - and make sure that you're staying up with Tesla the company. As mentioned back on page 1 - knowing this company as well as I do I believe provides me with an information edge over Wall Street. I know that many others here do as well. If you don't have that company background then ... I dunno

Thanks @adiggs. I have already learned a fair amount from you and I hope to continue to learn as well as contribute what I can.

I am pretty knowledgeable about Tesla the company. I read a lot, stay up on company news, watch daily YT videos from Rob Maurer, Dave Lee, Tesla Economist, etc. I have full conviction that Tesla will one day soon become the most valuable company in the world. Up until now, I buy shares whenever I can, and when the opportunity seems right, I will write a few CCs. Quite frankly, if I was patient and just HODLed my current shares, I fully expect money will not be an issue. But I guess I'm anxious to accelerate my wealth creation and income generation, in the hopes both the share value and income will allow me to quit my day job (like Yoona).

My objective is to currently to learn as much as I can about maintaining my share count and using them to generate consistent income, all while minimizing risk (yes, I want it all!). I agree with your suggestion to dive in with small positions.

I will post my trades and reasoning for those trades in the small possibility it might be of value to others here.

 

[samppa]

Well, that was one restless night..
How did I get myself into this mess?
- lost focus. Focus has to be low-risk trades that generate income. NOT maximum capital growth. Got greedy, took on too many risks. For income 1%/month would be more than enough for me currently, I do not need to make 10-20%/month.
- had too many different positions open at the same time, which made the whole portfolio a mess and managing positions a challenge
- I had successfully opened small, risky positions, to see the mechanics for rescuing these. And those that needed mamaging, I had succesfully rescued. So I opened a bigger, aggressive BPS. Not good. When that went under water, I through more capital in, widening the spread. Should have taken the loss already!

I think I was in a bit of a tilt there.

Result could have been worse, now I still have most of my account left, and hah, a fair bit shares with cost basis of 1077 bought on margin.. I'm gonna have sell at least half of them, can't have all my margin tied up in shares, it's too risky too..

Important lesson here: when rolling, if the new position isn't something I would otherwise want to open, better to take the loss!

And keep that greed in check!!

 

[Drezil]

I love the idea of the wide spread! I understand how it will work and it sounds like exactly what I'm looking to do, at least to start.

There is no free lunch. You will always give up something. Things like "everything above 20% rise this week", "bankruptcy at -50% instead of -100%", etc.
Some risks are worth the money, others aren't.

I have read the wheel thread but I probably don't understand it to the level I need. I'm still not sure it is better than just holding onto shares.

YouTube has some good and also some funny videos on that topic of you search for the exact terms & look for videos ~5-10 minutes long

If you like the wallstreetbets-attitude: https://m.youtube.com/playlist?list=PLOweupE79XXiBaeH_xBpkUcYUsrAaKQen

 

[Right_Said_Fred]

I also used the dip and at 995 STO the 10 p1025 12/31 which I BTC at 1010. A $5k Christmas gift from Elon.

I try to trust the feeling I get after having closed a position. Sometimes it feels good to be out of the market for a while, but in this case I got FOMO-vibes, so I got back in after a few hours. Seeing the premarket now I'm glad I trusted that feeling.

 

[scubastevo80]

Wow, this is exactly this kind info I was looking for; thank you!

My IRA is a Schwab Level 2, which allows for spreads, iron butterflies and iron condors (I have no idea what those last two even mean, but will learn).

I love the idea of the wide spread! I understand how it will work and it sounds like exactly what I'm looking to do, at least to start.

I have read the wheel thread but I probably don't understand it to the level I need. I'm still not sure it is better than just holding onto shares.

We’ve only been doing this for two months and are looking to generate 1-2% a week on cash. That means BPS 20% out of the money. We’ve written closer to the money but the stress and the amount of time one needs to spend watching price to consider rolling goes up disproportionately. We’ve rolled for losses (one bad week that made us question options trading) and made greed trades when the premium was high. Like others “didnt” (not advice) say… consider starting small and go from there. Small wins help boost confidence.

 

[Boomer19]

This has been a rather stressful week...and I've employed one of the most anxiety inducing strategies available: doing nothing.

Going into this week had a good amount of -920/+870 bps expiring tomorrow. When it was dipping below the midpoint of $895 and the rolling opportunities disappearing before my eyes it was quite nerve wracking. But I resolved to not act until the day before expiration given that we weren't yet too deep ITM. Today being that day and the rally was a sigh of relief...but valuable lesson on spread width. Saw first hand the benefits of less risk to have a wider spread and take a lower premium.

Slow and steady wins the race.

dont you mean instead;
less risk to have a narrower spread for lower premium ?

 

[OrthoSurg]

Look into it, you might be able to set a LIFO order with IBKR.
I can, and I'm in scandinavia.. our local brokers don't allow lifo.

That’s the problem in Canada, it’s hard to start doing the wheel in a taxable account where you share cost basis is $50 and then selling agressive puts to add extra shares to let them go with agressive CCs. I think in the US you can select which share you want to sell and let go however I have not heard of any possibility to do that in Canada. I believe we get taxed on the whole DCA difference amount.

 

[OrthoSurg]

Well, that was one restless night..
How did I get myself into this mess?
- lost focus. Focus has to be low-risk trades that generate income. NOT maximum capital growth. Got greedy, took on too many risks. For income 1%/month would be more than enough for me currently, I do not need to make 10-20%/month.
- had too many different positions open at the same time, which made the whole portfolio a mess and managing positions a challenge
- I had successfully opened small, risky positions, to see the mechanics for rescuing these. And those that needed mamaging, I had succesfully rescued. So I opened a bigger, aggressive BPS. Not good. When that went under water, I through more capital in, widening the spread. Should have taken the loss already!

I think I was in a bit of a tilt there.

Result could have been worse, now I still have most of my account left, and hah, a fair bit shares with cost basis of 1077 bought on margin.. I'm gonna have sell at least half of them, can't have all my margin tied up in shares, it's too risky too..

Important lesson here: when rolling, if the new position isn't something I would otherwise want to open, better to take the loss!

And keep that greed in check!!

I have been rolling AAPL covered calls out for trades I would never have accepted in the beginning. I have resigned to let them get called away at $180 in April. I don’t wanna buy back for $20,000 the Covered call contracts I initially sold for $100 when the IV was at its lowest in hundred years. If you beat my -20,000% trade I will give you my eternal degenerate option trader respect. At least these 1700 AAPL shares will let me buy 300 extra TSLA shares or 200 after taxes. This is a *almost* a well thought move in retrospect. To force me to sell AAPL to buy TSLA. At least it was a learning experience on how covered calls could go wrong. Who needs AAPL dividends anyway? :X

Good luck to you in your recovery. Hope your wife doesn’t laugh at you every time she pulls the ticker symbol to make fun of my learning curve. I guess that’s part of being with an engineer who only understand numbers

 

[st_lopes]

I have been rolling AAPL covered calls out for trades I would never have accepted in the beginning. I have resigned to let them get called away at $180 in April. I don’t wanna buy back for $20,000 the Covered call contracts I initially sold for $100 when the IV was at its lowest in hundred years. If you beat my -20,000% trade I will give you my eternal degenerate option trader respect. At least these 1700 AAPL shares will let me buy 300 extra TSLA shares or 200 after taxes. This is a *almost* a well thought move in retrospect. To force me to sell AAPL to buy TSLA. At least it was a learning experience on how covered calls could go wrong. Who needs AAPL dividends anyway? :X

Good luck to you in your recovery. Hope your wife doesn’t laugh at you every time she pulls the ticker symbol to make fun of my learning curve. I guess that’s part of being with an engineer who only understand numbers

April isn’t that far away and 180 seems to be some resistance. I wouldn’t give up on those just yet. You could also always roll them to leaps and collect all that cash today and resign yourself to selling those shares at much more than 180 in the future.

 

[BornToFly]

Wow, this is exactly this kind info I was looking for; thank you!

My IRA is a Schwab Level 2, which allows for spreads, iron butterflies and iron condors (I have no idea what those last two even mean, but will learn).

I love the idea of the wide spread! I understand how it will work and it sounds like exactly what I'm looking to do, at least to start.

I have read the wheel thread but I probably don't understand it to the level I need. I'm still not sure it is better than just holding onto shares.

When my father passed away suddenly 12 months ago, I took over his IRA for my mother (this took several months). 9 months ago I sold all his stocks and went to cash. $3.1 Million to work with. I initially was doing very conservative cash secured Puts and generating $25k/month (which was plenty for my VERY frugal mother). 5-6 months ago I started doing very safe BPS with $250 wide legs. I was staying 20% OTM. I was now making $25k/week. I got a little greedy and did an iron condor with BCS right before Hertz week. That move cost me $300k in her account. I'm still up more than $700k in 9 months (so would have been up over $1M). I'm confident I can make her $1-1.5M per year with very safe, wide, BPSs on her $3M. If course, the more money I make for her, I can either have higher returns with more contracts, or just get safer with my spreads (I will choose option 2) - Managing someone else's money is scary as hell. With cash secured Puts, if the stock drops much more than you expect, you can roll ITM forever if you roll early enough (to avoid assignment). If you do get assigned you own stock, so nothing lost. With BPS if the SP gets below mid-point on your spread you can't roll without paying a debit. If it gets to the lower leg and you don't pay to roll, you lose all your money (you own nothing). So BPS can cause you to lose all your money if you are too aggressive, there is a Black Swan event, etc. My recommendation is to start with very wide spreads so they behave more like Puts and you can tolerate a large drop in the SP. Start with $400 or $300 wide spreads. Stick to weeklies. Don't get greedy with premiums. Once the SP gets back over 1100 you will probably make $100-$200/contract staying 20-30% below the current SP.

The reason I say stick to weeklies - I've learned that if you start going farther out, if the SP drops, you get locked into your spread. Example: You sell a 500/800 for $2 a week out. The SP drops and it is now $10. Your spread (assuming it ends OTM) won't go green until very close to expiration if the SP doesn't recover. You can roll a week early to the same strike for a nice profit, but you are now closer to the money (no longer 20% away). After two weeks of this your short leg might be ITM now. This is fine if the SP reverses, but if TSLA does one of its big prolonged drops, you can get trapped into your spread unless you are willing to take a loss and start over. So resist the temptation to roll early if you are in retirement and need to preserve your capital - i.e. you need to play it safe.

You can learn a lot on this forum, but be careful about following other people's trades. There are very aggressive people here with different goals (trying to get rich vs safely earning a living). It is tempting to get aggressive when everything seems to be working for everyone. But all it takes is an unexpected large move in the SP and aggressive folks are now losing money like crazy, or having to roll so far out that they are sidelined for months with no income.

Don't be afraid to ask questions.

To summarize what I've learned for BPS: Use Wide spreads. 20-30% OTM. Stick to weeklies so that you can safely end each week with the spread OTM.

 

[juanmedina]

I sold some $1050cc's for $2. They are still worth $1.45... sounds decent for expiring today. I have some $1105, $1125 and $1150 covered calls for next week.

 

[Spreadman]

After a very successful June - Oct based on guidance learned here, I didn’t follow the rules established and nearly blew up my account in November during the post Q4 earnings swings/Hertz/Elon Twitter poll ordeals.

After ~5 weeks of rolling for small debits instead of accepting max losses I opted to roll my deep ITM BPSs as far out and up as possible where I could stomach the debit needed.

All in all, I’m left with several Jan 2024 1850/1800 (brokerage acct) and Jan 2024 2000/1900 BPSs (IRA) - and ties up 75% of available margin for 2 years.

Has anyone ever held deep ITM BPSs for a significant period of time (12+ months)?

Love hear feedback on the above and any advice while I wait it out.

 

[BornToFly]

After a very successful June - Oct based on guidance learned here, I didn’t follow the rules established and nearly blew up my account in November during the post Q4 earnings swings/Hertz/Elon Twitter poll ordeals.

After ~5 weeks of rolling for small debits instead of accepting max losses I opted to roll my deep ITM BPSs as far out and up as possible where I could stomach the debit needed.

All in all, I’m left with several Jan 2024 1850/1800 (brokerage acct) and Jan 2024 2000/1900 BPSs (IRA) - and ties up 75% of available margin for 2 years.

Has anyone ever held deep ITM BPSs for a significant period of time (12+ months)?

Love hear feedback on the above and any advice while I wait it out.

I'm sorry to read this. You "should" be safe regarding early assignment for more than a year. If you are lucky, the SP hits 2000 in 12 months instead of 24, and you can close them out with a smaller loss. I would wait until the SP gets over 1500, and then consider BCS with same expiration to earn money to help pay for the loss on the BPS. If you are willing to accept 50% total loss, maybe overlap them (meaning either the BPS or the BCS will be at max loss, the other one safe) if the premiums of the BCS match the BPS?

 

[adiggs]

I have read the wheel thread but I probably don't understand it to the level I need. I'm still not sure it is better than just holding onto shares.

For what its worth, this is The Wheel thread, renamed. We decided a few months back that with the focus drifting slightly from the wheel strategy to just selling options, plus the thread popularity, it was worth a title update.


The latter observation is really important. We can easily go through a period where just buy and hold the shares will outperform. It can be easy to miss out on this when you read about people earning 1-2%/week (or even more) and forget that TSLA has gone through 2x / 3x / 4x share price moves in short periods.

Broadly speaking selling puts and calls works best in a sideways market or at least within a trading range. Shares going up is good for puts and bad for calls, while shares going down is bad for puts and good for calls. Going up or down quickly is mostly not good for either, at least when steady income is the objective.

What has made the last couple of months particularly difficult was first the really fast run up after the Hertz announcement catching some calls and call spreads deeply ITM, followed by this recent rapid move down that has caught some puts and put spreads deeply ITM. After two of these this year (Jan-March at start) I sort of expect that one goes with the other (which is true .. until it isn't ) - these sorts of rapid up and downs close together makes it quite easy to go deeply ITM (losses) on both sides in the whipsaw back and forth (heh - ask me how I know).


My original TSLA purchase is up roughly 200x from original purchase. It would have been difficult for puts and call sales to keep up with that even with 8 years to work with. This is why I consider the income and capital growth mindsets, at least with TSLA, to be somewhat incompatible. Or at least that each leads to thought patterns and investment decisions that can be bad for the other. My own focus has shifted to income. The choices I make as a result carry significant opportunity cost risk (its not the only risk). Opportunity cost in that I sell some calls and watch the share price take off faster than I can roll to keep up with, and end up selling shares (or leaps in my case) that I didn't want to sell at a much lower share price than was available at the time of the sale. This is entirely acceptable to me, today, where it would not have been 2 years ago.

There is no such thing as a free lunch or free money. If something looks too good to be true it likely is. If you can't identify the risks in a position then keep looking. Sometimes they are subtle and sometimes they take time to manifest, but everything we do (including buy and hold) carries risks depending on share price movement, timing - something.

 

[TheTalkingMule]

I still don't understand why we don't just have a TMC hedge fund. Wouldn't that be easier than everyone doing this work separately?

Target 1% a week forever, and I think we could do it. Including black swan and global meltdowns. Minus the considerable fees of course.

 

[Drezil]

I'm curious to know more - is this something you've got a website to point to for more reading? I think that the way I understand this - you start with a vertical spread. At some point you roll the short leg out while leaving the long leg the same. At that point you would have (for example) an insurance put expiring on 12/31 and a short put expiring Jan 7. Does that keep the margin / spread reserve calculations happy?

As you approach 12/31 then you'd be rolling that insurance put out to the short put strike, and hoping for a reversal before that comes along so you don't need to buy the extra week of insurance. Is that the idea?

As @MP3Mike said you got it exactly backwards.

These are calls (so max-loss is obvious by the positive value & easier to handle mentally).

I started with
dec 31 1050 / jan 28 1050 for ~$20
rolled dec 31 to jan 7 1100 for credit on steep rise
=> jan 07 1100 / jan 28 1050 for $1.18
thesn just rolled jan 7 1100 to jan 14 1135 for small debit (10 cent or so), because i fear a faster higher rise in the next week. If we seem to peak i will undo the thing & take a credit (~2$ or so) for reversing. If not, then not.
=> jan 14 1135 / jan 28 1050 for $1.28

Possible future scenarios:
roll jan 14 1135 to jan 28 1200 (another "free" roll currently)
=> jan 28 1200 / jan 28 1050 for $1.28
Then ending max-loss would be $1.28, max-gain $150 depending on the SP at jan 28.
Consider: i got most(!) of the money back after the first roll.
You can also roll more agressive. Another scenario (more bearish on SP):
roll jan 14 1135 to jan 28 1150 for currently -$14
=> jan 28 1150 / jan 28 1050 for -$12.5
This would mean gains from minimum $12.5 to $100 depending on SP at jan 28.

The last one is interesting, because you cannot lose anymore - but for doing that you cap your gains massively (by 33%!). Depends on how you view the SP then

 

[Knightshade]

The latter observation is really important. We can easily go through a period where just buy and hold the shares will outperform. It can be easy to miss out on this when you read about people earning 1-2%/week (or even more) and forget that TSLA has gone through 2x / 3x / 4x share price moves in short periods.

While that's certainly been true the past 2 years, it's unlikely to KEEP being true.

Many would argue this past 2 years of massive gains was mostly the market catching up to real and near-future valuation after years of being dubious... but I expect most realize continued annual doubling or more of share price is not sustainable.

Whereas if you can make 2% a week on options you ARE doubling your money each year... (and I think most have been beating 1-2%, though that's certainly a fair # to use if you wanna be very conservative/"safe")