Wiki Selling TSLA Options - Be the House

[samppa]

My 1/14 -1100/+800 bps are starting to look good about now..

 

[stealthyc]

I’m trying to understand the calculations and cannot get to 2% without being closer to ATM. For example, right now for Jan 21st using -900p/+800p: MaxPain premiums are $2.50-$0.71=$1.79 (ignoring the bid/ask spread which will further reduce premiums). A single spread risks $10,000-$179=$9981 (e.g., 100x(900-800)-100x$1.79). Return is then $179/$9981=0.0179 or 1.79% for one week plus two extra days, at about 82% (900/1093) of SP. Making this trade on Friday will probably result in an even lower premium, so I don’t see how 2%/wk is possible without greater risk. Timing the trade during a local SP drop will certainly increase the premiums received, but only because the trade is actually closer to ATM at the time.

FYI, I’m unable to trade spreads, and my returns on cash-secured puts, near ATM, are usually 0.5-1.5%/wk (factoring in all the rolling and bad timing). In a perfect trade, Jan. 21st -p1090s are paying $38 or 38/1090=3.49% or 2.5%/wk. This trade works perfectly when the SP rises exactly 2.5%/wk, since the premiums received are available to increase the strike price perfectly. Unfortunately, TSLA doesn’t seem to follow this dream world.

IV matters, a few days ago 15% OTM was a lot more money. You can't really just claim some %OTM will return X% because of this. You could try to use delta though. Also spread width matters etc.

 

[Spreadman]

BTC 1000/960 BPS @ 82%. Opened these last week when SP was +1150 and hung on Monday when we dipped to 980. Do nothing prevails again.

 

[adiggs]

A request regarding %-returns (and I know this has been discussed before):

• when referring to %-return (i.e. 2% weekly), please always state clearly what the % is of
  • is it % of total portfolio / % of available margin / % of available cash / % of TSLA holding etc.

I think that will really help everyone out who is looking at weekly performance targets to benchmark against

In my case, I looked at my 2021 Sept - Dec performance / week as a % of the entire portfolio (100% TSLA + cash) and found that with the conservative BPS (far OTM, 200 wide spreads) and occasional CC (far OTM) I've not managed to hit 1% / week , more like 0.6%.

This is a good point and something we've had some confusion over in the past.

And an answer has just come to me this morning as this topic has resurfaced.


I think its fair to say that most of us are using capital at risk as the basis for the %. So if I'm using $1M on a position and earn $40k then I've earned 2% (EDIT: 4%!!!). But if I have a $10M portfolio and put $1M at risk, then that $40k is good for a 0.2% (EDIT: 0.4%!!!) portfolio return.

My suggestion is that we default assume that % gains are of the capital-at-risk variety (as I believe most of us have been using - I know that's what it is for me) and that we can refer to portfolio gains to refer to the larger idea. That provides a small bit of incremental terminology to keep the two clear, and clarity is indeed important on this point. Its easy to confuse the two and be thinking in terms of 2% portfolio returns. Those are only available with all of the portfolio at risk each week.

 

[scubastevo80]

2% return on what?

We base our return on our current cash position, which could all be put to work, or part of it could be put to work. If we have, for example, $100k cash and write 5 BPS ($100 wide) thereby risking $50k, but generating $2k income, we'd equate that to a 2% return on cash. We do not look at it purely based on risk - in this case a 4% return on money risked. At the end of the day, my parents care about income so at some point it will be a $ amount a week and not a return on the prior week/month's cash balance.

 

[SN_8]

So if I'm using $1M on a position and earn $40k then I've earned 2%.

You mean 4%, right? Otherwise I'm super confused.

 

[adiggs]

An update on my aggressive CC strategy that I described yesterday and am starting to get some traction on.

With the additional move up today my 1000 strike CC for this week saw their extrinsic value drop to $1-2 or so (originally opened for a $30ish credit). A small number of these are backed by calls expiring next week - I've rolled these to next week and a $10 strike improvement and a $2 credit. That was as good as it got and this initial experimental position will end up as a $100/share sort of loss (but a small position - great education). The loss per share is primarily because I purchased these calls when shares were more like $1150

BUT the $10 strike improvement on capital at risk of $275/contract is 3.6%. This particularly bad roll is still a 3.6% improvement on capital at risk.

While I was at it I went ahead and entered a GTC order to close this call spread (long 900 call, short 1010 call) for $109 (the 1010 short strike minus the 900 long strike, giving $1 to a market maker that'll wrap things up early for me). This probably won't fill until expiration day when the combined time value is down to $1. [EDITED to change the short strikes from 1110 to 1010; they're actually 1010s. sigh]

The bigger and near expiration, Feb monthly, has a $1100 break even and also have $1000 strike calls against them. I've rolled those out 2 weeks and got a $30 strike improvement and a $2 credit. These calls have $200/share purchase price - if the shares finish above 1030 by Feb expiration then today's roll is a 15% gain on capital at risk. I expect these to end as gains, but it also might be particularly close. As training wheels I love em though. Leading to ....


NOT-ADVICE
I like it enough in fact that I'm opening my big position following this approach. The big position has a break even of $1100 so all of the credits and any strike improvements from here are gravy. I've opened Jan 21 1130 strike calls for a $24 credit this morning. I considered the Jan 14 1130 strike as well but the $7 credit didn't look as good to me as next week's position.

Using my cash at risk in these positions of $350 per underlying contract (June '22 750s) these covered calls are ~7% positions. As long as shares stay above $1100 then I am happy to sell 7% positions every week at whatever strike that will be.

For management purposes - I just got a $10 strike improvement for a 1 week roll while $100 ITM. Weekly $10 strike improvements on $350 at risk are still 3% weekly gains; I'm good with that, and that leaves me good (great) operating room all the way up to $1230 share price.


If anybody sees me mucking up the math somewhere please let me know!

 

[adiggs]

You mean 4%, right? Otherwise I'm super confused.

Doh!!

Of course you're right. A benefit of being a supporter of the site is I get more time to improve on my posts where I lose my mind. I've updated the I-am-idjit post with the new and improved (right) math.

(The Funny is for me - not for your math)

 

[UltradoomY]

This week has shown why TSLA is such a large part of the total options market.
So many forces trying to move it up / down and thus creating lots of volatility and opportunity for us!

Still have my Feb 18th purchased calls ($70 each) that I just sold next week $1200's against for $9 each. Saving some more to deploy if we are up higher tomorrow but that chance might not come.
Will roll them out a week if they are ITM for more juicy credit before closing it all around earnings - assuming we are over $1200 at that point.

In the retirement account that we just got set up for options - this week sold ATM $1k puts for $30 each and closed today for $0.80 each.
Sold next week CC's $1250 for $5 each.
Will be waiting on puts in that one to see if we get an aggressive push down tomorrow or Friday.

 

[OrthoSurg]

Closed my 20x -p945 14/1 for 90% profit. Now I have enough margin for the stock to collapse a good 50%.
I will stay a bit more conservative as I promised my wife when I asked her if she knew what a margin call was.

She told me yesterday she would almost prefer I gave her the same news as her grandfather was giving to her grandmother. « Do I have enough for that fur coat, Henry? »
« Of course my love, our investments positions are all going super super fine. »

 

[dc_h]

Wow, blind squirrel wins once in a while. I was busy last week and didn't check my positions. I had an 1100-1050 BPS and got assigned the 500 shares at 1050. On Monday I had a margin call and Fidelity sold shares at 1060 to cover my balance, so saved 5000 on the assignment and the buy timing was pretty good. I'll keep the extra shares through earnings, if we're over 1200 by then, I will sell some CC's 200 above the market. Volatility should be getting exciting for the next couple of weeks.
I have 500 naked puts I was feeling pretty bad about last week due this Friday at 1120, feeling better now. If we get over 1120, I'll sell at the money puts, if we stay here, I'll take the shares. Two weeks til earnings and maybe Austin and Berlin opening announcement will happen during the earnings call.

 

[UltradoomY]

Wow, blind squirrel wins once in a while. I was busy last week and didn't check my positions. I had an 1100-1050 BPS and got assigned the 500 shares at 1050. On Monday I had a margin call and Fidelity sold shares at 1060 to cover my balance, so saved 5000 on the assignment and the buy timing was pretty good. I'll keep the extra shares through earnings, if we're over 1200 by then, I will sell some CC's 200 above the market. Volatility should be getting exciting for the next couple of weeks.
I have 500 naked puts I was feeling pretty bad about last week due this Friday at 1120, feeling better now. If we get over 1120, I'll sell at the money puts, if we stay here, I'll take the shares. Two weeks til earnings and maybe Austin and Berlin opening announcement will happen during the earnings call.

I love this post - no panic - just strategy and focus.
Making a new position based on where you are and not what could happen.
I applaud you!

 

[InTheShadows]

Ignoring the shares my portfolio is targeted to be 1/3rd cash for selling put spreads and 2/3rds share replacement leaps (dominant position are June 750s) that I use to sell covered calls -- at least when I can sell strikes at the break even or above. The intent is that if disaster strikes on the put spreads then I can sell off half of the calls and still have enough cash to continue selling put spreads at the same level as before the disaster.

Thanks for that comment. It gave me an idea for the pie chart to break out the calls and puts as well. Since all of my calls currently are leaps, that will give me a better picture of the amount I am selling BPS on. (Hmm. Actually I think I can make it specifically long calls with more than 365 DTE).

 

[adiggs]

.

I have 500 naked puts I was feeling pretty bad about last week due this Friday at 1120, feeling better now. If we get over 1120, I'll sell at the money puts, if we stay here, I'll take the shares. Two weeks til earnings and maybe Austin and Berlin opening announcement will happen during the earnings call.

And here I thought other people were working with some really big positions! If my math is right, at $1100/share, that is a $55M position if cash secured. But maybe only $30M for margin?

Any issues with getting that to fill? I've wondered off and on about what sized positions can we still get in and out of the market with, without it becoming too much of a market moving problem.

 

[InTheShadows]

IV matters, a few days ago 15% OTM was a lot more money. You can't really just claim some %OTM will return X% because of this. You could try to use delta though. Also spread width matters etc.

This is exactly why I use delta. Delta also takes into consideration time remaining until expiration. Where as % OTM doesn’t. I look at both but I mostly rely on delta. After all it is the markets current sentiment on what the chances are of being ITM at expiration.

So as I double and triple dip my strikes do move up but they should always respect the delta. And because I also have a spreadsheet calculator I use for planning, I also know what the weekly return rate is for that trade. The weekly return rate is what I use to levelize everything in my trades. From individual trades to annual rates. So if I open a new trade for this week today (a Wednesday) I would still look for a delta of <-10 for my short leg. Wednesday is usually the day when I switch to next week for redeployment of capital. My goal is time in the market va timing the market. I try to have most of my capital deployed at all times.

 

[adiggs]

Thanks for that comment. It gave me an idea for the pie chart to break out the calls and puts as well. Since all of my calls currently are leaps, that will give me a better picture of the amount I am selling BPS on. (Hmm. Actually I think I can make it specifically long calls with more than 365 DTE).

Your welcome. I find myself thinking more in terms of 90-270 DTE on the long calls recently. For me that'll mean buying calls in the 180-270 DTE range and closing them out / replacing them with around 90 DTE to avoid the more dramatic time decay.

It'll mean that all of the results are short term, but mostly these are in retirement accounts anyway. In the taxable account I find that I'm tying myself into knots to avoid short term gains on the high DTE long calls in the taxable account. Enough so that its becoming a problem, and now I'm leaning pretty heavily into treating them as I do the rest of the long calls.

 

[InTheShadows]

This is a good point and something we've had some confusion over in the past.

And an answer has just come to me this morning as this topic has resurfaced.


I think its fair to say that most of us are using capital at risk as the basis for the %. So if I'm using $1M on a position and earn $40k then I've earned 2% (EDIT: 4%!!!). But if I have a $10M portfolio and put $1M at risk, then that $40k is good for a 0.2% (EDIT: 0.4%!!!) portfolio return.

My suggestion is that we default assume that % gains are of the capital-at-risk variety (as I believe most of us have been using - I know that's what it is for me) and that we can refer to portfolio gains to refer to the larger idea. That provides a small bit of incremental terminology to keep the two clear, and clarity is indeed important on this point. Its easy to confuse the two and be thinking in terms of 2% portfolio returns. Those are only available with all of the portfolio at risk each week.

This is what I use.

For weekly calculations I use (total theta PNL) / (total Friday close portfolio value - weekly theta PNL)

I do this so that unrealized gains and any long positions liquidated are ignored

This metric I have noticed also reduces my weekly gains over time as my shares and leaps grow in value.

 

[InTheShadows]

Your welcome. I find myself thinking more in terms of 90-270 DTE on the long calls recently. For me that'll mean buying calls in the 180-270 DTE range and closing them out / replacing them with around 90 DTE to avoid the more dramatic time decay.

It'll mean that all of the results are short term, but mostly these are in retirement accounts anyway. In the taxable account I find that I'm tying myself into knots to avoid short term gains on the high DTE long calls in the taxable account. Enough so that its becoming a problem, and now I'm leaning pretty heavily into treating them as I do the rest of the long calls.

Yea I’m trying to self define what is a leap right now. How many DTE. I usually open them with the intention of holding them long enough to become long term cap gains. Which means that one’s I bought 18 months out would have to hold until 6 months to hit the long term gains point.

 

[EnzoXYZ]

.

And here I thought other people were working with some really big positions! If my math is right, at $1100/share, that is a $55M position if cash secured. But maybe only $30M for margin?

Any issues with getting that to fill? I've wondered off and on about what sized positions can we still get in and out of the market with, without it becoming too much of a market moving problem.

I am more curious what OP is doing in Naperville with that bankroll

BTC all BPS >95%. Majority are rolled from last weeks greedy double dip. I’m happy to start fresh again.

 

[InTheShadows]

Thanks for that comment. It gave me an idea for the pie chart to break out the calls and puts as well. Since all of my calls currently are leaps, that will give me a better picture of the amount I am selling BPS on. (Hmm. Actually I think I can make it specifically long calls with more than 365 DTE).

New chart. I like this one much better, it's way more useful! Thanks a million!

I also moved it on my dashboard to replace my open position sizes by ticker chart since everything is TSLA now.