Wiki Selling TSLA Options - Be the House

[bxr140]

Is there actually any theta effect on non-trading days?

Yes. Theta burn is 24/7/365. The number you see is an instantaneous time decay; in reality its fluctuating along with the other greeks as price moves and time passes.

Just to make sure its at the front of everyone's minds, theta is the weakest of the major Greeks.

 

[ammulder]

Yes. Theta burn is 24/7/365. The number you see is an instantaneous time decay; in reality its fluctuating along with the other greeks as price moves and time passes.

Just to make sure its at the front of everyone's minds, theta is the weakest of the major Greeks.

Thanks. Though this brings around an older question of mine. Do the greeks "control" the option price? As in, is it required to move according to the greeks? Or do they "reflect" the option price? As in, based on option price movements we're seeing, this is what the greeks must be.

Here's a thought exercise: say for whatever reason people start believing that Tesla will make 500K deliveries though analysts do not. In this scenario maybe call options get really popular again just before the quarterly numbers come out in early January, but for whatever reason the stock isn't reacting much yet. Can call prices jump up faster than the current greeks would predict because those options are in high demand in the marketplace (and then the greeks have to adjust accordingly)? Or is the rise in call option prices controlled by the specified greeks according to the share price, IV, theta decay, etc. so the rise might be limited by inaction in the underlying even though there may be more buyers than sellers for the calls?

 

[bxr140]

Do the greeks "control" the option price?

Technically no, but essentially yes.

The primary inputs into the pricing model are 1) volatility and 2) interest rate, both of which are variable. Strike price, current underlying price, and time to expiration are also variables, all of which of course are always self-evidently defined, and dividends play a part too but to a much smaller degree.

The Greeks (and honorary Greeks, like IV) are essentially all functions of those variables so there’s kinda no new news there. But...they all reflect how contract price will fluctuate, and a few of them (Vega, IV, and rho) more or less ‘control’, or at least, define contract price.

 

[saniflash]

Here's a thought exercise: say for whatever reason people start believing that Tesla will make 500K deliveries though analysts do not. In this scenario maybe call options get really popular again just before the quarterly numbers come out in early January, but for whatever reason the stock isn't reacting much yet. Can call prices jump up faster than the current greeks would predict because those options are in high demand in the marketplace (and then the greeks have to adjust accordingly)?

Yes. In this exercise, with increased demand, the price for the calls will increase. IV is what is plugged into the Black Scholes Formula to solve for the current price that is observed in the market. I.e., as these calls get more expensive, IV increases, which is logical, because a higher IV implies a higher move in the stock price (up or down) until expiration. And in your exercise, because people expect a higher stock price (i.e. a higher movement) than market makers do, due to people's belief of 500k+ deliveries. Q.E.D

Yes. Theta burn is 24/7/365. The number you see is an instantaneous time decay; in reality its fluctuating along with the other greeks as price moves and time passes.

Buying Calls and Puts is actually very similar to taking out an insurance policy. And developments material to the stock price (which might make the insurance have to pay out your claim) can happen on the weekend, holidays as well (e.g. factory burning down, or news hitting the wires that the 500k'th vehicle has been delivered) which will cause the stock to gap up or down at next market open.

 

[gabeincal]

Sold 5 x Jan 15 '21 750c @ 9.80. Nice chunk under the tree.

 

[Runarbt]

Sold 3x feb21 $650 puts on monday @ 7k each - then SP dived to $614.. Looking better now. ;-)

 

[adiggs]

Sold 3x feb21 $650 puts on monday @ 7k each - then SP dived to $614.. Looking better now. ;-)

I'm very curious to see how that plays out for you. That is really aggressive selling ITM put.

You might also want to consider a kind of transaction if you've got that much conviction about the shares going up. Selling puts in a rising shares market can easily lag other investment approaches. Unfortunately my toolkit isn't particularly full, so I can't provide any hints as to what that would be.

If you're just looking to ensure assignment, buying at $580 net is probably something many of us would be willing to do. And if you 'miss' and keep most of the $70 premium, then that's hardly the end of the world. Just another excuse to sell one of these very high premium puts searching for your buy.

 

[Yoona]

hello, does anyone have a "not advice" exit strategy on the Jan 8 700CC Sell that is in danger of being breached this week? thanks

 

[MXWing]

hello, does anyone have a "not advice" exit strategy on the Jan 8 700CC Sell that is in danger of being breached this week? thanks

Buy it back and cover your loses by selling 650 puts.

This is the most solid not advice, advice you will receive.

 

[Yoona]

Buy it back and cover your loses by selling 650 puts.

This is the most solid not advice, advice you will receive.

Thank you, let me check that out.

 

[ammulder]

Buy it back and cover your loses by selling 650 puts.

This is the most solid not advice, advice you will receive.

Assuming you have either cash or margin to cover the puts with, right? If you’re all-in on shares I don’t know of a way to sell puts.

 

[MXWing]

Assuming you have either cash or margin to cover the puts with, right? If you’re all-in on shares I don’t know of a way to sell puts.

The shares you own give you the margin/leverage to sell those puts.

 

[MXWing]

There’s fancier ways to approach it like rolling out the 700 to a higher strike like 750 or 800.

In exchange, a lower strike put can be sold to zero out any losses on the 700 short calls.

It’s called a strangle but the a simpliesy strategy to escape the loss on calls is to sell puts if you believe the direction is bullish.

Owning more shares at 650 in theory is not a bad price if you can afford to eat the assignment or deal with the extra shares if tsla dips below that.

 

[ammulder]

The shares you own give you the margin/leverage to sell those puts.

Sure. I’ve just seen a number of people say they’re unwilling to use margin (or, have already used all the margin they’re comfortable with!). And I’m a bit baffled by those who have that much cash sitting around without already plowing it into TSLA

So, not disputing your recommendation to sell puts, just trying to add some context.

 

[MXWing]

Sure. I’ve just seen a number of people say they’re unwilling to use margin (or, have already used all the margin they’re comfortable with!). And I’m a bit baffled by those who have that much cash sitting around without already plowing it into TSLA

So, not disputing your recommendation to sell puts, just trying to add some context.

Sure. Being challenged is great. My position is no good if I can’t defend it.

Margin usage is a little different depending on if you are a buyer of shares/options or a seller of options.

You need margin if you ever assigned on puts but you are not deploying it nor paying carrying costs on it upfront otherwise.

You’ll be in margin (how much depends on the risk you took) but you’ll be able to escape that as stocks generally go up just by rolling failed short puts until you are correct.

Buying calls or shares hoping for a recovery is a dicier scenario.

 

[Runarbt]

I'm very curious to see how that plays out for you. That is really aggressive selling ITM put.

You might also want to consider a kind of transaction if you've got that much conviction about the shares going up. Selling puts in a rising shares market can easily lag other investment approaches. Unfortunately my toolkit isn't particularly full, so I can't provide any hints as to what that would be.

If you're just looking to ensure assignment, buying at $580 net is probably something many of us would be willing to do. And if you 'miss' and keep most of the $70 premium, then that's hardly the end of the world. Just another excuse to sell one of these very high premium puts searching for your buy.

Yes, $650 feb puts are bit more aggressive than I ususally do. But then, I see way higher SP next year and expect a 2x minimum in 2021.

But I figured I would try this approach and see how it turns ut. I can always roll the puts. If SP end itm - will consider what rolling the puts a couple of months pay, or let the shares be assigned on margin, and sell CC.

 

[ReddyLeaf]

I’m now on the wheel. I sold to close my 5x 12/24 545c, and cleared enough just cash to sell to open one 12/31 575p at $6.42. This is my first TSLA put sale and wanted to have it close before Q4 results are known. Not a huge sale, only slightly more than 1%, but it’s a start. Although I do want more shares, I need this to expire worthless so that I can continue selling puts (not enough cash in this IRA account to buy another 100 shares).

As expected, selling that OTM 12/31 575p was an excellent, low risk strategy. I had been planning to let it expire worthless on Thursday, but decided to close it out at $0.28 (95% profit ) and sell a new 2/19 585p for $33.00 during this morning’s MMD. That’s farther out than I initially wanted, but the premium seemed enough to justify the risk through Q4 financials. The SP would need to drop below $555 to be a bad bet, though if the SP rockets on good earnings the cash would be better used to buy shares. I’m still undecided on whether to close this put before Q4 earnings, or hold to expiration, but I’m tentatively planning to just keep rolling the put forward and up until it gets exercised. I’m so heavily invested in shares that there is very little cash to do much else.

Speaking of which, I also used today’s MMD as an opportunity to buy one 690c and 700c 1/22/21 at $24.50 & $28.50, respectively. This is a small earnings play, though I’m planning to sell in early Jan before earnings come out, hopefully during a SP run up and IV expansion. I had some cash from selling a few 12/31 700c last week for $4.00+/-, so decided to deploy into something more positive. I was very nervous holding those CCs and decided to close out all but one early for a small profit (30-50%). It’s tough selling CCs, even OTM. Still, with little available cash and no margin, it’s one of the few options I have left.

Sure. I’ve just seen a number of people say they’re unwilling to use margin (or, have already used all the margin they’re comfortable with!). And I’m a bit baffled by those who have that much cash sitting around without already plowing it into TSLA

So, not disputing your recommendation to sell puts, just trying to add some context.

For me, I’m trying to only buy in round lots of 100sh now in one account. My cash is only enough to sell one OTM put. My other accounts have odd lots, with only enough cash to buy less than 10-20 shares, not enough to round them out. I’m planning to sell OTM CCs in those accounts, just waiting for an IV or SP run up.

 

[Stretch2727]

I think this excellent post has gone unnoticed. This is how you keep your 8-figure port, folks. Next level risk management for a stock that is going to stabilize eventually because of the embiggening market cap. 1% a week and that’s skimming.

I also employed a modified short strangle for this week, albeit a bit more...aggressive...at 660-700 (and it’s unbalanced, with an 8-1 call/put ratio, with the short calls covering other longer-term long calls diagonally).

Point being, this is a position that you can take around your extremely long stock position to make money when the price doesn’t move much, or to pick up more shares on the cheap. And you can always trade time for money by rolling options out, especially covered calls. Knowing low-risk strategies to “be the casino” can make you a steady income.

Again, I know this belongs in the options thread, but I’m worried folks here have “just started” trading options and will only read this one. Many of those seem to be buying way OTM calls, which do work...sometimes.

My elevator advice: sell covered calls; if they are ITM at expiration, continue rolling them out and up; repeat. But when you’re ready to play both sides, @dl003 has you “covered”. Good stuff.

Anyone doing Strangles? Selling an OTM call and put.

If so do you hold both the stock to cover the call and the cash to buy the stock if the put is in the money? Without this it seems the risk is unlimited.

 

[vwman111]

Anyone doing Strangles? Selling an OTM call and put.

If so do you hold both the stock to cover the call and the cash to buy the stock if the put is in the money? Without this it seems the risk is unlimited.

Aren't Strangles meant for when you expect the stock to move quickly in one direction or another? If we are entering a consolidation period or a continued steady growth, is a strangle still the right strategy?

 

[Dancing Lemur]

Anyone doing Strangles? Selling an OTM call and put.

If so do you hold both the stock to cover the call and the cash to buy the stock if the put is in the money? Without this it seems the risk is unlimited.

What I described is a type of short strangle. Yes, the sold options are covered in both directions, either by other positions or cash/margin.

More specifically for this trade, at the close on Thursday last week I sold 700 strike 12/31 calls against other longer term options (March-Sept expiries with strikes between 340-550.) I also sold 660 12/31 puts, with enough cash/margin to cover them if assigned. For every put sold, I sold 8 calls.

Positions something like this:
8 400 C Mar 19 2021 - Mark $260.00
-8 700 C Dec 31 2020 - Mark $3.60
-1 660 P Dec 31 2020 - Mark $14.20

So, I collected $43 in premium for each set of 8 calls I hold, or $4.30/contract. That's about 1.5% return on the call's value when the options were sold. If either side is ITM near the close on 12/31, I will roll them out to next week to more favorable strikes. The risk curve looks like this, so not much different than just holding the original calls (and not "unlimited", except if the stock goes to < 400), but gains are capped at 700 this week: