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Wiki Selling TSLA Options - Be the House

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I feel ya :)

I have more than once just stopped trying to 'heal' a position, close it (take the loss), and start over again with a clean slate. This is part of where my earlier observation about their being a rhythm to these positions, where one winner begets or sets up the next winner.

Totally agree with this - risk tolerance is indeed a muscle to develop. As is knowing when to pick up the broken toys and go home.


You don't mention one way or the other (maybe you did previously) - if these are small positions for the purpose of learning spreads with skin in the game, then you've got a great setup!

This is indeed my approach. Right now I am feeling maybe I put more skin in the game than I like. Ah well, it makes the lesson that much more effective. Test to failure.
All of the choices come with upsides and downsides. Be sure you can identify what a good and bad move in the share price will mean to any new share price - especially the magnitude (they usually aren't equal).


One of the reasons I like wide spreads is that 1 management method that is always available is narrowing the spread (whether its a GOOD idea is a different question) while increasing the contract count. For example you might take that 1100/980 and turn it into 2x 1070/1010. The $120 wide spread becomes a $60 wide spread and now you can have 2 of them. Hopefully you can get a strike improvement out of that as well - maybe a 1060/1000. The upside is that if the share price moves up then you go OTM at 1070 instead of 1100. The downside is that losses accumulate 2x as fast (and that 1070/1010 position might not be available for a credit; maybe its more like 1080/1020).

You can add to the position. Figure out what spread you can roll that 1100/980 to while also adding a second contract. The new position will have much better strikes but will also have 2x the capital at risk. Upside - you go OTM that much sooner. Downside - you have 2x the capital at risk, the shares keep going down, and now you get to lose 2x as much as just taking the loss earlier would have done. A related version - put that incremental capital into the spread width and see where you can roll. So that 1100/980 mentally becomes an 1100/860 and then you see what it can be rolled to. You still have 2x the capital at risk.

That 1050/900 could be rolled down for a credit and a better strike (sooner OTM, more likely to go OTM) while still generating a small net credit. It could also be rolled straight out for a larger credit - maybe to generate some positive cash flow that you go 'spend' on another one of those to make it better.

They can all be rolled for time, where a "for a credit" restriction means that the strikes will get worse.

There is a flip roll where you convert a put spread into a call spread. Something like that -1100p/+980p (assuming $1020 share price - $80 ITM) would approximately turn into a -940c/+1060c call spread. Now you need the share price to go down instead of needing for it to go up. This one is highly dependent on what direction you think the shares will be going in. I've had these work well and I've had them work disastrously.

Maybe the best part here is that you've got a variety of positions which means that you can try out a variety of solutions and then see how they evolve and how you feel about each.


None of this is advice - just more ideas to thrash through. I think that the closest thing to advice I have is to spend some time with the options chain or a tool in which you can set up different trades to see what comes out of it. Also consider multi-week rolls - they behave differently with spreads over straight puts or calls; I've seen plenty of situations where a 2 week roll was >> than a 1 week roll.
Thank you for the extremely thoughtful and insightful post! I have gleaned much from this after three readings and am mining it yet again.
 
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This is indeed my approach. Right now I am feeling maybe I put more skin in the game than I like. Ah well, it makes the lesson that much more effective. Test to failure.

Thank you for the extremely thoughtful and insightful post! I have gleaned much from this after three readings and am mining it yet again.
A lot of those ideas originally come from others and largely fall under the heading of 'free your mind' :)

At the core of it all is to understand what a roll really is. You've got a losing position and in order to recover from it, you decide to realize the unrealized loss in the position, while simultaneously opening a new position that is even larger (net credit) than the old one, with the hope / expectation that the new position will win out.

Or that you'll go into a perma-roll situation if needed, collecting credits each time, until eventually you win. You almost always land in a new position that you wouldn't open as a starting point.

But that also means that any new position you open that yields a net credit (given that you restrict yourself in this way) serves this purpose. Realize the loss while opening an even larger position in an attempt to clear up the mess.

Worth noting that the roll transaction ticket also provides a mechanical value in situations where you can't break it into two transactions. You don't have enough cash to pay for the loss (buy out the existing position), so you can then open the replacement position. I've encountered this in a retirement account. In these situations, and something I didn't think of at the time - I could have probably closed some of the position, sold the corresponding new position, and repeated until everything was shifted into the new position. This will introduce execution risk where the different bits and bobs don't get the same execution - which could be valuable, but can also add in a loss over and above the bid/ask slippage.


An important advantage of cash secured puts is that as long as you're willing and able to have the underlying cash committed to purchasing the shares at the put strike, you can roll that position forever (until the company goes bankrupt and the shares stop trading). There isn't anything inherent in the position that will act as a forcing function outside of getting deeply enough ITM and being insufficiently proactive about the rolls that you get assigned early. Similar deal on the call side as long as the shares or calls backing the covered calls are owned (no margin).

Spreads though come with a built in forcing function. When the shares move far enough that the insurance becomes particularly important to the position or even go ITM themselves then the end is nigh. The position can continue to be rolled but you pretty quickly arrive in a state where you roll into worse and worse strikes or you pay debits for each roll (or both). In exchange for that tail risk you gain access to pretty much as much leverage as you want to juice the returns the rest of the time.
 
This is indeed my approach. Right now I am feeling maybe I put more skin in the game than I like. Ah well, it makes the lesson that much more effective. Test to failure.

Thank you for the extremely thoughtful and insightful post! I have gleaned much from this after three readings and am mining it yet again.
Heck - you and @adiggs are neighbors, buy him some coffee and pick his brain and check out his roadster!
Everyone in Oregon drinks coffee anyway!!

(I'm saying this as I lived in Lake Oswego for 2 years back in the early 2000's)
 
Ok, just helped out everyone with BPS for this week. Sold some CCs 1/21 -c1055s for $7.20. Now watch the SP FOMO. Probably dumb, but it sure looks like they want to hold the SP between 1000-1050, with a laser-focused target of 1020+/-5. Worst case, I’ll just close for a loss or roll to 1/28 for the IV crunch. I certainly wouldn’t mind a bit of rise since I have a bunch of 1/28 1070-1100 puts.
Thank you for your sacrifice! I share those same thoughts though since there's a decent call wall at 1050 so it does look like they want to keep it within the 1000 - 1050 range.
 
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Heck - you and @adiggs are neighbors, buy him some coffee and pick his brain and check out his roadster!
Everyone in Oregon drinks coffee anyway!!

(I'm saying this as I lived in Lake Oswego for 2 years back in the early 2000's)
Haha! Great idea. Coffee indeed. I am on a farm deep in the mountains, so I roast my own coffee and have a sweet espresso machine, and yes, coffee is hitting the third round at this point after doing morning chores. :)
 
Closed my BPS today on the bounce. Now thinking what I should do next week. Things are a bit scary right now, could go either way or even nowhere and stay flat. I don't know how I want to play earnings week TBH.
If I had margin left, I would be opening 1/28 600/900 and 650/950s BPS like they were going out of style....
 
If I had margin left, I would be opening 1/28 600/900 and 650/950s BPS like they were going out of style....
For real. I have nearly zero margin/cash for BPS and the 1/28 premiums are huge. From a risk/reward perspective, this might be a in the top handful of weeks all year. $950 is <8% OTM and not only feels very safe, but can be rolled profitably for several weeks as needed. The odds SP doesn't close well above $1k at least once over the next 4-5 Fridays is very slim IMO.

Not advice.
 
Heck - you and @adiggs are neighbors, buy him some coffee and pick his brain and check out his roadster!
Everyone in Oregon drinks coffee anyway!!

(I'm saying this as I lived in Lake Oswego for 2 years back in the early 2000's)
Its pretty easy to go through life, even as a Tesla owner, and never see a Roadster in person. I've seen others in person but only at Tesla Owner events (I don't count those). I thought I'd seen one in the wild, but it was a Roadster at the local service center / gallery out for a test drive. Did you know that at one point Tesla had enough Roadsters via trade-in that sometimes they were the loaner while one's Model S was in for service (or Roadster in my case)? Seriously - a Roadster as a loaner. I'd be tempted to find reasons to have my car need service :)

I've -thought- that I'd seen one in the wild and then realized they were actually Elises or some close cousin. Also cool to spot, but not a Roadster.

Anyway - any of y'all in the broader Portland area are welcome to come see one in person. Ping / message me and we'll figure something out. Maybe more spring or summer-ish because a sports car really needs to be experience on a warm summer day.
 
For real. I have nearly zero margin/cash for BPS and the 1/28 premiums are huge. From a risk/reward perspective, this might be a in the top handful of weeks all year. $950 is <8% OTM and not only feels very safe, but can be rolled profitably for several weeks as needed. The odds SP doesn't close well above $1k at least once over the next 4-5 Fridays is very slim IMO.

Not advice.
I totally get it :)


NOT-ADVICE
I just like to add on - a recent new rule I've added for myself (which as all of my rules are, are really guidance to myself that I hope I remember in the heat of the moment)... if one's goal is dividend like income (which it is for me), then there is never a once-in-a-lifetime / even once-in-a-year / best-week-in-the-year opportunities. The income can be had most every week of the year, and trying to squeeze all that there is out of a particular opportunity is also a good way to get into deep trouble.

Ask me how I know.

(Lesson for me - if I start thinking "once-in-the-year" / "best-week-in-the-year" or similar thoughts, that is a good indication I'm not thinking dividend like income any longer, and need to stop. But that's me)
 
(Lesson for me - if I start thinking "once-in-the-year" / "best-week-in-the-year" or similar thoughts, that is a good indication I'm not thinking dividend like income any longer, and need to stop. But that's me)


+1

I DO have some available margin. It's available in case something highly unlikely/unexpected happens and I need to rescue the existing spreads I already am using the REST of my margin to back.

Tempting the premiums might be, but there's a reason I didn't just use 100% of it in the first place.
 
If I had margin left, I would be opening 1/28 600/900 and 650/950s BPS like they were going out of style....
I like the 300 wide but the margin tied up is greater. At slightly narrower, -950/+750 same expiry, the RoC improves significantly, almost same premium, a dollar apart.

In other words, is the 300 wide spread to provide for additional roll flexibility?
 
I like the 300 wide but the margin tied up is greater. At slightly narrower, -950/+750 same expiry, the RoC improves significantly, almost same premium, a dollar apart.

In other words, is the 300 wide spread to provide for additional roll flexibility?
Yep, I've found that the only way for ME to control my selling sprees, is to use up more margin/spread, which also has the added benefit of keeping me safer if it ends up ITM.
 
But it doesn't have to be all or nothing. For example, if you are going to sell 1000 strike Puts, why not sell 2X 500/1000 BPS?
This is something I've begun pondering as well. Go all the way into a naked put mindset, but then add a small amount of leverage / risk with something like a 50% wide spread for 2:1 leverage. In your example there will still be an effective roll with a share price of $750. That's a lot of room to the downside, especially using 1 or 2 week expirations enabling frequent strike resets.

The downside with something like this is that the insurance strike is going to be multiples of $50 most of the time. So that's something to keep an eye on whenever a roll starts looking like it might be necessary. Then again with such a wide spread if a roll also needs to shrink the spread size - say down to $400 from $500 (keep the contract count the same) then you've freed up some margin while enabling access to any $5 or $10 multiple strike (based on the short put strike). At such a wide spread initial rolls can simply shrink the width while maintaining naked put like behavior.
 
A lot of those ideas originally come from others and largely fall under the heading of 'free your mind' :)

At the core of it all is to understand what a roll really is. You've got a losing position and in order to recover from it, you decide to realize the unrealized loss in the position, while simultaneously opening a new position that is even larger (net credit) than the old one, with the hope / expectation that the new position will win out.

Or that you'll go into a perma-roll situation if needed, collecting credits each time, until eventually you win. You almost always land in a new position that you wouldn't open as a starting point.

But that also means that any new position you open that yields a net credit (given that you restrict yourself in this way) serves this purpose. Realize the loss while opening an even larger position in an attempt to clear up the mess.

Worth noting that the roll transaction ticket also provides a mechanical value in situations where you can't break it into two transactions. You don't have enough cash to pay for the loss (buy out the existing position), so you can then open the replacement position. I've encountered this in a retirement account. In these situations, and something I didn't think of at the time - I could have probably closed some of the position, sold the corresponding new position, and repeated until everything was shifted into the new position. This will introduce execution risk where the different bits and bobs don't get the same execution - which could be valuable, but can also add in a loss over and above the bid/ask slippage.


An important advantage of cash secured puts is that as long as you're willing and able to have the underlying cash committed to purchasing the shares at the put strike, you can roll that position forever (until the company goes bankrupt and the shares stop trading). There isn't anything inherent in the position that will act as a forcing function outside of getting deeply enough ITM and being insufficiently proactive about the rolls that you get assigned early. Similar deal on the call side as long as the shares or calls backing the covered calls are owned (no margin).

Spreads though come with a built in forcing function. When the shares move far enough that the insurance becomes particularly important to the position or even go ITM themselves then the end is nigh. The position can continue to be rolled but you pretty quickly arrive in a state where you roll into worse and worse strikes or you pay debits for each roll (or both). In exchange for that tail risk you gain access to pretty much as much leverage as you want to juice the returns the rest of the time.
In addition to the spreads I mentioned earlier (re-stated here as reminder):
All 1/21 exp:
1x 1100/980
1x 1100/960
2x 1080/950
1x 1050/900

I also have 2 "protective puts" +900 strike for 1/21 exp. I am playing around with using those as my long legs and pairing with some of the short legs above to give me more flexibility. It seems to be helpful. For example, I am replacing the long legs on the 1100/980 and 1100/960 with 2x +900p which gives me much better rolling opportunities. If I understand it correctly. Then I am pairing one -1080 with the remaining +900, and the other -1080 with the +950 and finally the -1050 with the other +950 which leaves me with the +960 and +980 as my protective puts and creates the following new structure:

All 1/21 exp:
2x 1100/900
1x 1080/900
1x 1080/950
1x 1050/950
1x +960 (pp)
1x +980 (pp)

So I am sort of mix and matching my positions to find the optimal spread and rolls and protective puts. I've been using the "Analyze Tab" in Thinkorswim to play with all of these scenarios and how it affects my margin, credits, etc.

Here is what I am rolling all of that to:

1x 1/21 1100/900 --> 1x 1/28 1100/930 $9.15 credit and small margin improvement
1x 1/21 1100/900 -->1x 1/28 1090/910 $5.27 credit and small margin improvement
1x 1/21 1080/900 --> 1x 1/28 1080/950 $3.18 credit and small margin improvement
1x 1/21 1080/950 --> waiting until tomorrow
1x 1/21 1050/950 --> waiting until tomorrow
1x 1/21 +960 --> 1/28 +900 (protective put for margin management) roll tomorrow for a small debit
1x 1/21 +980 --> 1/28 +900 (protective put for margin management) roll tomorrow for a small debit

Ugh. My brain is tired. I feel like I *really* don't know what I'm doing, but I *am* learning a lot. Thank you all for the great input and feedback.