Wiki Selling TSLA Options - Be the House

[traxila]

I know things look bleak here and selling is probably not done. I hope everyone is managing well, I know the losses are huge for anyone not in naked puts the past two weeks. My paper losses are the worst of my life, but I guess all that means is I have been very lucky.

Market is overshooting for the short term. The rationale for the rate hikes that have not yet arrived are an overheating economy and inflation. IMO, the economy is not what they think it is and neither is inflation. This will become obvious to the Fed with the forthcoming economic data.

But the Fed has already done most of the work by talking. The market of the last two weeks has already impacted the economy. The Fed knows this and will proceed gingerly I believe.

Believe it or not, the timing of the Fed meeting may work to advantage of TSLA. Expect a relief rally of some kind come Wednesday. If rate hike, then a muted one based on buying the news, since we already sold the rumour. No rate hike would be treated as a surprise by the market with probably a strong upward reaction. That is when TSLA reports. With either scenario above, TSLA has the stage set for delivering blowout numbers that should result in a huge move…. The likes of which we have already seen several times in the past few months .

But the numbers must be great. WS is looking to punish all but the very best results.

 

[ChefBoyardee]

Seems like a few people (along with myself) are in a tight situation with margin, so I thought I’d share a few techniques to help with that.

• Roll a BPS out and up for fewer contracts or to a narrower spread. I always roll out under the trend line. An example is sept 2022, 1150/1100. An extreme example is Jan 2024 1700/1650 ish. Your margin will be tied up for a while though.
• Narrow your spreads by moving the long leg higher and increasing the number of contracts. This increases probability of max loss but reduces the max loss amount and therefore the margin needed
• Get a better margin req by getting into a lower concentration bracket for TSLA (if you’re near a lower concentration bracket this one may make sense, otherwise could be difficult or not appealing)
• Convert shares to leaps
• Convert shares or leaps to OTM leaps spreads
• Sell a call spread to convert a put spread into an iron condor
• Buy a bear put spread above your bull put spread to turn it into a variation of a butterfly (works best if you have an otm put spread and you think it’ll get tested). Margin is reduced by the max gain of the bear put spread. Note - I try to set it up so there’s no upside risk, e.g. the bull spread premium should more than pay for the cost of the bear spread.
• Sell a CC

For leaps spreads conversions I use optionsprofitcalculator to find the number of contracts I need to match the return I’d get with shares, only buy that amount, and keep the rest of the proceeds from the stock sale as cash. This is an even better move if you have high TSLA concentration (because of the high margin req for the shares).

The most effective, aside from reducing concentration, are the butterfly conversion, rolling up and out, and leaps call spreads

I’m sure most of these are known but I hope it helps

 

[Drezil]

What kills me most currently is Theta.
Someone has a good managing technique, that is theta-positive, but not expensive if we reverse?
CC have bad premiums at safe levels. The bear put spread should dog ab even deeper Theta hole..

I feel there shouldn't be any that also won't impact Margin much
But maybe I overlook something

 

[ChefBoyardee]

What kills me most currently is Theta.
Someone has a good managing technique, that is theta-positive, but not expensive if we reverse?
CC have bad premiums at safe levels. The bear put spread should dog ab even deeper Theta hole..

I feel there shouldn't be any that also won't impact Margin much
But maybe I overlook something

You could roll some up and far out, and use the margin from that to roll the rest to an OTM strike next week. The theta decay is super slow for the far out ones and fast for the short term ones

 

[OrthoSurg]

https://twitter.com/x/status/1484600882142629890

1.3M on 28/1/2022 1045 Calls?
Someone is bullish

 

[scubastevo80]

I’ve been thinking all morning about next week and I’m becoming more pessimistic by the hour. At this point, I feel like the market is looking for a reason to go lower. If Tesla crushes, which many of us expect, maybe we get a single 5% up day. If they are inline then we’re going lower. I hope NFLX and PTON were outliers so tech earnings can shine and halt some of this macro sell off.

Regarding macros, the fed needs to take action and I’m not certain whether the market is pricing in a rate hikes beyond what Powell has publicly said. I personally think we need more aggressive fed action to be get through this period of uncertainty, but I’m no economist.

Regarding our positions, I’m trying to talk myself into taking the big losses. Rolling is becoming a gamble to time the bottom and I’d really like a reset. If I can get out of my 950s and 920s unscathed this week, I’ll take my lumps with the 1050/960s. Otherwise, I could see the markets moving down throughout Q1 and then finding footing sometime in Q2 with volatility throughout the rest of the year depending on inflation, supply chain, COVID and other headline factors.

 

[adiggs]

Not much to contribute on the macro thoughts - that has me worried as well. One lesson I've already gotten there - I need to pay better attention to macro. That's something a friend I talk with about this stuff offline has been telling me for more than a month

My interesting observation of the moment is that my +950p/-1100p for this week is carrying IV in the mid 90s. At this IV and share price even the insurance put is now ITM. The overall position though can be closed for $112. There is $13 in time value remaining in the short put and now $53 in time value in the insurance put. I am particularly surprised at being $155 ITM with 5 trading days to expiration and still having $13 in time value.


But this being expiration week that time value is going to be eroding fast. My takeaway / belief (though I don't have previous experience in this position is that I'll want to close or manage this position much earlier in the week than later before too much of that net $40 time value melts off.

 

[CHGolferJim]

I’ve been thinking all morning about next week and I’m becoming more pessimistic by the hour. At this point, I feel like the market is looking for a reason to go lower. If Tesla crushes, which many of us expect, maybe we get a single 5% up day. If they are inline then we’re going lower. I hope NFLX and PTON were outliers so tech earnings can shine and halt some of this macro sell off.

Regarding macros, the fed needs to take action and I’m not certain whether the market is pricing in a rate hikes beyond what Powell has publicly said. I personally think we need more aggressive fed action to be get through this period of uncertainty, but I’m no economist.

Regarding our positions, I’m trying to talk myself into taking the big losses. Rolling is becoming a gamble to time the bottom and I’d really like a reset. If I can get out of my 950s and 920s unscathed this week, I’ll take my lumps with the 1050/960s. Otherwise, I could see the markets moving down throughout Q1 and then finding footing sometime in Q2 with volatility throughout the rest of the year depending on inflation, supply chain, COVID and other headline factors.

I dunno, man, I had that same attitude in the fall as described above. I took some fiercesome losses on BTC of covered calls only to see the SP turn down to below where I could have rolled to. Hopefully the same approach is available to you. Patience.

 

[BornToFly]

I too am trying to figure out how best to jump on my grenade. I'm mad at myself because if I had just stayed 20+% OTM on weekly BPS I would have made plenty of money all year. Instead, I thought my "knowledge" of TSLA would allow me to make extra money this month. Boy was I wrong. What really gets me is that I don't think I was overly aggressive as I was >10% OTM and only needed the SP to not drop >10%. I was counting on 4 things when I thought about January - 1) Nasdaq has climbed in January the previous 5 years. 2) TSLA always climbs into earnings. 3) We had the best P&D delivery number imaginable 3 weeks ago so it should be obvious to everyone that TSLA is destined to go up from here, hence #2. 4) TSLA usually climbs in December too but we actually finished the month where we started, so the spring should have been loaded even more.

Now the question is what to do. If I use similar reasoning to what got me into trouble, there SHOULD be a rebound this week. TSLA actually punched through the bottom of the Bollinger Bands, and that normally is followed by a correction, even without earnings 3 days away! So it REALLY SHOULD climb into Wednesday. It SHOUD also climb the week after earnings as the market digests the incredible numbers and gets past any factory delayed FUD, so rolling out a week SHOULD work. But nothing that should have happened so far has happened. This is where not messing with options and just Holding shares can be so much better - you don't have to be right in the short term at all.

I ran a bunch of numbers based on the closing price Friday. Obviously none of these scenarios work anymore if we drop to 900 on Monday.
I'm trying to preserve capital now (dreams of helping relatives have gone out the window for this year). This shows why getting ITM on a spread is bad, bad, bad, and why more aggressive plans with better gains most weeks will be completely erased compared to just taking small gains each week without ever taking a loss.

I have shares + $8.1M in cash. I'm calculating that I can back $21M worth of spreads. Right now I have 900X total. Currently have 200X 850/1150. 200X 850/1050. 400X 800/1050. 100X 750/1050. I'm sharing this in the hopes that someone else actually has the time/interest in running the numbers for fun....

I found different scenarios that tie me up completely until either December or July, depending on what I choose. In Red I put how much cash I will have left of the $8.1M I had a few weeks ago. I'm worried about the plans that roll to July because we usually drop from January to June, and getting to a full loss is more likely with the July rolls than if I use the December plans.

1) Close all BPS option positions without opening anything new and go $2.6m into debt. (This one is really bad and not an option).

2) Roll to 400X 600/1100 spreads for Dec 31. End year with $6.8m (Lose $1.3m). Done for the year. Roll with no loss in December @SP 850. (200X 850/1100 +1.9m, 200X 850/1050 + 2.7m, Close 400X 800/1050 -4.7m, Close 100X 750/1050 -1.2m)

3) Close all positions and open 400X 550/1000 spreads for Dec 31. Left with $4.8m.

4) Roll to 700X Dec 700/1000. End year with 7.7m Can roll in December @SP 850 (200X 850/1100 +420k, 200X 850/1050 +766k, 300X 800/1050 +900k. Close 100x 750/1050 -1.2m, Close 100X 800/1050 - 1.2m.)

5) Roll to 500X Dec 600/1000. End year with 6.2m. Can roll in December @SP 800 (200X 850/1100 to Dec 600/1000 for +646k. 200X 850/1050 - $1.5m. 100X 800/1050 - +670k. Close 400X 1050 -4.7m.)

6) Roll to 500X July 600/1000. Left with $5.2m (200x 850/1100 to July 600/1000 for +266k. 200X 850/1050 and 100X 800/1050 +1.5m. Close 400X 1050 for -4.7m.) If stock above 1000 then can make another $4m. End year $9m. But if stock 800, roll for even and end year $5.2m. If below, lose more money. SP700 = -$1.5m and end year $3.5m.

7) Roll everything to 700X July 700/1000. Left with $7m. (Roll 200X 850/1050 +528k. Roll 100X 750/1050 for +153k. Roll 200X 800/1050 +372k, Roll 200X 850/1100 -320k. Close 200X 800/1050 -2.3m.) If have to roll in July with SP at 700 then lose $3.6m and have $3.4m in cash. If stock 850 roll for even and end year at $7m. If above 1,000 then can make another $4m.

I'm leaning toward either #4 or 5 - it preserves capital fairly well, ends OTM at 1000, and allows me to roll if at 800/850 respectively at the end of the year. Thoughts?

 

[BornToFly]

Discovered another option. Roll out one month with $50 strike improvement. No cost if I open an IC with -1200 strikes. But if the SP keeps dropping then I would want to pull the pin quick and go back to plan 4 or 5 above.

 

[bkp_duke]

I'm pretty much at max loss on my 1/28 BPS's. Most are 1000/950, few 975/925. I'm just resolved now to exercise my "patience muscle" and wait for a pop to close them. If not, come Thursday I'll find the best roll possible.

Best of luck to everyone. Try not to let this ruin your weekends. We do this (options trade) to have a better life, not for it to control us. Easier said than done, I know, just try to keep everything in perspective.

 

[EVCollies]

Discovered another option. Roll out one month with $50 strike improvement. No cost if I open an IC with -1200 strikes. But if the SP keeps dropping then I would want to pull the pin quick and go back to plan 4 or 5 above.

Does rolling out two weeks for +30 strike make any sense?

 

[Blue horseshoe]

I too am trying to figure out how best to jump on my grenade. I'm mad at myself because if I had just stayed 20+% OTM on weekly BPS I would have made plenty of money all year. Instead, I thought my "knowledge" of TSLA would allow me to make extra money this month. Boy was I wrong. What really gets me is that I don't think I was overly aggressive as I was >10% OTM and only needed the SP to not drop >10%. I was counting on 4 things when I thought about January - 1) Nasdaq has climbed in January the previous 5 years. 2) TSLA always climbs into earnings. 3) We had the best P&D delivery number imaginable 3 weeks ago so it should be obvious to everyone that TSLA is destined to go up from here, hence #2. 4) TSLA usually climbs in December too but we actually finished the month where we started, so the spring should have been loaded even more.

Now the question is what to do. If I use similar reasoning to what got me into trouble, there SHOULD be a rebound this week. TSLA actually punched through the bottom of the Bollinger Bands, and that normally is followed by a correction, even without earnings 3 days away! So it REALLY SHOULD climb into Wednesday. It SHOUD also climb the week after earnings as the market digests the incredible numbers and gets past any factory delayed FUD, so rolling out a week SHOULD work. But nothing that should have happened so far has happened. This is where not messing with options and just Holding shares can be so much better - you don't have to be right in the short term at all.

I ran a bunch of numbers based on the closing price Friday. Obviously none of these scenarios work anymore if we drop to 900 on Monday.
I'm trying to preserve capital now (dreams of helping relatives have gone out the window for this year). This shows why getting ITM on a spread is bad, bad, bad, and why more aggressive plans with better gains most weeks will be completely erased compared to just taking small gains each week without ever taking a loss.

I have shares + $8.1M in cash. I'm calculating that I can back $21M worth of spreads. Right now I have 900X total. Currently have 200X 850/1150. 200X 850/1050. 400X 800/1050. 100X 750/1050. I'm sharing this in the hopes that someone else actually has the time/interest in running the numbers for fun....

I found different scenarios that tie me up completely until either December or July, depending on what I choose. In Red I put how much cash I will have left of the $8.1M I had a few weeks ago. I'm worried about the plans that roll to July because we usually drop from January to June, and getting to a full loss is more likely with the July rolls than if I use the December plans.

1) Close all BPS option positions without opening anything new and go $2.6m into debt. (This one is really bad and not an option).

2) Roll to 400X 600/1100 spreads for Dec 31. End year with $6.8m (Lose $1.3m). Done for the year. Roll with no loss in December @SP 850. (200X 850/1100 +1.9m, 200X 850/1050 + 2.7m, Close 400X 800/1050 -4.7m, Close 100X 750/1050 -1.2m)

3) Close all positions and open 400X 550/1000 spreads for Dec 31. Left with $4.8m.

4) Roll to 700X Dec 700/1000. End year with 7.7m Can roll in December @SP 850 (200X 850/1100 +420k, 200X 850/1050 +766k, 300X 800/1050 +900k. Close 100x 750/1050 -1.2m, Close 100X 800/1050 - 1.2m.)

5) Roll to 500X Dec 600/1000. End year with 6.2m. Can roll in December @SP 800 (200X 850/1100 to Dec 600/1000 for +646k. 200X 850/1050 - $1.5m. 100X 800/1050 - +670k. Close 400X 1050 -4.7m.)

6) Roll to 500X July 600/1000. Left with $5.2m (200x 850/1100 to July 600/1000 for +266k. 200X 850/1050 and 100X 800/1050 +1.5m. Close 400X 1050 for -4.7m.) If stock above 1000 then can make another $4m. End year $9m. But if stock 800, roll for even and end year $5.2m. If below, lose more money. SP700 = -$1.5m and end year $3.5m.

7) Roll everything to 700X July 700/1000. Left with $7m. (Roll 200X 850/1050 +528k. Roll 100X 750/1050 for +153k. Roll 200X 800/1050 +372k, Roll 200X 850/1100 -320k. Close 200X 800/1050 -2.3m.) If have to roll in July with SP at 700 then lose $3.6m and have $3.4m in cash. If stock 850 roll for even and end year at $7m. If above 1,000 then can make another $4m.

I'm leaning toward either #4 or 5 - it preserves capital fairly well, ends OTM at 1000, and allows me to roll if at 800/850 respectively at the end of the year. Thoughts?

What about something more drastic with Jan 2024 itm puts? Downside is your money is tied up for much longer, but as an example if you were to sell put spreads at 1300/1400 you could sell 2500 of them for $17.865M with a max loss of $7.135M (which your $8.1M cash would back.

 

[juanmedina]

These first few weeks of the year have been a complete roller-coaster starting with complete euphoria and later turning into a stressful situation. I think I am going to sell 1150-1170cc's to help a little with losses if I decide to cut my now only 9% OTM BPS early in case we get a relief rally on Monday. I think I need to stick to the rule of going at least 20% OTM with a max 5 DTE.

@Yoona what are you thinking about doing with your 900/800 BPS?

 

[BornToFly]

What about something more drastic with Jan 2024 itm puts? Downside is your money is tied up for much longer, but as an example if you were to sell put spreads at 1300/1400 you could sell 2500 of them for $17.865M with a max loss of $7.135M (which your $8.1M cash would back.

Unless I'm having a senior moment - Max loss is $10,000 X 2500 = $25 Million.

 

[BornToFly]

What about something more drastic with Jan 2024 itm puts? Downside is your money is tied up for much longer, but as an example if you were to sell put spreads at 1300/1400 you could sell 2500 of them for $17.865M with a max loss of $7.135M (which your $8.1M cash would back.

Unless I'm having a senior moment - Max loss is $10,000 X 2500 = $25 Million.

I do like your thinking though. Modifying it a little I can do 450 contracts, 500 wide that are less likely to end up ITM:
This possibility also gives me more courage to see what happens this week....

 

[BornToFly]

I do like your thinking though. Modifying it a little I can do 450 contracts, 500 wide that are less likely to end up ITM:
This possibility also gives me more courage to see what happens this week....

Furthermore, because I will then have huge losses for this year, I can sell 10,000 shares without having to worry about capital gains, buy 20,000 500 strike leaps, and sell 200 Leap CCs against those for more income!

 

[mongo]

Unless I'm having a senior moment - Max loss is $10,000 X 2500 = $25 Million.

Minus the 17.9 million in premium?

 

[Blue horseshoe]

Unless I'm having a senior moment - Max loss is $10,000 X 2500 = $25 Million.

Add back the premium of $7,146 per contract and you arrive at 10,000-7146= $2854 × 2500 contracts for max loss of 7.135M

 

[MP3Mike]

I do like your thinking though. Modifying it a little I can do 450 contracts, 500 wide that are less likely to end up ITM:
This possibility also gives me more courage to see what happens this week....

So a max loss of $22.5M ($18.7M after premium received.)

But only closing the short side of the BPSs, do you have plans to do something else with the long puts?