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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Rolled my 3/11 BPS 1000/800 to 4/14 1020/820 @3 hoping to get some increase in SP in a month.
scubastevo80
Member
Wrote BCS around noon 3/11 -1025/+1125 for $2.50. Order out there to close at $1.25 - came close but didn't hit. I chose 3/11 because I don't have any BPS for 3/4 and all our margin is tied up in those BPS.
I sold a few CC for pennies last week which so far was a bad idea. I sold some more today and I now have 2x 850's and a bunch 890-930cc with most CC at 920 and 930. We straggled a lot trying to break 940 so we will see if that holds.
corduroy
Active Member
Interesting. Are you moving out of cash, back to shares to HODL or are you planning to turn the wheel?STO 3/4 -p830 for the purpose of acquiring shares
it may expire
If the purpose is to acquire shares, wouldn't selling ATM puts work better while providing better income?STO 3/4 -p830 for the purpose of acquiring shares
it may expire
still 5 DTE options
+ daytrade 1000 shares
- even $2 daily is good enough ($2k profit per day)
- if sp falls, can wait; long-term is bullish
i thought of that, but suspect 880 was too high compared to unknown risks next week... aiming closer to maxpain
The more I try spreads, the more I realize that selling cash secured Puts to get shares, and then CC to sell them, is the only safe way to make money selling options. I had sold 720/620 BPS when the SP was in the low 900s (about 20% OTM) for last Friday. They were threatened last Thursday when we broke below 700. We ended up climbing and they would have been safe on Friday, but I couldn't roll down because the dropping SP was stripping me of margin from my shares, and I couldn't risk the SP not recovering. So I ended up with a $250k loss on what was a $5k premium. So spreads can make lots of money when the SP is trading sideways or going in the correct direction, but a large drop can erase 6 months of trading 20% OTM for pennies (especially with a low margin situation). If I can survive to December with no SP drops below 700 (margin call territory), and a SP above 1100 in December, I can get out of all my BPSs, sell 1/3 of my shares, and just move to cash secured Puts.
i reached the same conclusion
- no spreads for now due to risk of max loss
- just do -p and CC, even if income is smaller
- stock daytrading, just get $2 a day
- do Wheel if necessary and looking at the straddle variation below; total 5 credits
The Wheel Strategy : 2023 Update With New Examples
Contents The Wheel Strategy Flowchart Theoretical Example Four Real Trade Examples GE Wheel Trade Strategy AVDL Example BHP Example FAQ Conclusion The Wheel Strategy is a systematic and very powerful way to sell covered calls as
optionstradingiq.com
The wheel has its risks too, especially with this whipsawing we have been having. I think the main issue you've encountered is letting yourself get to the point of max loss or at least massive losses. I'm just as guilty of not cutting losses early enough. Most strategies (including the wheel one @Yoona linked) involve cutting losses at a certain point via stop loss. If lets say you had been selling spreads but limited your losses to 100% premium or something like that, you might have a few more losers, but you don't fall into the pit of 20-50x losses on a single trade.
Yes AND we need to be aware of risk/reward for BPS. In your case I think you risked 10K for what 100$? If you are doing 100 of those you are basically risking 1 Million to make 10K? IMO that is just not worth it.
I think you can definitely make money with BPS but it cannot be a set it and forget trade.
edit: My math is probably off but you get the idea.
i reached the same conclusion
View attachment 775317
- no spreads for now due to risk of max loss
- just do -p and CC, even if income is smaller
- stock daytrading, just get $2 a day
- do Wheel if necessary and looking at the straddle variation below; total 5 credits
The Wheel Strategy : 2023 Update With New Examples
Contents The Wheel Strategy Flowchart Theoretical Example Four Real Trade Examples GE Wheel Trade Strategy AVDL Example BHP Example FAQ Conclusion The Wheel Strategy is a systematic and very powerful way to sell covered calls as
I look forward to reading the article. This diagram, and other articles about the wheel that I've read, can be somewhat misleading as to how easy the wheel is to turn and be profitable. In the specific case of this diagram you end up with +5 premiums at the end however you get there. Not mentioned are the strikes of the call and put assignment - those strike to strike changes can easily outweigh those 5 premiums.
Actually looking more closely at the diagram I think I'm seeing errors that make the quick scan misleading, but I'll read the article first before commenting further on that.
The premiums are pretty easy to keep track of and with seemingly roll-forever capability it appears like that can readily be the focus.
I have a current trade that is instructive. I restarted the wheel a month or so back in one of my accounts (closed everything - moved 100% to shares and cash for csp). That initial batch of shares were purchased in the 920ish range. I've been selling calls against those shares as the share price has been going down, with my most recent sale being 800 strike calls for this Friday expiration - sold when the shares were 750ish. Maybe it was a mistake to sell the 800s at that point (it was a down day - selling into weakness) but the example isn't about entry criteria - its about a specific circumstance that can be instructive.
I've collected 4 or 5 premiums in the 10-15ish range against those shares so far so that portion of the wheel is going well. However I'll need to roll it up $120 to get back to the original purchase price (strike to strike change = 0). Given that the share price keeps going up from here the position is in danger of losing contact with the share price (my definition - a 2 week roll is no longer available that provides both a credit and a strike improvement). If the strike to strike change were 0 then taking assignment is easy - I keep the premiums and can start selling CSP. But at this moment I've got income with a larger unrealized loss with some minor chance of becoming realized.
Assignment now will be a net loss of around $60 or $70 per share in the income generation.
The point being that the strike to strike changes also matter and they don't always work out in our favor. If the shares had traded up to 1100 and my call strike was 1000 then taking assignment wouldn't be a problem for me; I'd have an additional $80/share income from the strike to strike change over and above the credits I'd been earning along the way. I'd have the opportunity cost loss of $100 but for me and my income focus that is the risk I'm taking, and I'm ok with that. There's a reasonably good chance that the credits collected will exceed that opportunity cost as well.
With the backing as owned shares I have the ability to just keep rolling, and recent experience suggests a strong likelihood of the shares coming back down to my call strikes sooner or later. What about when the weekly credit is more like $1 and the return doesn't happen for 6 months (ask me how I know
)?My solution to this potential problem is to make use of credits / premiums from elsewhere when needed to avoid getting too deeply ITM. Using these particular 800 strike calls, I might do a roll where 1/2 of them go straight out 1 or 2 weeks for a larger credit and then use that additional credit as a debit for a larger strike improvement on the other half. As long as I maintain my $2/contract/week credit then spending the rest of the credits on strike improvements amounts to risk reduction.
Or I might use credits from put sales.
Or in another position opened for a nearly $40 credit I made use of $30 of that credit on its first roll for a big strike improvement. Actually I used $30 of that credit from all of the contracts and applied it to half of the contracts, so those got a $60 debit to improve their strikes.
In all of these cases I'm maintaining my $2/contract/week credit target as my starting point, and then using some to all of the remaining credit as risk reduction (strike improvement) rather than incremental profit.
This whipsaw @stealthyc mentioned is a very real thing and can dwarf the credits/income collected along the way. Just not as quickly and dramatically as the spreads can. I think it can also be more subtle - hidden from sight within the continuing flow of weekly credits.
And heck - maybe selling ATM puts and calls and then taking assignment on whichever ends ITM works really well over many trades. I haven't tried that out directly - I'm leery but I also don't have direct experience.
Oh - and I've also reached the same conclusion. I've got some remaining purchased calls as my last remaining bit of leverage. Everything else is now share backed cc and cash secured puts.
Interesting to me is that I've discovered a new form of leverage I hadn't really noticed before. The roll-forever dynamic plus potential strike to strike gains allows for more aggressive positions than I'd open using spreads. At this moment, shares at 860ish, I might sell 800 strike puts for this Friday expiration at $5. Were this a stronger down day I might get even more aggressive - $40 OTM instead of $60 or something like that.
This ability to be a bit more aggressive with the strikes is, in a way, its own form of leverage.
In fact now that I looked that up I have some puts to sell ...
EDIT: In for 800 strike csp for this week @ $6 (against my standard of $2 credit / week - that leaves me $4 to improve strikes elsewhere if I desire)
Last edited:
i reached the same conclusion
View attachment 775317
- no spreads for now due to risk of max loss
- just do -p and CC, even if income is smaller
- stock daytrading, just get $2 a day
- do Wheel if necessary and looking at the straddle variation below; total 5 credits
The Wheel Strategy : 2023 Update With New Examples
Contents The Wheel Strategy Flowchart Theoretical Example Four Real Trade Examples GE Wheel Trade Strategy AVDL Example BHP Example FAQ Conclusion The Wheel Strategy is a systematic and very powerful way to sell covered calls as
I did not realize that the wheel involved selling additional puts even if the earlier ones are exercised. So that's how you stay in the game even if you get exercised but then the stock continues to drop to the point where the call premium is minimal. Of course, there's a limit to how many puts one can sell.
Important to read the article - its not in the flow chart.
The assumption in the article is you start out with the cash to purchase 200 shares. Begin by selling 1 CSP. Go from there.
The flow chart clearly shows the additional sold put, otherwise it would not be a straddle. But this is always a risk in the wheel, and why whipsaws are so dangerous with it.
I see, so only two puts sold and if they both exercise and stock keeps dropping to where calls aren’t worth it, then you will be out of the game for a while.
But since we are only trading TSLA, if cash/margin permits, one could just keep selling straddles on the way down.
I saw that too. It looked like resources magicked up out of nowhere. Reading the article was quite helpful to see that more clearly.
Something else in the article that could have been clearer - they mention the possibility of capital gains as a bonus along the way. They didn't identify the possibility of capital losses along the way as a possible bonus. Its the losses side that needs extra work and attention in our variation on the wheel, and is where rolling for time enters the equation (which is not part of the wheel strategy discussed on that page).
Then again running the wheel on a single underlying is different from the wheel as generally discussed. As generally discussed the wheel is run on something you like (like Tesla) and started at a relatively low share price. When the wheel has turned (cash to shares, and then shares back to cash) then all underlying are evaluated to decide where to start a new wheel, rather than repeating or continuing on the same underlying (as I do anyway).
The liability with running the wheel on a single underlying (pretty subtle really) in a more or less continuous fashion is that after the start at a relatively low share price and the first turn where you buy relatively low and sell relatively high, now you have cash at a relatively high share price. When you sell puts and get assigned at that relatively high share price, then you'll need an even higher share price for the next turn (cash to shares, and then back to cash).
Between strike selection and rolling for time we shift the emphasis to the credits while taking on an increased possibility of a capital loss. Or at least that is the theory.
In that flow chart you start by selling only 1 of the CSP; the remaining cash is on the sideline. The flow chart shows what happens from there as the position can grow to as much as 2 positions worth of shares, or contracts back down to 1 CSP.
In my version I started off by buying 100 shares and selling both the CSP and the CC. That is a different flow chart though.
The big difference is that the underlying in that flow chart was selected to be a relatively low share price for that underlying that was also something the person was ready and willing to own for a longer time period. That means each wheel can and will be executed on many underlying over time.
The other difference is that one turn through the wheel is likely to end with a capital gain and be back in shares - the share price is more likely to go up when it starts relatively low, so once the wheel has turned and the call assigned, the share sale will be at a relatively high share price. At this point, when the call is assigned, is where the investor reevaluates all candidate underlying to identify another one to enter.
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