I'm still having flashbacks from Q4 P+D, where we saw a 13% rise, only to give it all back that same week. I decided to take a look at how TSLA the stock reacted after P+D numbers from the last two years -
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
corduroy
Active Member
Dug myself out of the hole and the net results of all my week's trading was $2. I've never worked harder for $2 in my life, but I'll take it. 
My plan is to have all my options expire on 4/1, and not open any for the following week. I will make a lot more money with less risk by waiting for a strong move in either direction on Monday, and then selling into strength of the BPS or BCS.
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At the 3:30 low ($999.xx SP), I managed to buy one +c1045 & +c1050 ($12.90 & $11.40) in each account just for grins and giggles, hoping for a rocket Monday. Probably should have just bought shares and will get crushed like last week, but like you, I’m a glutton for punishment.
I’m trying to hold off until Wednesdays to sell CCs. Each of the past two weeks have had better selling points on Wednesdays than on Monday or Tuesday. Not sure if the SP pattern will hold, but there are definitely fewer DTE to get screwed. Maybe profits are lower as well, but I’m pretty timid after the past two weeks’ losses. Advice/Not Advice.
Edit: finally a profitable week for me, in the $2-$3/sh range, not huge but better than the past two.
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This was a good week for me and a bit of a turning point from the last few months of trading. This was the week I was finally able to have the last of a bunch of BPS expire that had been holding down my accounts for months.
I was also able to sell CC and BCS and waited until Tuesday's trade to open them. I opened 1050 CC and 1050/1100 BCS during Tuesday morning trade before the major run-up, so clearly wasn't patient enough. A few hours delay would have seen the $2.5 I got for CC's become $10+ ($15+ on Wednesday). Then with further run-ups I got a bit concerned about the 1050 BCS. Using some of the ups and downs in Wednesday trade I was able to move these to a larger number of 1100/1180 at similar cost.
With the extra margin available I was able to open BPS for 4/1 on Thursday at 890/940 and 850/900 strikes getting $8.60 and $4.90 premiums respectively (now at 50-60% profit). I'll also be opening BCS and CC for next week but will wait for any major rise to occur before I pull the trigger. So now I'm able to generate some significant premiums again, I can enjoy retirement with a bit more confidence.
I was also able to sell CC and BCS and waited until Tuesday's trade to open them. I opened 1050 CC and 1050/1100 BCS during Tuesday morning trade before the major run-up, so clearly wasn't patient enough. A few hours delay would have seen the $2.5 I got for CC's become $10+ ($15+ on Wednesday). Then with further run-ups I got a bit concerned about the 1050 BCS. Using some of the ups and downs in Wednesday trade I was able to move these to a larger number of 1100/1180 at similar cost.
With the extra margin available I was able to open BPS for 4/1 on Thursday at 890/940 and 850/900 strikes getting $8.60 and $4.90 premiums respectively (now at 50-60% profit). I'll also be opening BCS and CC for next week but will wait for any major rise to occur before I pull the trigger. So now I'm able to generate some significant premiums again, I can enjoy retirement with a bit more confidence.
After lots more thinking about this I think that this makes a lot of sense for me at least.
First some info. Looking at different ITM BPS I found that the credit % can be dialed up or down depending on how far OTM or ITM you want to go. The 1200/1100 Yoona uses is 68%. Turn that into 1200/1150s about it'll be around 69%.
The 1250/1150 I settled on is 70%.
The 1400/1350 is very close to 80% ($800k on $1M)
And to really go crazy, the 2400/2300 is 97%. You do this trade because you want the cash, and (low %) optionality on upwards of a 970k gain is nice. If you expect 2400+ then you'll probably be a lot better off buying some calls, but you also don't start by adding nearly $1M.
NOT-ADVICE (really, really, for real)
Assuming the $1M @Yoona is using, and that I have $400k as a lump due (taxes - could be down payment, new Roadster, whatever). The question I've been pondering, am I better off just paying the taxes (as I've been assuming) and continue on with the remaining $600k?
Or do I sell an ITM BPS using the $1M, and then use the credits to pay the taxes and invest the remainder?
The short answer, for me, is that I'm better off with the ITM BPS. To be specific the 1250/1150 Jan '23 gets me the right mix of stuff. Assuming I can get the midpoint of the bid/ask then I receive a 70% credit or $700k.
Worth noting that the % credit can be dialed up and down as desired.
Skipping over the math, I have 4 scenarios to compare.
Scenario 1 - simple, baseline. $675k come Jan '23. Pays the current lump due, as well as $75k on a $150k gain (50% marginal rate - your mileage will vary)
Scenario 2 - 70% BPS, nearly full loss (open at 700k, close for 900k, losing 200k). 475k at the close with a 125k tax loss.
Scenario 3 - as #2, but with an early close at 50% gain. 775k
Scenario 4 - as #2, but with a 6/7ths gain (86%). 1175k with all taxes on the BPS gain paid plus the 300k investable gains, assuming 50% marginal tax rate.
Using a 1250/1150 BPS. I consider the 50% gain outcome to be the most likely. That's already $100k better than just paying the taxes. The position has optionality that can take it up to 1175k (another 400k) pretty easily if the shares take off sometime in the year as I expect (decide then what to do).
If we go down, an early close for 200k instead of 100k is a 575k ending position, and an early close for 300k is a wash relative to scenario #1.
I'm assuming 25% earnings on the 300k (BPS) or 600k (simple) scenarios over the balance of the year. That's around 3%/month on the $300k. Presumably I'll be selling BPS or CSP / margin backed puts. It -is- a margined /taxable account. I could also ignore this bit - 25% on 300k, 50% marginal tax rate is around $40k in scenarios 2/3/4.
The math behind the scenes includes the following (not working it all out here though).
Start with $1M
Add $700k from the BPS
Pay the $400k due now
Use the remaining $300k for investing ($1M is reserved to back the BPS and is ignored - assume it is fully reserved).
Close the position for nearly full loss, 50% gain, nearly full gain). More particularly, open the position for $70. This different scenarios translate to a close at $90; $35; or $10.
Also add up the gains or losses and pay 50% marginal tax rate on that as an additional change to the cash. Taxes aren't necessarily this simple but a lower marginal rate mostly makes for a better result for me.
Then add up the changes in cash to the bolded numbers above in scenarios 1-4.
Question in this section - is there something I'm missing in my tally of plues and minuses? I'm assuming commissions and fees are $0 and of course that isn't true. Other stuff?
Another scenario to test is to use $600k for an ITM BPS instead of $1M. The $600k is chosen to generate a credit that is just right for paying the $400k due now, with the optionality to get all of that back in January when the BPS finishes OTM. The math will be a bit more interesting.
Scenario 5 - Use $600k for BPS instead of $1M. The remaining $400k (from $1M) has a more conservative use and is ignored (CSP has been my recent use). The simple approach leaves $200k after paying the $400k. The full loss shrinks the money (down to $80k), but the 50% early close leaves me with a 50% gain (300k vs 200k) and the nearly full gain BPS gain is about 90% gain (380k vs 200k) relative to the simple approach..
-- The shorthand for describing this is to use the cash that would have been used to pay the lump (plus some for comparison) and nothing extra. This smaller position emphasizes the early 50% close and gets a great start on buying back the $400k lump that is being paid out now.
You've given me a lot to think about, thanks! I'm thinking I might need to do something similar.
But I would probably go out to at least Mar '23, to give me more of a chance of closing the position in 2023, pushing the taxes for the gains out another year. (Assuming you could hit the bid/ask mid-point that would only reduces your premium by $0.90. June '23 only reduces the premium by $0.85. And Sep '23 by $1.05.)
But say you went with the Jan '23 1150/1250 BPS, what would the stock price need to do to get to the 50% return? Am I looking at it correctly that if we went from the current $1010 to $1210, that it would get you there?
As far as risk, early execution of the ITM put would be a risk, but I wouldn't think that would be very likely unless the stock price fell a lot.
What are the conditions that would make you consider closing at the 90% loss point?
In today's option chain the 800/700 has a premium of $35. That is $210 OTM from today's share price, so as a first order approximation I think I would need the 1250 strike to go $210 OTM - about $1460. That's a first order approximation on a close that happens really, really soon (like mid-April soon).
I don't see any way I wouldn't take that close if offered in just a few weeks.
For waiting it out and reaching the 90% loss point (which is really closing at $90 premium, losing $20 per share) ... my guess-of-the-moment is we're very late in the year (December?) and for whatever reason I don't see the January P/D or earnings being strong enough to move the needle. At the very end of the spread there will be a rapid melt on the time value, when the spread value finally starts moving in a significant way, and I want to save that final $10 before it too goes away.
I think mixed in there will be a desire to have the loss appear on this year's taxes. I think this latter bit highly unlikely - it means that I've not only recovered from my start of the year loss, but that I've recovered so far that this incremental loss will still largely be in my 50% marginal tax rate. This outcome (50% marginal rate on the $20/share loss) seems ... really, really unlikely, given my starting point
Therefore even this tax related mechanism will drive me to move the loss into next year - say if I'm looking profitable for the year, but more in the Federal 25% range without this position, in which case wait for January and put the loss into next tax year.
To reach the $90 spread size the position will need to be REALLY deep ITM. Using the current option chain the 1700/1600 carries a $90 premium. That is $700 above the current share price. I doubt that a $300 share price is necessary to reach that $90 premium - I suspect that this is more of a ratio thing than an add and subtract thing.
Given that a ratio is a better first order approximation, then 1700 is 70% higher than the current share price. What share price, adding 70%, comes to 1250? The $700 share price, adding 70%, is $1290 which is approximately the same relationship to the $1250 share price on my BPS. First order approximation I think we would need to see a pretty rapid drop to a bit under $700 to even reach the $90 spread size - I don't know how that'll play out in time though.
Even if that were to happen early in the position I'd wait it out - lot of time to expiration and many opportunities for catalysts to make a comeback.
Another thought about this - its early in the morning and I should be asleep, so more NOT-ADVICE and I might be dreaming while I right ([sp] is intentional so I'm not completely asleep)
Take that $1M and use any DITM BPS setup that seems like it can reasonably be reached. My first thought is the 1500/1400 that carries an 82% credit ($820k). Make the trade and now you have $820k to work with over the balance of the year rather than $1M.
This isn't a raise-cash-for-immediate-need scenario. This is an add-leverage-for-additional-return scenario.
If you achieve 25% on the $820k over the balance of the year and carry to expiration for a max loss then you come out very very little ahead (add 205k to $820k and you're +25k on the year). But the leverage means that if you did finish OTM at expiration then you'd earn the $205k and another $820k - 1025k on 1000k (for a total cash balance at end of year of 2025k). 1025k in 10 months is very difficult using my current trading approach to reach. Of course you'd close earlier than a max loss, so probably more like +120 to +220k on the year than +25k; not great, but maybe not a bad outcome considering the optionality on a really big gain. Heck - I just said that 12-22% return over 10 months, with optionality on a 120%(ish) gain is maybe not a bad outcome. Maybe my standards are seriously skewed.
These results compare to a baseline of +250k given 25% gain on $1M.
On the upside I would be very unlikely to wait out a full gain. A 50% gain would net $40/share to add to whatever the $820k credit has yielded. Heck an early 25% gain would net $20/share to add to whatever the $820k has earned.
Part of the point here is to go for a credit that seems reasonably likely for the maximum loss to be fully paid for using investing of the credit to pay for it. While also being a position that (given my knowledge of the company) also carries a reasonable likelihood of going fully OTM or at least reach a modest gain at some point. So can't go too close to the money due to too small of a credit. Also need to stay close enough for there to be significant time value in the short strike for early assignment concerns.
Even that very DITM 1500 put has about $70 time value today so early assignment isn't going to happen. Early assignment would be about the best possible thing to happen to me as I could then sell the 1400 strike puts to meet the 1500 strike assignment and exit the position at about $13/share net - I dream of early assignment from somebody turning over $70 time value!
And all of this is working with bid/ask spreads in the $10-20 range, making the assumption that the midpoint (or better) is achieved. This is beyond crucial to the setup. GIving up $5 on the $80 open and then another $5 on an early close, cuts deeply into the overall result.
Also an absolute requirement - the money can't have any planned claim on it, beyond investing it, for a year. I think it works taxable account or not (just have to give back taxes on the gain), though I'm thinking about this in an untaxed account.
The big risk from the leverage - finishing for a nearly max loss while also losing money on the $820k would be .. really bad.
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Alternative to the put credit spread - pay up for a call debit spread of 1500/1625 at $17.60 cost.
Pay $178k of the $1M and then use the remaining $820k to earn back the $180k and a bit more. If that finishes fully ITM (shares > 1620) then turn $178k into $1250k and add on the gains from $820k - about 205k to land at 2275k. Same starting point, bigger potential ending point., though it also requires a higher ending share price.
I haven't worked this one out at all - early closes, max losses, etc.
More and more NOT-ADVICE. I don't even know if I'm going to take my not-advice.
Take that $1M and use any DITM BPS setup that seems like it can reasonably be reached. My first thought is the 1500/1400 that carries an 82% credit ($820k). Make the trade and now you have $820k to work with over the balance of the year rather than $1M.
This isn't a raise-cash-for-immediate-need scenario. This is an add-leverage-for-additional-return scenario.
If you achieve 25% on the $820k over the balance of the year and carry to expiration for a max loss then you come out very very little ahead (add 205k to $820k and you're +25k on the year). But the leverage means that if you did finish OTM at expiration then you'd earn the $205k and another $820k - 1025k on 1000k (for a total cash balance at end of year of 2025k). 1025k in 10 months is very difficult using my current trading approach to reach. Of course you'd close earlier than a max loss, so probably more like +120 to +220k on the year than +25k; not great, but maybe not a bad outcome considering the optionality on a really big gain. Heck - I just said that 12-22% return over 10 months, with optionality on a 120%(ish) gain is maybe not a bad outcome. Maybe my standards are seriously skewed.
These results compare to a baseline of +250k given 25% gain on $1M.
On the upside I would be very unlikely to wait out a full gain. A 50% gain would net $40/share to add to whatever the $820k credit has yielded. Heck an early 25% gain would net $20/share to add to whatever the $820k has earned.
Part of the point here is to go for a credit that seems reasonably likely for the maximum loss to be fully paid for using investing of the credit to pay for it. While also being a position that (given my knowledge of the company) also carries a reasonable likelihood of going fully OTM or at least reach a modest gain at some point. So can't go too close to the money due to too small of a credit. Also need to stay close enough for there to be significant time value in the short strike for early assignment concerns.
Even that very DITM 1500 put has about $70 time value today so early assignment isn't going to happen. Early assignment would be about the best possible thing to happen to me as I could then sell the 1400 strike puts to meet the 1500 strike assignment and exit the position at about $13/share net - I dream of early assignment from somebody turning over $70 time value!
And all of this is working with bid/ask spreads in the $10-20 range, making the assumption that the midpoint (or better) is achieved. This is beyond crucial to the setup. GIving up $5 on the $80 open and then another $5 on an early close, cuts deeply into the overall result.
Also an absolute requirement - the money can't have any planned claim on it, beyond investing it, for a year. I think it works taxable account or not (just have to give back taxes on the gain), though I'm thinking about this in an untaxed account.
The big risk from the leverage - finishing for a nearly max loss while also losing money on the $820k would be .. really bad.
----------------------
Alternative to the put credit spread - pay up for a call debit spread of 1500/1625 at $17.60 cost.
Pay $178k of the $1M and then use the remaining $820k to earn back the $180k and a bit more. If that finishes fully ITM (shares > 1620) then turn $178k into $1250k and add on the gains from $820k - about 205k to land at 2275k. Same starting point, bigger potential ending point., though it also requires a higher ending share price.
I haven't worked this one out at all - early closes, max losses, etc.
More and more NOT-ADVICE. I don't even know if I'm going to take my not-advice.
I need to move the last bit of IRA->Roth but unable to transfer options. These BPSs are barely ITM now but expire 5/20. I had planned to allow expiration when SP finally catches up but appears the other option is to close them at a loss, move the cash to the Roth and open them up again at same date/strike or just pick a better strike. This might even be a tax benefit as the loss at close will reduce my tax consequences. Am I missing anything?
TIA
TIA
Yeah, IRA losses are not tax deductible, but a rollover when the value is dimished results in less taxes (I timed poorly). So closing the net-loss position and reopening in the Roth is wash vs direct transfer other than bid/ask spread. Better to do it before more gains.
chiller
Member
FYI, IB now shows a new shining June 2024 options tab for TSLA.
Well, I guess my 1200/1350 and 1250/1400s will be safe for Friday....
TheTalkingMule
Distributed Energy Enthusiast
The only thing that matters now is the game of "earnings chicken". Or perhaps "PE chicken".
How long does the matlrket stay in this 700-1200 range while historical annual EPS rockets to $17 a year from now? Not long I imagine!
@adiggs or others: just found this thread and now going through all 790+ pages1 Wondering if advice for being stuck in a covered call that's deep ITM. $900 with a May expiry. My plan was to roll each & every week, but getting harder to roll flat. My other thought was to just bite the bullet and roll to a 2024 leap at a price where I'd be comfortable to exit the stock (which of course would be v. painful!)
on the way down in January and February I was selling agressive CCs. the day the war started I sold agressive 770 CCs on market open for $20 and the stock rebound like never and I bought them back at $60 with my worst intraday loss of all time. I flip rolled them to ITM puts for a similar premium. If you have enough margin and don’t have any Puts contracts open, that would be an option I have considered. Flip roll them to ITM puts for an equivalent premium. If they are worth $300 a contract, I would look for a 25% ITM put 3-6 months out. I am betting TSLA will rise to $3000 by 2025 so that is my long term strategy to recover from my portfolio annihilation from January and February where I lost over 60%. I was not able to close any of my short Puts contracts when I was betting for a SP rise heading into earnings and had to close 3 of them at a significant loss for margin management. I am now slowly recovering. Not advice.
Lots of options. You may want to wait until the start of the week of expiration before trying to roll it again. Too much time value in the contract this far out. Or go out to Jan 2023 or 2024 with a much higher strike but same premium. Or, like Orthosurg mentioned, consider flip rolling it into 1x or more Puts if you have the cash/margin to do so (If the call is $150, you could do 10X $15 OTM Puts for May if you have the margin). Just make sure if you do have margin, that you don't use too much in case the SP drops again (you don't want to be forced to buy it back at a huge loss because you are getting margin called).
Thank you both for the additional insight. Never considered flip rolling with ITM puts; but that's likely because I don't have enough margin to effectively do that. So my options seem fewer and far btwn. Agreed on not rolling so soon and far out. I was in a small panic when my strike was in the 800s that we would just keep going up!
I was in a similar bad position with two covered calls. I combined them [cost wise] and rolled it to January at $1300. I figure if there's a recession or whatever maybe I can get out of it for a reasonable price. Worst case scenario the Roadster gets paid for in cash. It's not ideal and I'll cry about my first world problem if the stock is at $3k by then but there are obviously worse problems to have. Also, I can always roll further out.
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