Sorry, but buying options is OT!
But in the scope of the wheel, you buying LEAPs, while those here are selling them, would simply be a transfer of wealth.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Sorry, but buying options is OT!
But in the scope of the wheel, you buying LEAPs, while those here are selling them, would simply be a transfer of wealth.
I've got some $800 in Mar, $900 in Mar, and $1100 in Jun. Why'd you ask? Trying to scalp me?
Piney999
Member
Runarbt
Active Member
I am thinking about trying The wheel for the first time.
Sold 1/29 a $850 naked put - and hope to be assigned shares. Got paid enough for 10 more shares - so a nice deal, I think.
Also have 6x naked puts I have been rolling upwards, $650-700-710-750 - but I expect those to expire, if nothing very unexpected are to happen.
Sold 1/29 a $850 naked put - and hope to be assigned shares. Got paid enough for 10 more shares - so a nice deal, I think.
Also have 6x naked puts I have been rolling upwards, $650-700-710-750 - but I expect those to expire, if nothing very unexpected are to happen.
Absolutely true. More generally, rapid movement in either direction can make it hard even to break even.
The question is what are you comparing against and what are you trying to accomplish. I personally am thinking more in terms of a $4000 share price by 2030 than $400. The thing is - I don't NEED $4000 / share, ever; somewhere around $400 (or $300), we achieved "enough". A $4000 share price would, obviously, be very fun. But that'll be something like 5-8x of "enough".
What I do need is more stability and income than TSLA (shares) by themselves can provide. What I CAN'T afford is for our $800 share price to go to $200. Actually I probably can as long as it bounces back pretty quickly.
But what if we go to $200 (only 75% down) and stay there for a year or 3 on our way to $4000 by 2030? Simply owning shares and selling them as needed for living money, will be two problems for me:
1) the obvious - I'll be selling more shares each time I am doing so, to raise cash for the living expenses
2) non-obvious - because of that $4000 price target, my wife and I are emotionally not yet ready to be selling any of those shares. One outcome in my mind is that we go to our grave still owning all the shares we have right now.
So for me, selling covered calls / covered puts is more about income generation plus reducing the pain / mitigating the consequence of a significant move down. And I do consider a 50% drop to be inevitable between now and 2030. Heck, I think 2 or 3 are quite reasonable. What if this spike into the $800s is followed by an immediate drop back into the $400s - roughly the share price we were at when inclusion was announced?
It's not even hard for me to describe a larger macro circumstance in which this would happen - we're already living in that macro circumstance. Doesn't mean it will happen - does mean that up until this summer I wouldn't have cared. I'd just have owned the shares and that'd be that (the strategy you are advocating).
Not all circumstances are the same. This is my circumstance and one example of why to risk giving up that immense upside.
This is the limit of what I'm doing with that single covered call, testing this out. In fact it's the original thought that I had about this particular approach, selling a strangle or really tight straddle. For now, I've decided to go a bit less aggressive; the original call straddle I opened with the shares purchased specifically for this trade was at the .30 delta. That ended up being slightly asymmetrical in terms of the distance from strike to the share price. And I think that extra $25-30 OTM on the call side is what ended up providing the cushion that enabled a 1 week roll last week to keep the call going.
I'm also thinking of an asymmetrical straddle - something closer to an ATM call with a .30 delta put.
I'm gaining two important bits of experience / education from this position:
1) experience doing this particularly close ITM straddle. I have a hypothesis that the weekly (and maybe later, monthly) income will be high enough to pursue these positions with a larger fraction of the account. It'll always be a minority, if for no other reason the income is nearly high enough by itself to make the other call and put sales unnecessary.
2) experience with these roll transactions - ease, distance a roll can cover over different time periods, etc.. This is particularly important as I have a relatively near OTM call (Feb) that I suspect will need this assistance to avoid assignment. I also have a Sept put that might need this ($600 strike in Sept) and another Sept '22 840 strike call that I strongly suspect will need this. Experience and practice will help with all of these as they approach expiration and when they have a lot less time value.
And I plan to continue posting the play by play drama on this straddle.
I just sold a 800p for $52.00 (cash secured in my IRA), hoping to get those shares back as well. Given the SP action today, it’s possible, but I doubt we’ll be below 800 by then.
I wrote a cash covered 1/29 700p a while back in my IRA for $87. It's done very well and trading for around $15 now. But I would have been much better off if I had just purchased shares at the time. Of course, I didn't expect the big SP jump.
So for income generation, this makes a lot of sense. But I'm considering closing out the put and buying shares. On the one hand, I hate giving up the time value. But on the other hand, I want to be long as many shares as possible.
What to do, what to do?
Excellent question; there's no one answer. First order analysis basically compares theta of the current and prospective positions. If the later is more than the former, you're going to make more daily scrilla on the roll than the hold. Second order, its good to contemplate roll timing in the context of risk management. If volatility is high, you might want to roll sooner to maximize extrinsic capture of the farther away contract. If volatility is low (= a consolidating underlying) you might want to wait a bit to roll see if there's an underlying spike. Also related to risk, in general its better to roll away from potential unwanted underlying price action early. Unwanted underlying movement has progressively more negative impact on contract value, and especially once it goes ITM.
If you're playing weeklies, ATM/NTM is almost always going to be most profitable by waiting till Roll Thursday (of course that's a generality, not a rule of thumb). If you're playing monthlies the ideal roll window is going to open up a bit more. I'd probably baseline by waiting until at least week-of-Monday so you can capture the higher theta of pre-expiry weekend with your current contract (not to mention maintain the slightly more conservative position through dumb-*sugar*-happens-over-the-weekend), but again that's a generality.
No, because the theta (as a dollar value) of the farther contract is typically lower than the closer contract. So they both lose value for sure, the closer contract just loses value faster. Since you profit from sold contracts losing value via theta, first order logic says you want the contract that loses the most value.
Related, Theta (as a concept, not as a number) is basically a proportion of total extrinsic value. That proportion is constantly increasing as the days move on...but...the magnitude of extrinsic value is also constantly decreasing as the days move on (volatility spikes not withstanding). At some point you get this inflection where the farther contract has so much more extrinsic value that the dollar value of its theta is greater than that of the closer contract, even though the theta:extrinsic proportion of the closer contract is higher. That's the point in time where you probably want to roll.
Its probably also worth reiterating that volatility is the variable that really defines extrinsic value of a contract (interest rate does also, but to a much smaller degree), and extrinsic value is the whole point of selling contracts. Theta is simply the way that extrinsic value erodes, by converting waning volatility in the contract to unrealized profit on your account balance. To wit, money is not created or destroyed, it simply changes hands.
I was watching an Options Alpha video and saw this graph and I think is very useful:
Can some one explain to me how can we make money with a short straddle? I understand you sell a call and put ATM and collect both premiums and you only do this under high to low volatility events. Do you close the trade early to avoid assignment and essentially collect money from the IV going down and time decay? how would this work with Tesla since the SP is all over the place.
From my understanding it seems to that strangle would work better with Tesla.
Yeah I came to the same conclusion about cash secured puts; either stay invested or use cash to buy options if the time is right. According to Cathie Wood she thinks that there will be a decent correction this year so cash might come in handy.
Can some one explain to me how can we make money with a short straddle? I understand you sell a call and put ATM and collect both premiums and you only do this under high to low volatility events. Do you close the trade early to avoid assignment and essentially collect money from the IV going down and time decay? how would this work with Tesla since the SP is all over the place.
From my understanding it seems to that strangle would work better with Tesla.
Yeah I came to the same conclusion about cash secured puts; either stay invested or use cash to buy options if the time is right. According to Cathie Wood she thinks that there will be a decent correction this year so cash might come in handy.
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Runarbt
Active Member
Roll it to $830-850? Will pay $90-ish (?) - higher time value, and higher chance you get assigned shares.
You'll then pay 15 to close and get paid 90 to open new- so a fresh premium of $7500. If you get assigned shares, then they cost you $755, compared to buy straigth up now.
With the current time premium you have gotten - you actual cost will be something like $700
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Thanks! I'll definitely consider something like this. My portfolio is getting more and more concentrated with TSLA, so this may be a good hedge.Roll it to $830-850? Will pay $90-ish (?) - higher time value, and higher chance you get assigned shares.
You'll then pay 15 to close and get paid 90 to open new- so a fresh premium of $7500. If you get assigned shares, then they cost you $755, compared to buy straigth up now.
With the current time premium you have gotten - you actual cost will be something like $700
Weeklies cover roughly the next 2 months. Beyond that it's the monthlies and quarterlies.
Rolled half of the 810c 01/15 to 1000c 03/19 for a net $9/contract. Now a cumulative $15.95. Will likely roll down and closer on any kind of correction. Rolled the other half to 1000c 01/15 for a net debit (a painful net debit), mainly because I need to sell a chunk as I am closing on a house in 20 days, so time to unwind some of the covered calls and sell some shares.
Clipped both the 715p and 720p at 70% profits.
Sold 750p 01/15 for $4.9; I don't usually chase premium multiple times in the same expiration week, but this run-up has been a little unusual to say the least.
Net flat on both ends of strangles from the last 4 weeks, but a lot of pent up cumulative credit now sitting in the rolled calls. A quiet week would be nice at some point.
Busy day...
Closed 1000c 01/15 at 80% gain. Sold 920c 01/15 for this week, only on the shares that I need to sell in coming weeks.
Rolled 03/19 1000c to 02/19 900c for a slight credit. Clipped $10 premium on that. Will likely roll this batch to earnings week once date is confirmed and we see impact to IV on those calls.
Added to the 750p 01/15 pile with the additional margin buying power created from last week’s run up.
Added a lot of shares to the pile with clippings.
Straddles and strangles are really the same trade, with the difference having to do with how close ATM the position is.
A strangle is an ATM put and call (or at least, the same strike price for the put and call).
A straddle is the same thing, but you spread the put and call apart from each other. Classically, that might be a put and call that are each $50 OTM.
And you can offset them - maybe an ATM call, and a $30 OTM put (I'm thinking I'll be doing something like this for next week). Asymmetric is the term you may have seen recently. In this example, we might also call is a straddle this is positions at $15 below the share price (but I think the asymmetric idea is a better and more compact representation).
The tighter the window between put and call, the smaller the window for both to finish OTM, the less movement you want to see in the underlying. The strangle is the ultimate expression of that idea - you expect the shares to finish very close to the strangle's strike price, knowing it will be ITM on one side or the other. The high premiums provide protection from whichever direction the stock trades, with the plan that you'll roll the ITM leg. I actually use a roll transaction for both legs, but only consider the ITM leg to be a "roll" that we've been spending so much time discussing.
Only additional observation - remember that the chart from OA is in the larger context of a particular trading strategy that they are teaching. That strategy might work well for you.
One component of that larger strategy being that they are trading a few hundred underlying rather than 1. There are pros and cons to that; I think most would agree with the premise that many underlying creates more opportunities for desirable entries.
I choose to trade 1 underlying though as I am deeply interested in the actual companies and their business prospects, rather than something less informed. That deep understanding of the 1 underlying provides me with an additional layer of protection. The more complete reasoning behind 1 underlying is back on page 1 (or at least - MY reasoning. Your mileage will vary, some restrictions apply. Void where prohibited
).Ah, no. I am not that smart. Besides, you all are more than helping by offering your insights.
Just being pedantic, but you have strangle and straddle inverted. Straddles have same strike on both legs, strangles have a spread.
Straddle Definition
Whichever Way a Stock Moves, A Strangle Can Squeeze Out a Profit
One thing to keep in mind is that as sellers, you are looking for the inverted outcome described in those links. So as a seller of a straddle you want the underlying to remain flat from time of sale. As a seller of a strangle you want underlying to remain within your spread.
So...buy low volatility, sell high volatility?
The idea is that at mega high volatility the pendulum effect is theoretically going to damp out underlying price action as time moves on. A straddle maximizes capturing that volatility since both sides of the position are at max extrinsic value. Yes, the idea is to close before expiration, though thinking out loud one could imagine using a straddle to enter into a share purchase or unload at a more favorable cost basis.
But anyway...for a normal ATM straddle that is intended to be closed, management of the position is pretty critical to consistent success, either by rolling up/down to follow big price moves, or offsetting deltas with shares/shortshares. The rub is that if you're in the center of your profit window max profit really spikes up in the last day or two of the position, so you kinda have to hold it out till the end. If you get an early expiration on Friday just turn around and close the executed trade.
As an augmentation to the ATM straddle concept, one could fold in the max pain theory and set the initial strikes at max pain. That theoretically maximizes profit at (near) expiration by minimizing the amount of intrinsic value the position accumulates. If the strikes are offset from ATM that doesn't change the
For funsies, here's an end of month ATM short straddle.
And here's a 760/860 short strangle. If you think of it a bit as an area under the curve problem where the areas is more or less equal to above (that's not a thing really, but it helps the visualization), you'll note that the max profit "peak" from above got smushed into a lower but wider "plateau".
It kinda depends on your perspective of "better". A strangle has a slightly wider profit window, but less maximum profit. So, assuming perfectly played positions, over time your total profit from a straddle strategy requires fewer trades. Fewer trades = less exposure, which is usually a good thing, and fewer trades = more capital available for other trades, which is usually a good thing.
FTR, I don't straddle or strangle. I don't naked.
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