Wiki Selling TSLA Options - Be the House

[adiggs]

∆

How in the world do you get the delta symbol so easily. You use it regularly enough that its got to be simple to do.

Heck - once I know the one, I might need to use that knowledge to get theta, Vega, and gamma into the toolbox as well!

 

[bxr140]

How in the world do you get the delta symbol so easily. You use it regularly enough that its got to be simple to do.

Lol. I configured "d-e" to shortcut to ∆.

 

[corduroy]

How in the world do you get the delta symbol so easily. You use it regularly enough that its got to be simple to do.!

Or just copy/paste it from another post! ∆

 

[st_lopes]

With the shares moving so far, so fast, from the original share purchase ($735 buy price), I'd have been better off just buy and hold on the shares (ahead $115 instead of ~$70). But that's only in this extreme circumstance, and if I'd have known this is what would have happened, then I would have bought calls to take advantage.

If the shares had drifted +/- $20 over the 2 or 3 weeks, then I would be a lot better off than buy and hold on those original shares due to the consistently large premiums I'd have been collecting (on both sides of the share price).

I've liked how this 1 position has been working so well, that I've also started a new position of this kind (buy 100 shares; sell a tight strangle around that share price, and then roll as needed from there). I bought shares at $853 and sold an 840p / 880c (.40 delta) strangle for next week expiration for a combined premium of $50. This will be a second edition of the trade - I'm hoping for either flat or down share price, only so I can get some experience with how this trade evolves under circumstances other than shares going up dramatically.

Strangles perform particularly well in sideways trading or moderate moves in either direction. This week has been great from a decay perspective on my own positions (920c 01/15, 750p 01/15). I've now closed both legs at 90% and 70% gains respectively. I have not entered the call leg for 01/22 yet, but my put leg is 780p currently and is at 30% gain currently.

If your trading platform has a P&L Calculator, worth taking a look at that as you contemplate trades. Below is what mine would show in terms of the trade you just entered (based on market close bid ask of those options). I appreciate the visual of seeing my break-even in either direction as well as where my max profit plateau is relative to current strike.

 

[adiggs]

Strangles perform particularly well in sideways trading or moderate moves in either direction

For real!

What has been amazing to me is just how well I'm continuing to do in what is obviously a bad setup for a strangle. Seeing the range of what a bad situation looks like, and what "bad" performance looks like has been eye opening to me. I'm looking forward to finally see sideways trading again (it's been a year!?!) to see how this performs in that situation.


I opened around a 730 share price a couple of weeks ago, and immediately saw the shares run off into the mid 800s (810 that first week, 880 at the peak in week 2). And yet the call side of the strangle, while being deeply ITM, is still generating >$10/share/week (assuming that I let the shares be assigned eventually, so I get the buy/sell gain from the shares as well).

That's not as good as if the shares were trading sideways, but $1000 against a $73500-85000 investment is still over 1%/week. Actually, in my worldview, that's ridonculous; not just good. I'm still testing at low volume (single position), but I can easily imagine upping the scale.

Oh - and the put side of the strangle has been doing GREAT over these couple of weeks, and is in addition to the call side that is 'limping' along at that 1% level. Put side was $12 in week 1 (net), and $15 in week 2 (net). Week 3 has started with that ~$25 premium. It's a margined position, but I'm treating it as a fully cash secured put. Using $80k as the capital (denominator), that's $2700 in 2 weeks (3-4% in 2 weeks) and the possibility of another 3% in week 3.


I don't ever see doing this with a big chunk of the portfolio, but at 2-3% per week I don't need to use very much of the portfolio. And if it looks like free / easy / risk free money; it isn't. Thus the 2 positions and testing for months to come.

 

[sub]

Does anyone know the schedule for when new options chains are added? Any idea when April/May will be added? How about August? I'm comparing some longer term strategies to shorter term but not knowing when these other chains become available makes it difficult.

I agree on Paper trading, I use it fairly frequently to test out new positions and confirm my thinking before putting it into play with real funds.

 

[st_lopes]

Clipped 750p 01/15 at 70% gains; opened 780p 01/22 at 13.44 average.

And just counting down the days on my 920c 01/15 and 900c 02/19. As mentioned upthread, I will look to roll the 900c 02/19 opportunistically, potentially to earnings week if the extrinsic value on those contracts are interesting.

Rolled 780p 01/22 up to 800p 01/22 for next week as I like the support 10-day MA and mid-BB trend are setting up for next week and I wanted to take advantage of the 3-day theta decay. Clipped $3.4 premium (25% gain) in the process, as well as a net credit of $5 (50% improvement to remaining sold premium).

Clipped 920c at 90% yesterday as well. Did not sell a cc in to next week as I wasn't liking any of the premium to risk profiles today and it would only have been on a small chunk of shares as I'll be selling some to fund a house purchase starting next week.

Wil be keeping my eyes on 1/29 IV to opportunistically roll 900c 02/19s that I'm holding on to right now.

 

[bxr140]

[QUOTE="st_lopes, post: 5273842, member: 141262"...I like the support 10-day MA and mid-BB trend are setting up for next week...[/QUOTE]

FWIW mid BB almost always defaults to 20-day SMA.

I also like to keep the old school 50 and 200MAs up on my daily timeframe charts too. And if you're looking for intraday timing TSLA does a decent job at following FTPs.

 

[juanmedina]

Your options chain should have a column for time/extrinsic value so you don't need to calculate for ITM. Also a quick cheat is to look at the same strike put prices, as those will represent (obviously) just the extrinsic value of the OTM put. While the extrinsic value of a call and a put of the same strike are never exactly the same, they're close enough for "let me find a good roll" math.

Related, when doing the quick roll math, make sure to use the ask of the outgoing contract and the bid of the incoming. Same with spreads--always remember which side of the B/A you're on!

FWIW, I'd probably suggest another weekly (if you can) on the roll, and then next week do a 2-3 week roll depending on where premiums end up. Another week will allow volatility to run up toward earnings (if you think that's going to happen) and as you've noted upthread, ~3 weeks is a pretty good sweet spot for playing the sell-for-income game as opposed to weekly, and hopefully that maximizes capture of post earnings volatility drop.



Its a 725/720 vertical for this week, composed of a -P $725 and a +P 700. The margin requirement is just the difference in strikes, or [$25 x 100 shares = $2500 margin per spread]. That is exactly the margin regardless of the expiration, as long as its a vertical. That margin represents/covers the worst case loss at expiration (if price is under $700 at expiration, I'm down $2500/spread).

Just for funsies, the same spread on Feb 5 pays out ~$5.75, or 23% return on capital, and in Jan 22 (technically a 730/700, since there's no 725) pays out ~$17/share, or an ~annual return of ~55-60%. While the feb 5 spread might look attractive, its too agressive for me--prob ITM is ~25% or, round math, there's a 1 in 4 chance of it being ITM.

I been thinking about those put verticals and indeed its a better used of capital vs covered or naked puts. The part that worries me is that if something goes wrong the money is gone at least on the covered or naked puts you end up with the shares and the premium. For instance on the trade above -P $725 and +P $700 when things start to go south how do you get out? Roll it? buy it back? Can you put a stop somehow depending on the SP? Like if the SP is at $725 that would be cool

 

[dl003]

I been thinking about those put verticals and indeed its a better used of capital vs covered or naked puts. The part that worries me is that if something goes wrong the money is gone at least on the covered or naked puts you end up with the shares and the premium. For instance on the trade above -P $725 and +P $700 when things start to go south how do you get out? Roll it? buy it back? Can you put a stop somehow depending on the SP? Like if the SP is at $725 that would be cool

You can roll it down and/or out with a wider spread. Your collateral will have to increase but at least you wont have to pay extra to roll it. I like to roll my puts and my calls in the direction the stock is moving early. For example if Im selling a $400 range strangle with 5 DTE. I can allow the stock to move $30 point each day in either direction. Anything more than that and I start rolling.

 

[bxr140]

I been thinking about those put verticals and indeed its a better used of capital vs covered or naked puts. The part that worries me is that if something goes wrong the money is gone at least on the covered or naked puts you end up with the shares and the premium. For instance on the trade above -P $725 and +P $700 when things start to go south how do you get out? Roll it? buy it back? Can you put a stop somehow depending on the SP? Like if the SP is at $725 that would be cool

So, remember that there's literally no difference in taking a cash loss and being put shares at a loss, except that on Monday open with the shares your loss can be worse or better. But otherwise its still all a loss, and if you have shares you're necessarily bought into hoping they go back up versus being able to re-allocate capital into a better position if you take the cash loss.

Also, you can still take the shares with a spread...if you wanted. No difference from the naked, other than the fact that you probably have more spreads than you would nakeds, so you'd be put way more shares.

You can do any kind of roll or stop you want, platform willing. Whenever selling options I always choose my strikes at prices where I'm pretty confident underlying won't get there, and if it looks like its getting close I'll play the roll game, but usually I'll just start with a rip cord stop loss on the spreads so I don't have to monitor too closely.

 

[juanmedina]

So, remember that there's literally no difference in taking a cash loss and being put shares at a loss, except that on Monday open with the shares your loss can be worse or better. But otherwise its still all a loss, and if you have shares you're necessarily bought into hoping they go back up versus being able to re-allocate capital into a better position if you take the cash loss.

Also, you can still take the shares with a spread...if you wanted. No difference from the naked, other than the fact that you probably have more spreads than you would nakeds, so you'd be put way more shares.

You can do any kind of roll or stop you want, platform willing. Whenever selling options I always choose my strikes at prices where I'm pretty confident underlying won't get there, and if it looks like its getting close I'll play the roll game, but usually I'll just start with a rip cord stop loss on the spreads so I don't have to monitor too closely.

I just found this article about stop losses it looks super powerful.

How to Place Stop Losses on Option Spreads with Interactive Brokers | TRADEPRO Academy

I am now on E-trade I wonder if I could do the same. Anyone knows?

 

[bxr140]

I just found this article about stop losses it looks super powerful.

I am now on E-trade I wonder if I could do the same. Anyone knows?

So...the article is a little bit overstated. The logic isn't wrong--its better to conditional your spread stops against underlying instead of against contract values. The reason is, as stated, that options move at different rates than underlying. But...especially with a pretty tight spread, your two options end up moving somewhat in step with each other, somewhat canceling out each other's upsides and downsides. Its not exact and if you don't at least try to account for underlying price points (like support/resistance/whatever) when choosing a dollar value to set your spread stop loss you can indeed stop out too early, which is the point of that article.

There's also a major element to this approach where if you don't actually understand which way option prices could go you can actually lose more than you want to, based on exactly the same logic. If you get caught in a super rising volatility scenario with a tanking stock on a put spread (or a naked put) and you have a conditional exit against underlying, the contract value can run up quite a bit before underlying stops the position.

Compare that to stopping against spread profit/loss--Especially if you can set the order against the bid/ask instead of "last" to negate the low volume issue some contracts have--and you're guaranteed to only lose as much as you wanted to lose.

Another problem is that its a more complicated ticket that some brokers simply won't offer. You can't do a stop against a spread in fidelity let alone a conditional against a multi-leg option position. I just poked around Power Etrade for 3 minutes and couldn't find any conditional picks (you can stop against a spread)...not sure if Etrade Pro is any different as I don't use it. The good news is that actual trading brokers (like Tradestation, which I use, and I assume IBKR) let you build all kinds of fun trade tickets.

Don't get me wrong, conditional orders are great, and I use them all the time on options, in exactly this way...just usually only my long positions, not multi-leg positions. For multi-leg if I decide to do a conditional I'll usually just do it against one leg, usually the short leg, basically following the logic I outlined recently upthread. But mostly I just pick a dollar value loss and go with it.

 

[4chi]

So to dip my toe in these waters, I sold my first covered call way OTM and it expired Friday well below the strike. But I still see it in my account, showing a price of $.005. Will this eventually disappear as the call has expired worthless?

 

[bkp_duke]

So to dip my toe in these waters, I sold my first covered call way OTM and it expired Friday well below the strike. But I still see it in my account, showing a price of $.005. Will this eventually disappear as the call has expired worthless?

It will disappear over the weekend or on Tuesday (usually Monday, but markets are closed that day).

 

[adiggs]

So to dip my toe in these waters, I sold my first covered call way OTM and it expired Friday well below the strike. But I still see it in my account, showing a price of $.005. Will this eventually disappear as the call has expired worthless?

Your broker might have a commission free close of these types of positions. I'm at Fidelity and they don't charge commission on buy-to-close orders under $0.65. One way to handle a position that you otherwise are taking to expiration like this is to create a $0.01 buy-to-close (I tend towards $0.10 for these types of orders). It might not exercise until minutes from expiration, but for $1/contract, you clean up the position and nothing can happen after hours. Exercise / assignment after hours is unlikely when far OTM, but closer ATM can increase the likelihood of an otherwise unlikely event.

Actually, I mostly close at more like $1-2 in time value, and open a new position at the same time.

Another reason to consider for closing options at a low price is that will free up the position to write a new position immediately. The benefit here is that when you sell on Friday then you get the weekend time decay. When you go to expiration on Friday then the soonest you can open a new position is on Monday (Tuesday in this instance). That new position might be significantly more profitable to you with the extra day vs. holding the old/current position for it's last few pennies.

I also realize that you're just dipping your toes into the water, so the idea of closing earlier on Friday so you can open the new position immediately is an idea for you to think about - not advice or anything of the like

 

[4chi]

Thank you. This account is an IRA with Merrill. My other is TDAmeritrade.

I'll investigate what those options for closing out are in each one.

 

[juanmedina]

So, remember that there's literally no difference in taking a cash loss and being put shares at a loss, except that on Monday open with the shares your loss can be worse or better. But otherwise its still all a loss, and if you have shares you're necessarily bought into hoping they go back up versus being able to re-allocate capital into a better position if you take the cash loss.

Also, you can still take the shares with a spread...if you wanted. No difference from the naked, other than the fact that you probably have more spreads than you would nakeds, so you'd be put way more shares.

You can do any kind of roll or stop you want, platform willing. Whenever selling options I always choose my strikes at prices where I'm pretty confident underlying won't get there, and if it looks like its getting close I'll play the roll game, but usually I'll just start with a rip cord stop loss on the spreads so I don't have to monitor too closely.

So...the article is a little bit overstated. The logic isn't wrong--its better to conditional your spread stops against underlying instead of against contract values. The reason is, as stated, that options move at different rates than underlying. But...especially with a pretty tight spread, your two options end up moving somewhat in step with each other, somewhat canceling out each other's upsides and downsides. Its not exact and if you don't at least try to account for underlying price points (like support/resistance/whatever) when choosing a dollar value to set your spread stop loss you can indeed stop out too early, which is the point of that article.

There's also a major element to this approach where if you don't actually understand which way option prices could go you can actually lose more than you want to, based on exactly the same logic. If you get caught in a super rising volatility scenario with a tanking stock on a put spread (or a naked put) and you have a conditional exit against underlying, the contract value can run up quite a bit before underlying stops the position.

Compare that to stopping against spread profit/loss--Especially if you can set the order against the bid/ask instead of "last" to negate the low volume issue some contracts have--and you're guaranteed to only lose as much as you wanted to lose.

Another problem is that its a more complicated ticket that some brokers simply won't offer. You can't do a stop against a spread in fidelity let alone a conditional against a multi-leg option position. I just poked around Power Etrade for 3 minutes and couldn't find any conditional picks (you can stop against a spread)...not sure if Etrade Pro is any different as I don't use it. The good news is that actual trading brokers (like Tradestation, which I use, and I assume IBKR) let you build all kinds of fun trade tickets.

Don't get me wrong, conditional orders are great, and I use them all the time on options, in exactly this way...just usually only my long positions, not multi-leg positions. For multi-leg if I decide to do a conditional I'll usually just do it against one leg, usually the short leg, basically following the logic I outlined recently upthread. But mostly I just pick a dollar value loss and go with it.

what post are you talking about? How do you usually setup your stop on spreads?

I looked at Power Etrade and I couldn't find any conditional order. I got access to Etrade Pro but I am not able to figure out how to attach the conditional order to the positions that I am holding. I found conditionals orders on the regular Etrade page and I think I was able to set one up; it is not intuitive and I am just setting the conditional manually and I think is looking at my positions to make sure my trade is valid. So with the way I am getting it to work but I would not be able to setup the conditional order on the entire spread but only one of the legs. I guess I could setup two conditionals orders one for the long and one for the short leg. Like you say setting the sell order on the short leg only takes most of the risk.

Do you think the conditionals order is the way to go for credit spreads? I am also selling options thinking that it will not hit my strikes but you never know and it seems the conditional sell order makes me feel much better. I understand if the IV is increasing it might still be a loosing trade.

 

[srharris22]

ok, total newbie to options much less the wheel approach. Just learning the lingo has been a process over recent weeks.
I currently do have 100 shares in 1 account (pretax account which helps). I am interested in using the premiums to my advantage with the one main concern: tesla sky rockets past my 30-45 day strike price and no matter how many CSP i run, I am never able to catch up to the stock.
Any advice outside of just don't mess with shares you don't want to have to sell. maybe I should just focus on Apple.....and let my tesla shares in this one account sit.

 

[Jack6591]

ok, total newbie to options much less the wheel approach. Just learning the lingo has been a process over recent weeks.
I currently do have 100 shares in 1 account (pretax account which helps). I am interested in using the premiums to my advantage with the one main concern: tesla sky rockets past my 30-45 day strike price and no matter how many CSP i run, I am never able to catch up to the stock.
Any advice outside of just don't mess with shares you don't want to have to sell. maybe I should just focus on Apple.....and let my tesla shares in this one account sit.

I have never understood day-trading, nor investing on a week to week basis, nor yet on a month to month basis, neither yet on a quarter to quarter basis. I do purchase LEAPS.

My investment thesis is simple, I purchase LEAPS with enough time value for Tesla innovation; first for the technology to develop, second for the market to understand the development.

Tesla LEAPS are a multi-year speculation on Elon’s ability to innovate. Gambling? Maybe so. A two year bet on Elon’s creativity, business acumen, and work ethic is a safe bet.

In the simplest terms. I accumulate shares, and buy out of the money LEAPS.