It's legal because you agree to it when you enable margin on your account. It's all right there in the terms. This is one of the main reasons why margin is so dangerous - there are no permanent agreed upon conditions, the lender can change them at any time. It's a basic feature of margin loans which everyone should be aware of.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
TheTalkingMule
Distributed Energy Enthusiast
Why can't a $1100/$1000 BPS simply be rolled out and widened like most folks did with their January BPS?
1) You need to buy time. These are 3 weeks out and SP should recover considerably between now and 5/20. Easily could see 1050 if macros cooperate. Then you can roll to July or Nov to get out beyond one of the next earnings calls AND make more premium.
2) If widening the spread to say 150 is possible, there's your salvation. Move to 1100/950 in July for a credit(but with more margin) to keep it closer in time. Or go to 1150/1000 in Nov for more credit and a higher likelihood of expiring with ease after 3Q earnings.
3) If that much additional margin is too much, go out and up while widening just a bit. Nov or Jan at $1150/1040 or something like that.
Not advice.
1) You need to buy time. These are 3 weeks out and SP should recover considerably between now and 5/20. Easily could see 1050 if macros cooperate. Then you can roll to July or Nov to get out beyond one of the next earnings calls AND make more premium.
2) If widening the spread to say 150 is possible, there's your salvation. Move to 1100/950 in July for a credit(but with more margin) to keep it closer in time. Or go to 1150/1000 in Nov for more credit and a higher likelihood of expiring with ease after 3Q earnings.
3) If that much additional margin is too much, go out and up while widening just a bit. Nov or Jan at $1150/1040 or something like that.
Not advice.
jeewee3000
Active Member
Widening = more margin. Which is kind of the issue when you're getting margin called, no?
Sorry to hear about your problem!
One other thing to keep in mind is that max loss spreads like that should be very cheap to roll one more week. I've got the same 1100/1000 spreads for 5/13, and I think it cost me like $3 to roll. I agree with others that 1000 again in the next week (after the Fed) is completely possible. If we go up that high, but not to 1050, you might be able to add a call spread at 1100 or so that adds cash to your account and lowers your margin requirement. You can also use that cash to then roll the spreads. So selling some stock to buy time might work out. What I did with my position took margin you don't have; I opened a call spread below the open BPS to cover the expense of rolling it (I made $7 on the trade net, I think). If I was wrong, I'd have two positions to manage, but at least they'd both be bleeding theta.
Is rolling a covered call best done when the price is decreasing? Looking to bump out Sep 1200 to December 1400 slight credit or debit. As price increases, i am noticing that net credit/debit stays about the same with the consequence of a pricier option if I have to at some point BTC. Thinking that the same net credit/debit could be had when price declines, leaving a smaller footprint to manage if needed thereafter. When I rolled to Sep 1200, it was a get out of the way moment; I wasn't paying attention to that aspect.
dc_h
Active Member
Rolled my 810-760 BPS this morning for a nice credit. Wish I had the courage to hold onto my 860-800 yesterday, but I'm ok rolling and avoiding a big loss. Curious if anyone is selling CC's today? I think we could go past 1000 or even push 1100 next week and am avoiding CC's until we reach some new equilibrium. If Shanghai fully reopens, we should really move back up.
I've considered it but will wait until Monday. I see a strong likelihood that MM's will try to hold us around $925 today and this built up pressure often causes a pop on Monday open. My experience is that in these circumstances, CC's sold on the Friday quickly go underwater during that Monday pop.
TheTalkingMule
Distributed Energy Enthusiast
Thought I read that throwing more capital at it was an option. If not....yeah, maybe double the contracts for half the spread at higher strikes?
Edit: I guess my point was that it seems unnecessary to abandon the whole position now that we're past the Twitter selling and 1Q was so insanely good. Should be able to clear 1100 with ease on some reasonable time horizon. Maybe even 5/20 if we're lucky.
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jeewee3000
Active Member
Read this too, but he said he'd rather avoid that as not to throw extra money in the pit IIRC. Halving the spreads and doubling the contracts at higher strikes is not that effective once you're fully ITM (=at max loss). The ask/bid spread doesn't work in our favor in this regard too.
jeewee3000
Active Member
Unfortunately, yes, I had to sell some May 20th CCs to raise enough cash to buyback/roll some CSPs (4/29 -p1000s). It really hurts to do that, but now I have a nice strangle setup for 5/20. I tried to time it to the morning peak at $930, and then sell the CCs first, followed by buyback and selling the puts, all in sequential trades. I didn’t do too badly, managed to get decent credits on all rolls and triple the free cash in the account. Just need to have patience and NOT buy more shares every time the SP drops another $100.
The main goal is to keep your shares. I've decided the way I'm going to get rich is not to make a killing selling options (trying to do that will result in losing it all on strange 20% SP moves), but holding onto my TSLA shares. So if you can bring cash into the account to fix the margin call and not sell too many shares, I think you should do it.
Using puts as the example - a credit put spread (aka BPS) is more dangerous as compared to cash secured puts. With increased risk comes increased returns as well, aka leverage.
Assuming a $100 wide spread, as an example, an -900/+800 put spread. That's about $20 OTM at this moment. If the shares drop $50 down to 879, this put spread is now $30 ITM on the short leg, and if held to expiration with no further share price changes, will lose $30 against $100 at risk for each spread. That's a 30% loss.
If that had been a cash secured put at the 900 strike, shares at 920, the $50 drop to a $870 share price and held to expiration still yields a $30/share loss, or $3k. The difference is that instead of reserving $10k for the position, you reserved $90k for the position. So the loss was about 3% ($3k/$90k) instead of 30%.
Another way to think about it - with a put spread you achieve a max loss at the insurance strike ($800 in my made up example). In a cash secured put you achieve a max loss at its insurance strike ($0
). Even going bankrupt will still, most likely, not result in a max loss on a cash secured put - Tesla has technology, brand, and capital assets worth more than $0. Bankruptcy will also be unlikely due to the lack of leverage in the business at this moment, where leverage = borrowed money and unfunded liabilities (pension obligations being most common).After being burned really badly at the beginning of the year (losing $130 on a $150 wide spread) I went with CSP exclusively for a couple of months. The absolute returns were pitiful compared to what I'd been getting with BPS last year, but they were also completely adequate for my income needs, which made it a lot easier to back down to zero leverage on the puts.
My new balance point, starting last week, is I'm putting BPS on again. But I'm sizing the positions using CSP as my reference point. My decision making amounts to how many CSP could I sell, and then sell as many as 2x as BPS, but no more. With so few BPS I can use a really wide spread and still leave uncommitted cash laying about. Here I'm choosing the insurance put based more on its price, so this week has been 800 and 750 puts, using 500 strike puts as the insurance (like $0.20 for the insurance).
I've still got a significantly higher chance at a max loss as I only need the shares to drop to $500 (by end of next week) for the max loss to happen (compared to $0 for the max loss using cash secured puts). Leverage always comes with risk; this is a level of risk I'm comfortable with, consistent with my dividend-like income objective.
As an individual position, spreads have less at risk (spread vs strike).
However, due to the less at risk, one can leverage up with the resulting position being worth zero at the lower leg versus zero at stock price equal zero.
SP of 1,000
One sold put has $100k at risk
10 900/1,000 spreads have $100k at risk
If stock goes to 900:
Put net change is -$10k
Spread net change is -$100k (10*$10k)
A couple of minor learning's for me yesterday and today, or more accurately reinforcement of stuff I've already been doing.
The first is my increasing shift back to market orders - yesterday was an instance of why I've started using market orders once I've decided that I want a position. I put in a $12 limit order to sell 760 strike puts for 5/6. They were around $11.90 at the time and I figured they were likely to fill. When I looked about an hour later the shares had taken off and those puts were worth about $7. At this moment the options are worth $3.80 - I've missed out on earning $8 trying to nick an extra dime on the entry.
These situations are rarely this extreme, but I've seen this enough that I am increasingly using market orders. Once I decided I wanted to sell the 760s (selling puts on a big downward move) and felt they were still a good risk (my opinion - very unlikely to reach 760 by next Friday), then just enter. Reinforcement learning - the value here is that I knew this at the time and that I was risking a miss on the fill. The possibility that this would happen is something I knew, and something I will (even more) do in the future - use a market order, when bid/ask is small, rather than chasing the share price (good or bad; rarely good).
My 'rule' (strong guidance): Use a market order when the bid/ask is small. A $0.20 wide b/a spread is reasonably common; with effort I can often get a fill at the midpoint - an improvement of $0.10 over a market order. Sometimes the market order does a bit better, but I'm hunting for 10 cents there. In this case my desire to get that extra 0.10 has cost me $8 in one day. The $8 in one day is the wrong way to think about this, but $8 over this week and next, when my standard is to earn $2/contract/week, is crazy to have tried to nick the extra dime.
The other thing - I'd held off opening new put positions because I wanted the cash available to buy more shares. I was even looking at the option chain when shares were around $840 - just about ideal timing in retrospect - and thinking I should buy some more. I decided to wait, knowing that I might be waiting until more like mid-May (or longer for such a good entry point).
This is where my rolling in, rolling out 'rules' have arisen from (I'll do a followup on these). I carried through on the first round when I bought shares around $930 on the way down. I was supposed to carry through with round 2 of share buying around 800-850, with a 3rd round of share buying down around 700-750. Missing the 2nd round leaves that account with more cash than I'd like it to have right now.
My 'rule' (guidance, that isn't as strong yet as it needs to be): be disciplined about buying and selling shares according to my 'rules'.
The first is my increasing shift back to market orders - yesterday was an instance of why I've started using market orders once I've decided that I want a position. I put in a $12 limit order to sell 760 strike puts for 5/6. They were around $11.90 at the time and I figured they were likely to fill. When I looked about an hour later the shares had taken off and those puts were worth about $7. At this moment the options are worth $3.80 - I've missed out on earning $8 trying to nick an extra dime on the entry.
These situations are rarely this extreme, but I've seen this enough that I am increasingly using market orders. Once I decided I wanted to sell the 760s (selling puts on a big downward move) and felt they were still a good risk (my opinion - very unlikely to reach 760 by next Friday), then just enter. Reinforcement learning - the value here is that I knew this at the time and that I was risking a miss on the fill. The possibility that this would happen is something I knew, and something I will (even more) do in the future - use a market order, when bid/ask is small, rather than chasing the share price (good or bad; rarely good).
My 'rule' (strong guidance): Use a market order when the bid/ask is small. A $0.20 wide b/a spread is reasonably common; with effort I can often get a fill at the midpoint - an improvement of $0.10 over a market order. Sometimes the market order does a bit better, but I'm hunting for 10 cents there. In this case my desire to get that extra 0.10 has cost me $8 in one day. The $8 in one day is the wrong way to think about this, but $8 over this week and next, when my standard is to earn $2/contract/week, is crazy to have tried to nick the extra dime.
The other thing - I'd held off opening new put positions because I wanted the cash available to buy more shares. I was even looking at the option chain when shares were around $840 - just about ideal timing in retrospect - and thinking I should buy some more. I decided to wait, knowing that I might be waiting until more like mid-May (or longer for such a good entry point).
This is where my rolling in, rolling out 'rules' have arisen from (I'll do a followup on these). I carried through on the first round when I bought shares around $930 on the way down. I was supposed to carry through with round 2 of share buying around 800-850, with a 3rd round of share buying down around 700-750. Missing the 2nd round leaves that account with more cash than I'd like it to have right now.
My 'rule' (guidance, that isn't as strong yet as it needs to be): be disciplined about buying and selling shares according to my 'rules'.
@MP3Mike and @Drezil,
Ah man, I'm so sorry to hear about your situations. Wish I could be of more and better help.
While I am relatively patient and don't let the daily ups and downs bother me, for your sakes, I am now pulling extra hard for a sharp pop. Not to be polyannaish, but we know TSLA can spike for no reason. And we know what the underlying value of the company is (and what the stock should be trading at). All it takes is some positive mo-mo. Hang in there!
Ah man, I'm so sorry to hear about your situations. Wish I could be of more and better help.
While I am relatively patient and don't let the daily ups and downs bother me, for your sakes, I am now pulling extra hard for a sharp pop. Not to be polyannaish, but we know TSLA can spike for no reason. And we know what the underlying value of the company is (and what the stock should be trading at). All it takes is some positive mo-mo. Hang in there!
Yes, but for pennies until Shanghai opens.
Yesterday, sold 970 Calls for next week though - sold for ~ $5 was trading around ~17 today
Will wait till Monday or if it hits $940 today to decide. They are against $850 Leaps I bought, so exercising will be OK too I guess (would get around 3-5 more shares if that happened)I see that two other people tried to explain it, but not clearly enough, IMH, so I will try....
Imagine stock at 1050. You have $100,000 in cash. You can sell 1 naked Put for $1,000 strike, OR 10 spreads that are 100 wide (Buy 900, sell 1000).
If the SP drops to 900 - with the naked Put, you own 100 shares that have a paper loss of 10% and can recover. With the spreads, you lost $100,000 and own nothing. So why do spreads at all? Because you make more money, but the risk is HUGE.
I can add enough cash to maintain the position, for now, but not to widen the spread...
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