Wiki Selling TSLA Options - Be the House

[Oil4AsphaultOnly]

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.

Start with selling an option at a strike price that you're okay with losing the shares at. You won't get much premium out of it, but it'll get your feet wet. And if you're not willing to lose the shares at any price, then there's no point to selling call options (it implies that you think the stock will keep rising higher past the strike price).

 

[bxr140]

what post are you talking about?

This one.

How do you usually setup your stop on spreads?

Usually? Dollar value against the spread itself, but that's assuming both contracts have enough volume in them to have a reasonably accurate LAST. With very low volume contracts (like leaps) you won't necessarily have any volume even with big underlying movement, and if you can't stop against the Bid/Ask and are forced to stop against the spread value itself (LAST), you can get properly screwed. Depending on trade conditions I'll also set an alert--or set of alerts--against underlying as a way to signal real-time-ish need to re-evaluate my stop strategy. For instance, if I'm trading against support around ~725 (which I am), I might also be interested to know if the support at ~805 breaks down, and I might also be interested if the support at ~750 breaks down, so I might set alerts at those two prices where I can come back in and see if my baseline stop strategy is still valid.

Do you think the conditionals order is the way to go for credit spreads?

It depends enough that there's not really a right answer. Strength of your strikes, when you are in the position (early vs later), risk tolerance, etc...all of those mash together such that its really best as a case by case basis kind of thing. As long as you understand the downside/upside, there's no right or wrong solution.

 

[bxr140]

Any advice outside of just don't mess with shares you don't want to have to sell.

Nothing comes for free in this world. When you sell a call against shares, you trade potential upside on those shares for generally "safer"--but potentially MUCH smaller--profit from selling the call.

That said, especially with pre-tax accounts (like a rollover IRA), IMHO the "I don't want to mess with shares" mentality is really a bit misused. You can easily buy shares back on Monday after having them called away on Friday (if that's the way you let the position go) at a ~minimal price difference. Yeah, you'll miss out on the difference between strike and sell, but you already came to terms (or at least should have) with that outcome when you sold the call in the first place.

What this really goes back to is understanding the objective of a position. For instance, if you're worried about underlying price blowing past your covered call strike price (and you missing out on that rally), that means you're very bullish on the stock. If you're very bullish on the stock you shouldn't be selling options against it in the first place. That's Selling Options 101.

 

[bxr140]

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.

Much like a fundamental trader complaining about technical analysis in a technical analysis thread (or a Diesel Bro coming onto TMC to trash Tesla with no rationale in particular) you're in the wrong place.

More useful, I recommend spending more time trying to understand the merits (and limits) of day, weekly, and monthly trading. At a minimum it will give you insight into activity on those timeframes, and you may just find it will better inform your LEAP entries...

Rarely is ignorance a legitimate reason to reject a concept one does not understand.

 

[ammulder]

If you're very bullish on the stock you shouldn't be selling options against it in the first place.

Well, I'm pretty bullish on the stock, and that's why I'm selling puts against it.

It is true that I've had to buy puts back early when either I sold them with poor timing (I've had to make two big bold notes to myself to sell only on a dip, and even then I don't always find "the bottom") or when the price moved much farther than I expected (last Monday -$70, for instance).

But so far after 30 or 40 trades I haven't lost much on any individual one, and I've always come out positive for the week.

I'm sure that will change if there's some really bad Tesla news (factory delays) or macros that cause a persistent decline... but I'm hopeful that if I say on top of it enough I won't lose multiple weeks of gains at once. I've heard it happens, though... My bullishness suggests that it's unlikely. Guess we'll see.

 

[bxr140]

Well, I'm pretty bullish on the stock, and that's why I'm selling puts against it.

As noted upthread, (ad nauseam) selling puts isn't a great way to return if you're truly bullish on a stock. Buying options is the way to go. Significantly higher reward:risk.

 

[Jack6591]

Much like a fundamental trader complaining about technical analysis in a technical analysis thread (or a Diesel Bro coming onto TMC to trash Tesla with no rationale in particular) you're in the wrong place.

More useful, I recommend spending more time trying to understand the merits (and limits) of day, weekly, and monthly trading. At a minimum it will give you insight into activity on those timeframes, and you may just find it will better inform your LEAP entries...

Rarely is ignorance a legitimate reason to reject a concept one does not understand.

I defer to your intellect, judgement, and wisdom.

 

[bxr140]

I defer to your intellect, judgement, and wisdom.

Apology accepted! Now, back on topic...

 

[Runarbt]

As noted upthread, (ad nauseam) selling puts isn't a great way to return if you're truly bullish on a stock. Buying options is the way to go. Significantly higher reward:risk.

Nah.. buying options are gambling. Selling is less so.

You need to not only be correct with direction, but also time when you buy options.

Selling, time work for you, not against.

Sure, reward is bigger on buying calls, when you get it correct.. however, house wins most of the time. (house=option sellers)

Selling naked puts, you only need to get direction of stock right..Your margin increases by every successful trade.

If you are a long term bull - selling naked puts is the way to go. Sure, buy a few calls for fun when stock do stupid stuff due to fud. But in the long term, calls can/will suck you dry, if you aint very lucky/skilled.

Why do you bring in selling calls in this thread.. thats kinda, off topic? ;-)

 

[adiggs]

If you are a long term bull - selling naked puts is the way to go. Sure, buy a few calls for fun when stock do stupid stuff due to fud. But in the long term, calls can/will suck you dry, if you aint very lucky/skilled.

As long as you also realize that selling puts is generally speaking a lower return choice over buying and holding shares as well (not just buying calls - I'm out of that game as well ).. That might be ok for you (it definitely is for me), but it's important to be clear about your objective and resources being applied and stuff. For a along term bull in pure growth mode, then selling options can be profitable and can also be a lower return choice over just buy and hold (using the cash you're otherwise using to back puts).

The faster and farther the stock moves, the more the imbalance in favor of buy and hold.


If you've got enough shares though and find yourself with cash that you want to keep readily available and don't want to turn into shares (such as me - I've got "enough" for me), then selling puts can be a delicious method for acquiring some incremental cash, whatever the purpose. I also view selling option as a risk lowering approach for my situation - it mitigates moves up and down in exchange for cash up front. That makes me more resistant to a 50% or 80% drop in the shares by helping me avoid a need to sell during a big drop in the shares.

Back in April when I got started selling options, I would be far ahead today if I'd just purchased shares instead ($$ anyway). But the summer and fall selling options also got me something more valuable - another approach to generating income from my portfolio, and the knowledge / experience in how to do that.

 

[MXWing]

As noted upthread, (ad nauseam) selling puts isn't a great way to return if you're truly bullish on a stock. Buying options is the way to go. Significantly higher reward:risk.

Doing it wrong my friend. I sell puts to buy calls.

 

[Discoducky]

As noted upthread, (ad nauseam) selling puts isn't a great way to return if you're truly bullish on a stock. Buying options is the way to go. Significantly higher reward:risk.

Buying and selling calls, and I just started buying LEAPS, is great as well as selling puts. I find all of these to be great ways to improve returns as well as HODL of core shares. Buying puts is something I don't do as I've not ever been bearish on TSLA.

 

[corduroy]

Buying and selling calls, and I just started buying LEAPS, is great as well as selling puts. I find all of these to be great ways to improve returns as well as HODL of core shares.

I've started using my LEAPs to write calls against (called a bull call diagonal spread, or poor man's covered call) to lower the cost basis on the LEAP as I hold.

 

[dl003]

My 650 short puts this week were down to around $0.35 this morning when I rolled them. No premium left. Rolled into 610 short puts next week, collecting $200 per contract.

 

[bxr140]

Nah.. buying options are gambling.

By that logic, buying shares of anything is gambling.

To recap what you get when you sell a put in a very bullish situation, ostensibly for the purpose of profiting off delta burn:
--Delta (and gamma) get progressively lower as price moves in your direction, so as price keeps going you progressively burn off less and less time value. So with upward price movement underlying is not working for you.
--Delta (and gamma) get progressively higher as price moves in the wrong direction, so the contract value [unfavorably] increases at an accelerated rate. So with downward price movement, underlying is working against you
--Especially in a low-mid volatility environment, price movement will result in an increase in volatility, which will [unfavorably] increase the contract value of the sold contract, regardless of price movement. In that situation, underlying is working against you.
--Theta decreases as price moves in your direction, so the theta burn becomes progressively smaller. So, theta is not working for you, especially early on when theta is a fraction of average daily delta burn.

Sure, reward is bigger on buying calls, when you get it correct.. however, house wins most of the time. (house=option sellers)

As noted upthread, the irony with folks bent on selling puts when very bullish is that they are already making good directional entries. Imagine what a basic understanding of entering the correct position would do for those people? There's a time and a place for all kinds of positions; there's a time and a place for selling puts. Very bullish is neither.

Seriously, pick any random 5 winning and losing sold put positions you've made, describe them here, and I'll build 3 very basic long positions for each one to show you just how wrong you are about risk/reward.

If you are a long term bull - selling naked puts is the way to go. Sure, buy a few calls for fun when stock do stupid stuff due to fud. But in the long term, calls can/will suck you dry, if you aint very lucky/skilled.

I emphatically recommend you consider learning the basic fundamentals of options; you'll see why your perspective is egregiously misinformed.

 

[bxr140]

Doing it wrong my friend. I sell puts to buy calls.

Humorously, the upthread notes of mine you cite explain, often in great detail, just how much a proponent I am of selling options to offset capital/risk of buying options--including collars.

So what, exactly, was it that I'm doing wrong again?

 

[juanmedina]

What's with the IV going down? Are MMs dropping the IV to load on options for earnings?

 

[dl003]

What's with the IV going down? Are MMs dropping the IV to load on options for earnings?

when the stock price slows down, option buyers take their profit which leads to further IV decline. It's not crushing just yet.

 

[Runarbt]

By that logic, buying shares of anything is gambling.

To recap what you get when you sell a put in a very bullish situation, ostensibly for the purpose of profiting off delta burn:
--Delta (and gamma) get progressively lower as price moves in your direction, so as price keeps going you progressively burn off less and less time value. So with upward price movement underlying is not working for you.
--Delta (and gamma) get progressively higher as price moves in the wrong direction, so the contract value [unfavorably] increases at an accelerated rate. So with downward price movement, underlying is working against you
--Especially in a low-mid volatility environment, price movement will result in an increase in volatility, which will [unfavorably] increase the contract value of the sold contract, regardless of price movement. In that situation, underlying is working against you.
--Theta decreases as price moves in your direction, so the theta burn becomes progressively smaller. So, theta is not working for you, especially early on when theta is a fraction of average daily delta burn.



As noted upthread, the irony with folks bent on selling puts when very bullish is that they are already making good directional entries. Imagine what a basic understanding of entering the correct position would do for those people? There's a time and a place for all kinds of positions; there's a time and a place for selling puts. Very bullish is neither.

Seriously, pick any random 5 winning and losing sold put positions you've made, describe them here, and I'll build 3 very basic long positions for each one to show you just how wrong you are about risk/reward.



I emphatically recommend you consider learning the basic fundamentals of options; you'll see why your perspective is egregiously misinformed.

Might be just me - but I find timing on buying calls hard. I get way too optimistic/bullish, and market react too slow - and my calls expire. ;-) Or market react less than I expect - and a winning call position turn into a complete loss as I wait a tiny bit too long. I have made good money on calls, but its to stressful.

I guess its greed. I get too optimistic and greedy.

Easier with naked puts, where time and to a certain degree - greed - are on my side. ;-)

 

[bxr140]

What's with the IV going down? Are MMs dropping the IV to load on options for earnings?

Mostly just a function of price consolidation and decreasing volume. Bit of a symmetrical triangle going on right now.