Wiki Selling TSLA Options - Be the House

[Jkaufm32]

circling back on this, I rolled up and out for a small profit. Thanks @adiggs starting this thread and all the contributors for helping teach me these techniques. This is definitely my practice stock, while trying to “mostly” hold TSLA. Last week, I bought 100 shr at $42.85 and immediately sold the 1/29 $45c for $2.00 (Not a great trade, but wanted to do the rolling part this week). With my extra cash, I also sold six $32p 2/05 for $1.05, that are ~$0.20 now and I’ll just let expire worthless next week.

So, for today my first official roll forward for a small credit.
BTC of SPWR 01/29/2021 C $45.00 executed at $3.48 ($1.48 debit).
STO of SPWR 02/12/2021 C $50.00 executed at $4.00 ($0.52 credit).

Nice! Trying something in the real world is much different than theory or what you might expect. Earlier today I actually completed my first options trade.

1 Sold Covered call TSLA 1/29/2021 $1010 @ $9.90

I can't imagine it going past that this week even with earnings on the 27th. A very OTM trade but just getting it done and figuring out ways to expedite the process is helpful. Not to mention if a collect that premium that would be nice as well.

 

[ReddyLeaf]

1 Sold Covered call TSLA 1/29/2021 $1010 @ $9.90
I can't imagine it going past that this week even with earnings on the 27th.

Good choice. I was just looking at that trade a few minutes ago. Looking at all those calls at $1000 on maximum-pain.com, I bet the market makers will really try to keep the SP below 1000 so you should be safe.

 

[adiggs]

My intent was to wait for tomorrow to sell a new batch of puts to match up with the calls I've already sold. However I decided to proceed today - IV is already pretty high and I'm finding that I'm quite uncomfortable now having only 1 side of the semi-permanent strangle open.

Using the MMD at 10:30am eastern time, it so far looks like I've caught the low point of the morning (best time to sell puts, holding other stuff constant). Since I never catch local maxima/minima in my favor, I'm pretty excited to maybe possibly have done so this one time. Heck - already 9% ahead in 45 minutes!


Anyway - I opened up Feb 5 855 puts at $41 premium. These were around .38 delta. I am generally planning on around .35 delta, but I wanted a bit more delta on these as I share the general belief that we're up from here.


A macro (to TSLA) observation is that my own experience is that the more unanimous the short term view of the stock is around here (as measured by me making a trade to take advantage of what is obvious), then the more likely the stock won't do that. The way I think of this is that with such a unanimous view of things, then the more likely that one side of the trade gets overly crowded.

I think the overly crowded side is what's happening to the hedge funds that have shorted GME

 

[adiggs]

Anyway - I opened up Feb 5 855 puts at $41 premium. These were around .38 delta. I am generally planning on around .35 delta, but I wanted a bit more delta on these as I share the general belief that we're up from here.

And while I was at it, I've also rolled the 810/905 strangle for Feb 5 to 865/905. The put leg picked up a $22 net credit, with the old leg showing a realized profit around 45%. I usually wait for a higher profit but I like the higher IV available now.

Even at 45% profit though, it was 1.9% on capital in 5 days. I find that acceptable.


I'm a long ways away from being delta neutral (and thus, indifferent to the shares going up or down), but I'm at least thinking in these terms now and getting a little bit closer. And I like the overall dynamic.

 

[Jkaufm32]

I was thinking of looking into some longer term calls to sell on top of the weekly selling I'm currently doing. Lets say I don't have the full amount of shares to cover this call, for argument sake lets say 50 of the 100 shares to cover 1 call. Would this be unadvisable? Also, If I did have enough shares to cover both calls (the weekly, and monthly) would this be a strategy people utilize? a short term sold call and a longer term sold call.

 

[adiggs]

I was thinking of looking into some longer term calls to sell on top of the weekly selling I'm currently doing. Lets say I don't have the full amount of shares to cover this call, for argument sake lets say 50 of the 100 shares to cover 1 call. Would this be unadvisable? Also, If I did have enough shares to cover both calls (the weekly, and monthly) would this be a strategy people utilize? a short term sold call and a longer term sold call.

Advisability aside (something we each decide for ourselves), I do have some observations about long term calls (a 1 year and a 2 year that I've sold).

First up - you'll have to use margin for an uncovered call (or a lower strike call as you note). You'll have to decide for yourself your comfort using margin - I wouldn't personally do that, but I'm growing increasingly risk averse (for my definition - financial advisors still think I'm comfortable having my hair on fire ).

If you go for a call as your backing, then that sounds like a calendar spread (probably a long expiration, deep ITM long call paired up with a series of shorter term OTM short calls). I've read about this, but don't really know beans. And no experience. I got nothing on this.


But selling long term options - I do have some observations. I sold some 1 year covered puts back in Sept and some 2 year covered calls back in Sept.

In both cases, those very long dated positions have left the accounts feeling like they're trapped in amber. There are shorter term trades I want to be making and don't have access to.

I try to remember that I generated $120 contract premium for the calls which works out to $5/month, every month, for 2 years. At least for me, that is a really good outcome. Except now I have that cash I can do a little bit with, but the shares are all covered, and those covering calls have a LOT of time value in them (over $300). So I get to sit and watch for most of a year and a half while the time value shrinks to 0 (deeply ITM, or close to the strike, near expiration).

My learning from that - I won't be selling 2 year options again.

On the plus side - if you're going to hold the shares for the period regardless and you'd be happy with some selling at some ridiculously high strike, then you can generate income today that works out to a good monthly result for the entire period, with no need to manage. As somebody that has sold a 2 year 840 call down in the 300s, the overall result will be great (3x value when the position resolves). I keep telling myself that - it's still not feeling so great right now (where not so great is still +50% to "enough" for retirement; no violins necessary).


I also sold some long dated puts, good for $20/month premium with a 1 year expiration. Same dynamic as the calls - these were cash secured (no margin here for flexibility) and locked up a bunch of cash. The difference is that with the radical run, the value of the puts dropped a lot and I was able to close early for about 2/3rds gains (2/3rds gain in 1/3rd of the time - me like).

But same learning - I won't go out a year again (at least not if I can avoid it).


I've traded weeklies and monthlies. I didn't like the monthlies dynamic (time decay too slow early on, and too much time between opportunities to reset the strike for my taste). I don't like the 3-8 day option sales - good premium and income, but needs pretty much daily tending.

I've evolved, for now, to lining up my options on every other weekly expiration. So I'm rolling out of Jan 22 options (done) right now into Feb 5 options. In today's instance, I'm not using the Jan 29's at all. As a bonus, the only roll I've done so far using a 2 week option had MUCH better roll choices available than the same roll for 1 week ($5 strike improve vs. $30 strike improve, about the same minimal net credit).

And as the Feb 5's start rolling, they'll go out to Feb 19. This is mostly a sanity exercise for me - fewer positions to monitor, and fewer expirations.

 

[bxr140]

I was thinking of looking into some longer term calls to sell on top of the weekly selling I'm currently doing. Lets say I don't have the full amount of shares to cover this call, for argument sake lets say 50 of the 100 shares to cover 1 call. Would this be unadvisable? Also, If I did have enough shares to cover both calls (the weekly, and monthly) would this be a strategy people utilize? a short term sold call and a longer term sold call.

I personally would't sell naked calls unless I really didn't believe in TSLA, or if I choose a strike so far OTM that its not worth entering the position in the first place. Maybe if we're talking like selling 10 calls against 950 shares or something I'd at least consider it, but definitely not if we're talking selling 10 calls against 500 shares.

If you're talking 2-4 weeks for a 'longer term' sold call, that's kinda the sweet spot. There's a nice maximum in the profit curve in that time range ~somewhere where you can maximize an annual selling strategy. Its not a fixed duration (it moves around depending on circumstances) so its not just "always sell 3 weeks" or whatever, but big picture on the concept, you'll make more profit and/or expose yourself to less risk if you sell ~17 three week calls over the year vs 52 weeklies or 4 quarterlies. (Only if you're really foolish would you ever sell an even longer dated call...). That expiry time range also lets you capitalize on unintended gains from volatility dropping (and/or unintended favorable ∆ burn) by closing out the cycle early and then starting the new cycle early...thus enabling more cycles over the year, thus enabling more profit.

If you go for a call as your backing, then that sounds like a calendar spread (probably a long expiration, deep ITM long call paired up with a series of shorter term OTM short calls).

Just FTR, a 'calendar' doesn't prescribe strike or expiry, other than the fact that its a spread of a bought and sold option of the same type (bought call + sold call) and that the expirations are different (typically the short leg expires before the long leg). OTM/ITM on the strikes, which one is higher/lower in strike, and how far/close the expirations are...that's all up to the trader.

FWIW I think I went into the difference between calendars upthread somewhere (horizontal vs diagonal).

 

[ammulder]

I have little enough experience that I'm not sure I'd listen to me, but with that said...

I prefer selling puts (with otherwise unused margin) to selling calls and I prefer weeklies. The weeklies just seem more profitable. I don't mind checking in on the stock price from time to time and taking action as needed, though if the prices aren't too close to the money it doesn't seem necessary to be on top of it constantly. I see big numbers for selling the same put a year out, $20K or more per contract, but if you could make $1-2K per contract per week with weeklies, then $20K per year doesn't seem as great. (Unless you need a large injection of cash at once, for some reason. Let's hope it's home improvements and not a medical bill.)

 

[Jkaufm32]

I personally would't sell naked calls unless I really didn't believe in TSLA, or if I choose a strike so far OTM that its not worth entering the position in the first place. Maybe if we're talking like selling 10 calls against 950 shares or something I'd at least consider it, but definitely not if we're talking selling 10 calls against 500 shares.

If you're talking 2-4 weeks for a 'longer term' sold call, that's kinda the sweet spot. There's a nice maximum in the profit curve in that time range ~somewhere where you can maximize an annual selling strategy. Its not a fixed duration (it moves around depending on circumstances) so its not just "always sell 3 weeks" or whatever, but big picture on the concept, you'll make more profit and/or expose yourself to less risk if you sell ~17 three week calls over the year vs 52 weeklies or 4 quarterlies. (Only if you're really foolish would you ever sell an even longer dated call...). That expiry time range also lets you capitalize on unintended gains from volatility dropping (and/or unintended favorable ∆ burn) by closing out the cycle early and then starting the new cycle early...thus enabling more cycles over the year, thus enabling more profit.



Just FTR, a 'calendar' doesn't prescribe strike or expiry, other than the fact that its a spread of a bought and sold option of the same type (bought call + sold call) and that the expirations are different (typically the short leg expires before the long leg). OTM/ITM on the strikes, which one is higher/lower in strike, and how far/close the expirations are...that's all up to the trader.

FWIW I think I went into the difference between calendars upthread somewhere (horizontal vs diagonal).

I have little enough experience that I'm not sure I'd listen to me, but with that said...

I prefer selling puts (with otherwise unused margin) to selling calls and I prefer weeklies. The weeklies just seem more profitable. I don't mind checking in on the stock price from time to time and taking action as needed, though if the prices aren't too close to the money it doesn't seem necessary to be on top of it constantly. I see big numbers for selling the same put a year out, $20K or more per contract, but if you could make $1-2K per contract per week with weeklies, then $20K per year doesn't seem as great. (Unless you need a large injection of cash at once, for some reason. Let's hope it's home improvements and not a medical bill.)

Thank you both for answering my question. I figured it was kind of counterintuitive, but I wanted to ask the question anyway since there is a wealth of knowledge between everyone here.

 

[st_lopes]

Rolled 830p 01/29 up to 850p. Realized 60% gain on it and net credit of $7.

So strangle this week now sitting at 850p 1000cc

Also still have 880cc 02/12 and 885cc 02/19 that I will likely be rolling once we get there (still climbing the rolling ladder from the fun that was 12/31). Time will tell!

 

[ReddyLeaf]

.....My learning from that - I won't be selling 2 year options again.........As somebody that has sold a 2 year 840 call down in the 300s, the overall result will be great (3x value when the position resolves). I keep telling myself that - it's still not feeling so great right now (where not so great is still +50% to "enough" for retirement; no violins necessary).
.........I also sold some long dated puts, good for $20/month premium with a 1 year expiration. Same dynamic as the calls - these were cash secured (no margin here for flexibility) and locked up a bunch of cash. The difference is that with the radical run, the value of the puts dropped a lot and I was able to close early for about 2/3rds gains (2/3rds gain in 1/3rd of the time - me like).

But same learning - I won't go out a year again (at least not if I can avoid it)......

......Only if you're really foolish would you ever sell an even longer dated call.......

ok, you guys have walked me back from the edge. I was really eyeing selling those Jan/Mar23 $1700s at near $300. Double should be enough for me at this point. Honest.

 

[adiggs]

ok, you guys have walked me back from the edge. I was really eyeing selling those Jan/Mar23 $1700s at near $300. Double should be enough for me at this point. Honest.

For me, it's more about the flexibility. Having the shares or cash locked away as backing on such a long dated option might leave you with no reasonable choices to get out early.

Example - my 840 Sep '22s have over $300 in time value right now. To get out, I get to sell the shares at $900 and simultaneously buy out that $350 (ish) time value, for a $550 net (or so). If I wait it out, then I'll get all of the $840.


I do think there's a place for longer dated option sales, but I think that it's not very close to the optimization and flexibility curve

 

[bxr140]

ok, you guys have walked me back from the edge. I was really eyeing selling those Jan/Mar23 $1700s at near $300. Double should be enough for me at this point. Honest.

Don't get caught up in the big numbers of the far expirys. Do the math and its obvious that the -leap is a Bad Deal.

A Jan 23 $1700 is $215 right now and is currently 11.62% probability ITM. A monthly (2/26) $1060 call is $31 right now and is currently 11.44% prob ITM. 0th order math says you could sell ~7 consecutive monthlies for the ~same profit as the 2 year -C for the same risk. Even if we add monthly cycles because today's earnings is certainly skewing the relationship between the two prices in favor of the monthly, you're still probably looking at ~1 year worth of monthlies to make the same proifit as the two year -leap.

Or, if instead of normalizing risk we normalize profit between 24 monthlies and a 2-year, you'd sell a $1310 monthly (2/26) today which is less than 1% probability ITM. Seriously, if 1310 is in range in a month, one is going to be totally screwed on a 1700 in two years. Again earnings skews the math so you probably end up more like 3-5% prob ITM on average, but that's still massively less risky than the two year.

All of the above doesn't even take into consideration the fact that you'll be moving your monthly strikes up and down with the normal ebbs and flows of TSLA; by the time you got to jan 2023 you could very well have a strike well in the 2000's, which would have a massive impact on total return relative to the two year $1700. Or, if TSLA tanks for whatever reason, you'll have made much more profit on selling the monthlies to offset your drawdown (or cost basis, or however you prefer to measure it) on the underlying.

If the case hasn't been made yet, also note that theta burn is incremental for leaps (27 cents a day for the 2-year $1700...and even if you held for a year, the 1-year $1700 is currently only 37 cents a day) versus shorter expirys (the monthy $1060 is ~$1.16 or, by my math, over 4x more theta burn than the 2 year). While Vega does of course increase with long dated expirations, IV360-IV720 % fluctuation is quite low, so the total contract fluctuation from volatility can be quite muted unless there's a massive move in volatility, and since you're short, you need that move in volatility to go down and explicitly get screwed if it goes up.

So...that leaves the foolish/unfavorable strategy of selling options to profit on underlying (∆) movement as the typical major profit maker on the position. The good and bad news there is that long dated options have high deltas (and low gammas, also) so the contract value will move quite a bit with big underlying moves (relative to closer dated, similar risk options). The problem there is that big underlying moves up will be very unfavorable to your contract value (and again, progressively worse because of the increasing ∆). So then the strategy with selling -leaps ends up really based on the hope that TSLA has a huge drop (Which of course, becomes progressively less favorable because of the decreasing ∆). Unfortunately, that drop almost certainly comes with increasing volatility, so some of the gains you make on favorable downward TSLA movements will be offset by unfavorable volatility.

 

[adiggs]

I opened up Feb 5 855 puts at $41 premium. These were around .38 delta. I am generally planning on around .35 delta, but I wanted a bit more delta on these as I share the general belief that we're up from here.

Two position updates that I think might be valuable.

On this new put position, I had planned to open it today for what I expected to be higher IV. So far the premium is pretty flat (slightly down) from yesterday. In this instance, the day before and day of earnings have yielded roughly comparable results (and I like having this position already open). So minor winner.


In the ongoing saga of the call option that went $50 ITM on week 1 and I've been rolling (760 to 770 to 775, and now 2 weeks / Feb 5 at 805), I know that it's premature to even look at, but I'm starting to track the available choices to roll. I know that it's premature as there is still $20 in time value (and $83 ITM - about 10% of current share price).

Even this far ahead of time, it looks like I could roll today to the $830 strike on Feb 18 for a roughly $3 credit (satisfying my net credit rule).

Considering how deep ITM this position is, and how much credit I'm earning on the put side of this position (I think it'll be $50 for the 2 weeks leading to Feb 5), I've also thought about using some of that put leg credit to buy my way to an even higher call strike. For a $10 net debit, I can roll today to the 855 strike. For ~$13 higher cost, I can move that position an additional $25 on the strike.

And for serious aggression, a $20 net debit ($18 actually) gets me to the 875 strike. I.e. another $10 gets me another $20 on the strike.


I'm not doing anything with this position today. And it's a single contract/position (1 put, 1 call) that I'm using to explore the boundaries of what can be done via rolling to avoid assignment. Which is also why I continue to post about how this is progressing, and the choices available to me - I think this information will be valuable to others as well.

Considering the gains from the put leg, if I really really wanted to save this contract (I don't - assignment will realize a really nice profit already, though still much less simply buy and hold), then I've got several choice available that keep me in the 2 week roll range. I'm pushing these boundaries as I have a larger covered call expiring Feb 19 that I don't want assignment on. The experience from this position is very much expanding my view of what's possible.


Though it would violate my rule for rolling at a net credit, I think I like the $20 net debit roll the best out of the currently available choices. It isn't something I would do very often - heck, or even consider very often, but if the shares are about to head for the stratosphere, then the more aggressive roll will better position me for that outcome. Heck - I might even do the net debit variant to see how the higher strike sets me up to possible roll all the way back to OTM in a future roll (the experience is more valuable than the profit to me, and the position is still very profitable - I like being paid to learn).

 

[JustMe]

Don't get caught up in the big numbers of the far expirys. Do the math and its obvious that the -leap is a Bad Deal.

A Jan 23 $1700 is $215 right now and is currently 11.62% probability ITM. A monthly (2/26) $1060 call is $31 right now and is currently 11.44% prob ITM. 0th order math says you could sell ~7 consecutive monthlies for the ~same profit as the 2 year -C for the same risk.

You make a lot of good points, but the risks in those two cases are not the same. The combined probability that at least one of those seven contracts goes ITM will be approximately:
100% - (89%)^7 = 44% - assuming the probabilities are independent.

Got to watch those monthlies closely!

 

[adiggs]

Something to add to this semi-perma strangle I'm setting up. In one account today, the gains on one leg of the strangle are so close to cancelling out the losses on the other, that the only change in the account value (all but 1/3rd of 1%) comes from the change in the share price.

For me at least, that meets my definition and desire to be delta neutral. Wherever the share price goes, my intention is to hold those shares for the rest of the decade, so up and down between now and then is a matter of indifference (I expect a lot more up than down).

I doubt I'll hit this close to delta neutral very often, but it sure is fun to see when it happens.

 

[bxr140]

You make a lot of good points, but the risks in those two cases are not the same. The combined probability that at least one of those seven contracts goes ITM will be approximately:
100% - (89%)^7 = 44% - assuming the probabilities are independent.

Fair point. I didn't want to just keep beating the horse and so used prob ITM a short cut to normalize risk. Bit lazy.

Slightly more in depth, the benefits on the risk side for monthlies:

--Plenty of bloviating on my part above, but more, shorter contract cycles allow a trader to much better adjust strikes based on market conditions than simply choosing a fixed probability ITM. Indeed, choosing strikes on the far side of significant/strong price points, adjusting cycle duration for events like earnings and volatility, and adjusting strike aggression based on volatility will significantly enhance odds of expiring OTM (beyond the probability in an options chain) bwhile also maximizing premium.

--If one were to expire ITM on a monthly covered call, that means max contract profit is realized, with the only "loss" being the unrealized gains on underlying. Action is to just buy back shares at ~net zero and open a new monthly contract. (Or alternatively, play the rolling game). Then the comparison back to the two year is summing up all the monthly ITM cycles and comparing that to the hypothetical ITM of the Jan 23 $1700, including whatever additional premium was accumulated with the monthly strategy.

 

[JustMe]

Fair point. I didn't want to just keep beating the horse and so used prob ITM a short cut to normalize risk. Bit lazy.

Slightly more in depth, the benefits on the risk side for monthlies:

--Plenty of bloviating on my part above, but more, shorter contract cycles allow a trader to much better adjust strikes based on market conditions than simply choosing a fixed probability ITM. Indeed, choosing strikes on the far side of significant/strong price points, adjusting cycle duration for events like earnings and volatility, and adjusting strike aggression based on volatility will significantly enhance odds of expiring OTM (beyond the probability in an options chain) bwhile also maximizing premium.

--If one were to expire ITM on a monthly covered call, that means max contract profit is realized, with the only "loss" being the unrealized gains on underlying. Action is to just buy back shares at ~net zero and open a new monthly contract. (Or alternatively, play the rolling game). Then the comparison back to the two year is summing up all the monthly ITM cycles and comparing that to the hypothetical ITM of the Jan 23 $1700, including whatever additional premium was accumulated with the monthly strategy.

Yep, yep

 

[Runarbt]

Anyone have a solid not-advice on which puts to sell on this dip?

I am looking at June $750 as a possibility.

Feel these are paying nicely, and at the same time should have a low probability of ending ITM.

Could have found short dated ones - but not sure its worth it for me, extra stress, possibilities for more dips etc.

 

[cbh03]

Can anyone comment on the likely direction of IV over the next few days now that the earnings call is over? Is it likely to be higher today, tomorrow, or next week? I'm planning on selling a 1-2 week put (to get the wheel started) and am not sure when to sell (or even how to figure out when to sell). TIA.