Wiki Selling TSLA Options - Be the House

[bxr140]

While not an experience I want to repeat, it has given me confidence that its possible to recover from some pretty extreme moves in the stock price.

Yeah, the good news is recovery is an option from a sold contract gone wrong. The two important caveats are:

--The further it goes wrong, the more the recovery requires underlying movement to reverse. This is because the farther ITM a sold option (put or call), the less time value plays a part.
--The longer it takes to recover, the longer it takes for capital to be allocated to a profit generating position. This is more a -P thing than a covered call thing, but even with a DITM covered call one needs to consider whether it makes sense to keep the capital tied up in making pennies on the dollar vs re-allocating to a more favorable position.

In most cases on an ITM CC where one plans on holding shares anyway, IMHO is usually best to just channel one's inner Dori and Just Keep Rolling.

I've now settled back into a more measured routine of selling 5 Puts and 5 Calls for 2 weeks out on a weekly basis. I'm selling margin backed Puts at various strikes around 5-10% under on a late week dip or MMD. The Calls are now more conservative at around 25% over, sold early/mid week after a run up. While still early days, it's working out well so far with profits going into LEAP call spreads or more shares.

That seems sensible; I'd recommend layering in some additional aggression/conservatism based on other indicators/factors. In a bearish environment, for instance, you'd want to be agressive on the CCs and conservative on the puts.

 

[LN1_Casey]

Ugh. The SP being below 855 this morning was a gift of opportunity for me to close out my CC and then to sell another one during the next inevitable rise.

I did not cover. I’m certain I’ll have regrets when he SP is like 900 on Friday. But meh.

This SP action today is trying my patience. If my CC drops below $10, I dunno if I can have the will to hold out and not roll the call to next week to a higher SP.

 

[clmason]

Just checking in to report on my options plays, which is writing covered calls only & no puts. I've been successful for the past few months selling calls, most recently at $900 strike and bringing in some nice premiums. This game is a real mindf%uck. I've been holding strong in TSLA since the IPO and always put my energy behind TSLA increasing in value. However, every time I write new calls I change tunes to hoping TSLA consolidates and holds steady, even when the Calls I sold represent just a small percent of my holdings. Some serious self imposed emotional rollercoaster happening in my dome. WTF. (One day my shares will get called, I'm good with that since my portfolio is way out of balance.)

 

[vwman111]

Yeah, the good news is recovery is an option from a sold contract gone wrong. The two important caveats are:

--The further it goes wrong, the more the recovery requires underlying movement to reverse. This is because the farther ITM a sold option (put or call), the less time value plays a part.
--The longer it takes to recover, the longer it takes for capital to be allocated to a profit generating position. This is more a -P thing than a covered call thing, but even with a DITM covered call one needs to consider whether it makes sense to keep the capital tied up in making pennies on the dollar vs re-allocating to a more favorable position.

In most cases on an ITM CC where one plans on holding shares anyway, IMHO is usually best to just channel one's inner Dori and Just Keep Rolling.



That seems sensible; I'd recommend layering in some additional aggression/conservatism based on other indicators/factors. In a bearish environment, for instance, you'd want to be agressive on the CCs and conservative on the puts.

I can see how continuing to roll makes sense if your plans are to hold the shares long term regardless of the covered call. Do you have any strategy for decision making if you think the stock price will move up much quicker than the ability to roll with a CR. For example, if a stock split was announced. Getting out of the covered call even at a loss may be a better play than staying in the position and getting further ITM. OR moving to LEAPS to increase leverage vs the underwater position of the deep ITM covered calls.

 

[MXWing]

Just checking in to report on my options plays, which is writing covered calls only & no puts. I've been successful for the past few months selling calls, most recently at $900 strike and bringing in some nice premiums. This game is a real mindf%uck. I've been holding strong in TSLA since the IPO and always put my energy behind TSLA increasing in value. However, every time I write new calls I change tunes to hoping TSLA consolidates and holds steady, even when the Calls I sold represent just a small percent of my holdings. Some serious self imposed emotional rollercoaster happening in my dome. WTF. (One day my shares will get called, I'm good with that since my portfolio is way out of balance.)

Solution is not to sell calls against your entire portfolio.

Even when you “lose”, you can win!

Also even if it’s less premium, above ATH is good spots to get called.

Selling calls on a big dip to get called at 850 or something would be lame.

 

[ammulder]

So, any thoughts on "wheeling" with the super-low IV? According to the Papafox reports, it's in the bottom 10% of historical values right now. Is there any choice other than "make less money with options"?

 

[Chenkers]

So, any thoughts on "wheeling" with the super-low IV? According to the Papafox reports, it's in the bottom 10% of historical values right now. Is there any choice other than "make less money with options"?

It seems like decent money can still be made, it just depends on how far out you go and how close the strikes. I don't like going much more than 2 weeks so I'm currently looking at Feb19, where IV is at 58%. Puts are giving much better returns as I'm prepared to use much closer strikes with unused margin liquidity as backing. So I'm looking at 780P, 790P, 800P, 810P and 820P for the 29th for a total premium currently around $9k. With covered calls I'll sell these early next week for the 29th with 1050/1060C x5 for around $3k. Actual premiums may vary depending on share price when I place orders preferably on a dip for the Puts and a rise for the Calls. I have a similar set currently running for Feb12 Puts and Feb19 Calls that netted a total premium of $17k. So this week will be around 70% of the previous with lower IV. However I still consider these decent returns.


I use IB in Australia, which runs Portfolio margin as default, although on a margin account they will only lend up to $AU25k. I can have options exercised up to my account margin liquidity or roll options, but I can't purchase or buy to close unless my margin balance is under $25k. So any Puts exercised for shares over the weekend need to be sold before I can purchase shares or buy to close options. This means I can't do a proper wheel by selling calls on exercised Puts. However I would generally prefer to roll to avoid exercise or sell on the Monday to stay on the Put side and clear margin.

 

[LN1_Casey]

This SP action today is trying my patience. If my CC drops below $10, I dunno if I can have the will to hold out and not roll the call to next week to a higher SP.

I do not have the will.

Rolled to a nice $16 net gain, same strike. I just hope the margin interest rate doesn't erase that completely. Even after playing with it, I don't quite understand how margin interest is calculated, because I'm pretty certain (hopeful) they're not charging me almost $8k a month for these put-acquired shares.

 

[adiggs]

I rolled the second strangle I've been testing with this morning. It arrived today as an 865p / 850c (yes - an inverted strangle; the put leg rolled up enabling collection of 2 premiums on that leg over the last 2 weeks). Both legs finished with a profit as both were close to being ATM - even the put that was $20 ITM (original premium was $41, so a $21 profit on this second put over the 2 weeks.

The new position is an 820/875 strangle expiring Feb 19 for $23 on each leg. This is a .35 delta put, and .40 delta call.


I'll be trying different deltas with this position - the calls have a higher delta for a given $ distance from the share price, at least right now. So the higher call delta is a similar distance OTM. In this case - ~$27 OTM on the put side, and $28 OTM on the call side (somewhat imbalanced delta yields balanced distance OTM).

I also plan to use this position to work with higher delta / more aggressive positions, such as this .35/.40 strangle.

In other positions I will also be trying lower delta strangles - maybe something more like .25/.20 with the other. At this particular point in time the .20 delta put is about $12 at the 775 strike, while the .25 call is also about $12 at the 915 strike.

 

[MXWing]

So, any thoughts on "wheeling" with the super-low IV? According to the Papafox reports, it's in the bottom 10% of historical values right now. Is there any choice other than "make less money with options"?

It's only low until Cathie releases some price target of $10,000 for TSLA and people start buying and selling like crazy.

When IV is bigger, you can use bigger spreads - like 100-150 around the share price.

When IV is smaller, you use have to use smaller spreads if you want the same premium that you got when IV was higher.

 

[corduroy]

So, any thoughts on "wheeling" with the super-low IV? According to the Papafox reports, it's in the bottom 10% of historical values right now. Is there any choice other than "make less money with options"?

And now even lower:

"TSLA implied volatility (IV) is 57.6, which is in the 4% percentile rank. This means that 4% of the time the IV was lower in the last year than the current level. The current IV (57.6) is -24.3% below its 20 day moving average (76.0) indicating implied volatility is trending lower."

Seems like a good time to buy LEAPs?

 

[ReddyLeaf]

I know this thread is about wheeling TSLA, but...... I tried out an idea selling a QS put/call near max pain, just for the learning experience (at a much, much lower cost than TSLA). Well, I hit it right on the head by selling Feb 5th 45c/p last week. Today max pain is pinning at $45.00. It’s Interesting to watch and see how much premium remains. At 10:30EST the put is up 56% ($0.70) and the call is down 65% ($0.90), essentially coalescing around each other. So, if traded right now, one could get ~2% return (assuming fully asset/cash-backed with no margin). I’m planning to let these get closed by the market, waiting until Monday to see what happens.

 

[bxr140]

I can see how continuing to roll makes sense if your plans are to hold the shares long term regardless of the covered call. Do you have any strategy for decision making if you think the stock price will move up much quicker than the ability to roll with a CR. For example, if a stock split was announced. Getting out of the covered call even at a loss may be a better play than staying in the position and getting further ITM. OR moving to LEAPS to increase leverage vs the underwater position of the deep ITM covered calls.

I've not found strategy/rule of thumb that works beyond my self imposed rules. I'll usually dive into flipping and splitting the underwater calls if I'm really hard up on keeping the shares, otherwise I'll just close the position and take the small profit from the the initial -C sale. Its just not that important to me to hold shares; it is much more important to me to maximize my return on capital. What will end up happening is that if I'm in a DITM CC position (I had a bunch of TSLA CC's around $200 before the split...) I'll Just Keep Rolling if I don't identify another position in which I want to allocate that capital, incrementally bringing up the strike. But as soon as I find a good position, I'll just dump the DITM CC position entirely.

As you note, adding in long contracts (+C's, in the case of covered calls, but it goes for +P's too) can also offset the covered call's unfavorable greeks like ∆ and rising volatility..but they also offset favorable greeks like dropping volatility and theta. One could imagine a long call entry based on underlying movement, to offset any position stagnation from an ITM covered call--say, a conditional entry if underlying rises above the strike price (or 5% above the strike price, or whatever), with a conditional close if underlying drops down below the strike. Certainly there's potential losses incurred in that cycle from the B/A spreads and potentially volatility drop so it needs to be a little more clever/thoughtful than explained, but you get the point.

 

[bxr140]

So, any thoughts on "wheeling" with the super-low IV? According to the Papafox reports, it's in the bottom 10% of historical values right now. Is there any choice other than "make less money with options"?

As @corduroy notes above, the real answer is that if one thinks IV is at a low, one should be buying options, not selling them.

At low IV if one feels they still need to sell options (like, doing The Wheel), the smart approach is to be more conservative on strike prices. That is because low IV implies a reversal at some point to higher IV, and that reversal will likely come with a corollary big move in underlying. Against the big movement, conservative strikes will be at less risk of going way underwater. That means less per-cycle profit but, that's the way it works.

All that said, the traditional measure of using the past 52 weeks to identify high/low IV necessarily requires a trader to accept that the past year of TSLA trading has been "normal". As I’ve posted above, in the context of 2 or 3 or 5 years, TSLA IV is still pretty high. Current IV30 (the green line below) is ~57; the long term IV30 floor has historically been in the ~low 30's (the red line below), with very few spikes above ~80. Mid-high 50's has historically been either ~mid IV or ~high IV.

 

[Yoona]

.. I'll Just Keep Rolling if I don't identify another position in which I want to allocate that capital, incrementally bringing up the strike. But as soon as I find a good position, I'll just dump the DITM CC position entirely.

I am curious... I've rolled up/down my CC a few times already, and each time was receiving credits. My cash is increasing but my original Feb went to Sep. How does one identify a good position to dump if I want a reset? I am new to this so all I know of is, on buyback, to make sure my bank balance is going to be more $ than when I started the initial call. I don't care much for % return on capital (yet) at this point until I get more experience.

Thank you.

 

[bxr140]

How does one identify a good position to dump if I want a reset?

There really are no rules, or at least none that I find useful enough for me to base a statistical strategy. It really goes back to whether or not the "bad" position is tying up capital that I could otherwise allocate to a "good" position.

 

[UltradoomY]

Toying with a strangle for 9/17 - $800 strike p/c
$217.50 for the C (bid)
$159.10 for the P (bid)
Net is $40k per P/C strangle sold.
Meaning if the put is ITM I am protected down to a Share price of $400 each?
If the Call is ITM I am protected (even though called away) to a share price of $1200?
Am I missing something? (assuming I don't roll or sell to close early)

I only have 200 shares right now and want to start using them to gain more shares. (have been trading options since 2012 so not new but only dealt with calls)
Cheers

 

[st_lopes]

Closed both sides of my 02/05 strangle this week at 90% of premium (850p and 900c). Netted 139k.

Also was able to manage my previously rolled calls to now all be 900c 02/26 for approximately a 1.4 net credit per contract (was 880, 885, 900 at different expirations; started as 780 12/31). Happy on how that is going as I’ve clipped nearly 60% of the cumulative credits on those rolls.

Strangle for 02/12 setup at 840p and 950c. Both sides up nicely with today’s sideways action.

Bring on the weekend theta!

 

[ReddyLeaf]

Toying with a strangle for 9/17 - $800 strike p/c
$217.50 for the C (bid)
$159.10 for the P (bid)
Net is $40k per P/C strangle sold.
Meaning if the put is ITM I am protected down to a Share price of $400 each?
If the Call is ITM I am protected (even though called away) to a share price of $1200?
Am I missing something? (assuming I don't roll or sell to close early)

I only have 200 shares right now and want to start using them to gain more shares. (have been trading options since 2012 so not new but only dealt with calls)
Cheers

I wouldn’t do that trade because of the risk losing the shares at such a low price. I’m planning to sell a shorter, probably 2/19, $1010 call on Monday during the AM jump. Going out to September, hmmmmm, maybe 1500c. Back in January I sold a March 850c, but now I’m regretting it and planning to roll forward when there’s an advantageous time. Still waiting.

I know this thread is about wheeling TSLA, but...... I tried out an idea selling a QS put/call near max pain, just for the learning experience (at a much, much lower cost than TSLA). Well, I hit it right on the head by selling Feb 5th 45c/p last week. Today max pain is pinning at $45.00. It’s Interesting to watch and see how much premium remains. At 10:30EST the put is up 56% ($0.70) and the call is down 65% ($0.90), essentially coalescing around each other. So, if traded right now, one could get ~2% return (assuming fully asset/cash-backed with no margin). I’m planning to let these get closed by the market, waiting until Monday to see what happens.

35 min to close and QS is pinned at $44.95. 45p is $0.44 and 45c is $0.27. Looks like I’ll get another 100 shares. Will be selling 2x CCs on Monday, probably at 45 again. Lots of good experience. Got paid $400 on $4500+100sh capital for a week’s “work.”

 

[LN1_Casey]

Bring on the weekend theta!

Hahah, I actually closed out the put I rolled a little ago, for a loss of $100. I'm planning on selling it again ITM on Monday or Tuesday, when the inevitable Monday pop happens.