Wiki Selling TSLA Options - Be the House

[Jim Holder]

It depends on what your goal is. Are you just trying to get out of these at close to break even? Are you trying to reduce margin?

I think it’s probably a combination of finding a better broker and selling ITM calls against those 400 shares. Selling the deep ITM calls will help reduce margin balance and cover for any short term risk due to macros and/or Q2 impacts on SP.

Thanks for the reply. My goal is to get totally out of margin ($378k) and keep my long shares (I have 1,350 shares in total). So willing to cut loose any amount of TSLA shares @ break even to equal $378k and keep the rest TSLA shares long.

I’m just not sure the smartest way to do it, especially since I know little about options, LEAPS, CC’s etc. so trying to hear some ideas from folks who know and are willing to pitch in their suggestion.

Of course I won’t just dive in and do anything blind, but without knowledge how would I know what to choose ;-)

The screenshot with my cost basis is in my original post.

 

[ice]

Thanks for the reply. My goal is to get totally out of margin ($378k) and keep my long shares. So willing to cut loose any amount of TSLA shares @ break even to equal $378k and keep the rest TSLA shares long.

I’m just not sure the smartest way to do it, especially since I know little about options, LEAPS, CC’s etc. so trying to hear some ideas from folks who know and are willing to pitch in their suggestion.

Of course I won’t just dive in and do anything blind, but without knowledge how would I know what to choose ;-)

The screenshot with my cost basis is in my original post.

Hey, I'm also a long time lurker but I m in a similar situation as you, just providing data point as I'm not sure if I can come out of this fully intact and recover my lost shares yet, time will tell. I'm still in margin but am no longer at risk of margin call at any price point. My interest rate for margin also went up a lot from 4% to 6.25% now, with the next rate hike i m expecting to pay 7%, between capital gain tax of 20-25%, 7% interest that's not deductible for capital gains (I'm in Canada), TSLA has to go up by 50% a year just to make it worth while to hold shares on margin. It's not worth it personally for me so I'm looking to cut those margin shares loose. I considered switching to IBKR but one thing you need to be careful is I heard IBKR will not give u a margin call at all, they will just sell for you, this may trigger capital gain/losses and other repercussions. With my brokerage they will give me 24-48 hours to resolve so that is worth something to me. Also the maintenance requirement of different brokerages are different, mine gives me 30%.at the end of may I would have been margin call at around $580, and the stock was as low as $620.

I would suggest mapping out a few scenarios (use a spreadsheet) to see if taking various actions can reduce your margin call price point, determine where you want to be safe until then take action on those. While I am a bull , I'm now prepared and safe until $400/share before a margin call (without cash injection), with a cash injection I'm good until $0. I would try to de risk as much as you can accounting for potential downside and upside of the earnings ( nothing is free so if the price goes the other way then of course you will miss gains etc)



I did/thought about the following combination approach

1.) sell shares/aggressive ATM CC while trying to get assigned(I got 6/10 $700c assigned afterhours , premium paid $32), this counts against my lost shares as my cost basis was higher than that , but I will attempt to earn premium to buy them back eventually.
2.) sold 5/27 $600c to raise emergency cash , when I thought we were going to break $620 and go to $550 support, but this back fired, had to roll to 9/16 $700c, I'm still managing this position
3.) Still selling aggressive CC to make premium, with the expectation that eventually they will be assigned when I don't want to roll anymore
4.) Get line of credit , credit card balance transfer if they have a lower rate than margin interest, external lines are good because they act almost like a pure cash injection and should improve your margin ratio, more than selling the equivalent dollar value of shares ($100 cash is better than $100 of shares sold to reduce margin)
5.) sell other non tsla holdings to raise cash
6.) consider buying puts or short etf’s as a hedge

Hope this helps and good luck!

 

[Jim Holder]

Hey, I'm also a long time lurker but I m in a similar situation as you, just providing data point as I'm not sure if I can come out of this fully intact and recover my lost shares yet, time will tell. I'm still in margin but am no longer at risk of margin call at any price point. My interest rate for margin also went up a lot from 4% to 6.25% now, with the next rate hike i m expecting to pay 7%, between capital gain tax of 20-25%, 7% interest that's not deductible for capital gains (I'm in Canada), TSLA has to go up by 50% a year just to make it worth while to hold shares on margin. It's not worth it personally for me so I'm looking to cut those margin shares loose. I considered switching to IBKR but one thing you need to be careful is I heard IBKR will not give u a margin call at all, they will just sell for you, this may trigger capital gain/losses and other repercussions. With my brokerage they will give me 24-48 hours to resolve so that is worth something to me. Also the maintenance requirement of different brokerages are different, mine gives me 30%.at the end of may I would have been margin call at around $580, and the stock was as low as $620.

I would suggest mapping out a few scenarios (use a spreadsheet) to see if taking various actions can reduce your margin call price point, determine where you want to be safe until then take action on those. While I am a bull , I'm now prepared and safe until $400/share before a margin call (without cash injection), with a cash injection I'm good until $0. I would try to de risk as much as you can accounting for potential downside and upside of the earnings ( nothing is free so if the price goes the other way then of course you will miss gains etc)



I did a combination approach

1.) sell shares/aggressive ATM CC while trying to get assigned(I got 6/10 $700c assigned afterhours , premium paid $32), this counts against my lost shares as my cost basis was higher than that , but I will attempt to earn premium to buy them back eventually.
2.) sold 5/27 $600c, when I thought we were going to break $620 and go to $550 support, but this back fired, had to roll to 9/16 $700c, I'm still managing this position
3.) Still selling aggressive CC to make premium, with the expectation that eventually they will be assigned when I don't want to roll anymore
4.) Get line of credit , credit card balance transfer if they have a lower rate than margin interest, external lines are good because they act almost like a pure cash injection and should improve your margin ratio, more than selling the equivalent dollar value of shares ($100 cash is better than $100 of shares sold to reduce margin)

Hope this helps and good luck!

Some very good data points here, thank you for writing it up. I totally commiserate with what you’ve gone through!

I know that TD is less trigger happy re margin calls so long your not too far below the PNR. For TSLA it’s 50% equity. The margin team told me that even dipping down to 45% or so isn’t yet margin call territory, they go first for those in the 20% area and less.

Meanwhile I’m safe until shares fall to around $575 each, which will drop me to the 50% PNR. Then I’ll have to inject cash or sell a few shares at a loss (or sell some puts as some suggested).

I do have a decent open credit line on a CC with 0% interest until March 2023, but I don’t know how to use that towards the margin balance, any suggestions if/how it can be done?

Lastly, to my original question, would selling CC’s today for the 400 day-trading shares I’m stuck with, for 10-12 months out @$1,050 strike or so make sense, since I was planning to cut them loose at that price anyway and just keep the remaining 950 shares long? This way I can offset the 8.5% interest on the $378k margin with the premium (any idea what that might be?) AND be secure that I’ll get at minimum the $1,050 per share at assignment which will pay off the margin and more in 10-12 months. Or is that not how it works?

 

[ice]

Some very good data points here, thank you for writing it up. I totally commiserate with what you’ve gone through!

I know that TD is less trigger happy re margin calls so long your not too far below the PNR. For TSLA it’s 50% equity. The margin team told me that even dipping down to 45% or so isn’t yet margin call territory, they go first for those in the 20% area and less.

Meanwhile I’m safe until shares fall to around $575 each, which will drop me to the 50% PNR. Then I’ll have to inject cash or sell a few shares at a loss (or sell some puts as some suggested).

I do have a decent open credit line on a CC with 0% interest until March 2023, but I don’t know how to use that towards the margin balance, any suggestions if/how it can be done?

Lastly, to my original question, would selling CC’s today for the 400 day-trading shares I’m stuck with, for 10-12 months out @$1,050 strike or so make sense, since I was planning to cut them loose at that price anyway and just keep the remaining 950 shares long? This way I can offset the 8.5% interest on the $378k margin with the premium (any idea what that might be?) AND be secure that I’ll get at minimum the $1,050 per share at assignment which will pay off the margin and more in 10-12 months. Or is that not how it works?

For balance transfers I think there is an option to deposit it into your bank account, from there just transfer to your brokerage like how you normally contribute. Be ware sometimes they have balance transfer fees, (even with the 0% interest).

for your cc question, i can't fully answer it but here are some points I thought about:

For your 1 year out CCs, the thing is, they would not completely protect you from a margin call, unless you sell super deep ITM but i believe there is less time premium, it's more and more like selling shares the deeper you go ITM, the same logic as buying deep ITM leaps when you are long...

June 2023 $1050c is about $77-80, so that will give you 7.7k per contract, even if you were to sell 4 contracts that's $30k or so, for a $380k margin, that prob will cover your interest or close to it but don't forget about capital gains tax which will take up a chunk, and you will still be margin called a year from now if the price drops below $575 (get $30k credit, but over a year, the $30k will be eaten up by margin interest, it's like running on a treadmill...), but in the mean time u might be slightly safer with that $30k credit (you ll have to calculate what $30k cash will do to your margin ratio)?

The other thing about Leap CCs is the theta decay is slow, so you aren't making money as fast as closer expiry calls ( on a weekly basis), you would probably make more selling weeklies that's also a lot more work. (Time, research, trading, more trades to filing taxes for)

I think the best thing to fix the margin or make the margin call point lower in the following order in terms of speed

1.) Inject cash (Actual cash or external lines/credit)
2.) Sell TSLA or other shares in other non margin account then transfer cash over to improve the margin ratio in the margin account
3.) Sell TSLA or other shares in margin account (not as good as cash as selling shares will also give up the collateral so the margin buying power drops)
4.) Generate income by way of option sales (same as injecting cash, but it's slow, you can't generate that fast, even ATM weeklies are only $20 per contract which may not be faster than share price drops (could drop as much as $100+ a week), but totally not-advice, if you feel like trying your luck, if you can get that $20 weekly premium just 4 times in a year (including lost time from rolling), you might have a chance of beating that 6/2023 $1050c? You gotta have enough cash/margin to roll though if not you ll be assigned, so that also might be a problem if you are in the danger zone in terms of margin, you ll have to do the math and weight the options (pun not intended)
5.) Other ways to get $??? I think sometimes buying a put also improves your margin? But I'm not sure.

 

[Matias]

This is honest question, not trolling. Isn’t buying and selling options a zero-sum game? If player A gains 1 dollar, player B loses 1 dollar?

 

[rikkert]

I've been lurking this thread for a while now but something's come up I can't seem to figure out.
I use IBKR (Lynx in Europe) and have always made sure that I'm on a comfortable margin cushion of about 0.20.

Now, seemingly overnight I received a warning that I now have a *negative* cushion of 0.20 and a negative ex liquidity.
My positions are still the same.

Did the margin requirements for TSLA suddenly increase?

I'm pretty worried that IBKR will start to liquidate positions once the market opens.

Do I have any other options?

 

[Chenkers]

This is honest question, not trolling. Isn’t buying and selling options a zero-sum game? If player A gains 1 dollar, player B loses 1 dollar?

Most of the time Player B is a Market Maker. Their role is to provide liquidity to the market, particularly the options market. Most of the time the MM is the one selling the options to overly optimistic traders buying call options or pessimistic investors wanting a hedge. Here we are more about writing options, so essentially playing along with the Market Makers, although it will often be a MM on the other side of our trades. Given the way MM's like Citadel and Susquehanna make massive profits off retail investors, I'm more than happy for us to be profiting off them for a change.

 

[Chenkers]

I've been lurking this thread for a while now but something's come up I can't seem to figure out.
I use IBKR (Lynx in Europe) and have always made sure that I'm on a comfortable margin cushion of about 0.20.

Now, seemingly overnight I received a warning that I now have a *negative* cushion of 0.20 and a negative ex liquidity.
My positions are still the same.

Did the margin requirements for TSLA suddenly increase?

I'm pretty worried that IBKR will start to liquidate positions once the market opens.

Do I have any other options?

I just logged in to my IBKR to check and there's definitely something very screwy going on. My excess liquidity margin has gone from 20% positive to 90% negative! The problem seems to be that margin requirements on TSLA have jumped from around 40% up to around 87%. Also the JUL15 500P's that usually provide a margin support are currently showing zero. This is definitely not normal and I'll be contacting IBKR to see what's going on. It could be a glitch as I've seen this sort of thing before get corrected before market open. It definitely looks like a problem with their portfolio margin calculator. But its still very concerning.

Edit: I just got off the phone with IBKR technical support. They've had a brief look and have advised me that there is a technical issue at their end. They promised to give me a call back today once this issue is resolved. So for now it's a watch and see and hopefully gets fully resolved before market open!

Edit2: I got a call back from IBKR support a couple of hours later. Just confirming all was OK as the technical issue had already been fixed.

 

[Matias]

Most of the time Player B is a Market Maker. Their role is to provide liquidity to the market, particularly the options market. Most of the time the MM is the one selling the options to overly optimistic traders buying call options or pessimistic investors wanting a hedge. Here we are more about writing options, so essentially playing along with the Market Makers, although it will often be a MM on the other side of our trades. Given the way MM's like Citadel and Susquehanna make massive profits off retail investors, I'm more than happy for us to be profiting off them for a change.

I don’t have any problem with the zero sum if I’m the player collecting the 1 dollar more than 50% of the time. My point is, why would one player more than 50% of the time be the one getting the one dollar? Because stock market is random walk, eventually profits and losses with this kind on trades should cancel each other out?

 

[rikkert]

I just logged in to my IBKR to check and there's definitely something very screwy going on. My excess liquidity margin has gone from 20% positive to 90% negative! The problem seems to be that margin requirements on TSLA have jumped from around 40% up to around 87%. This is definitely not normal and I'll be contacting IBKR to see what's going on. It could be a glitch as I've seen this sort of thing before get corrected before market open. But its still very concerning.

I just called my broker and they said they currently have a problem which is causing the margin requirement of TSLA to be 100%. They are working on fixing the problem. They could not guarantee no liquidations once pre-market opens though.

 

[Chenkers]

I don’t have any problem with the zero sum if I’m the player collecting the 1 dollar more than 50% of the time. My point is, why would one player more than 50% of the time be the one getting the one dollar? Because stock market is random walk, eventually profits and losses with this kind on trades should cancel each other out?

The stock market is not random, there is a massive variance in the experience, expertise, tools, knowledge and awareness across different market participants. If you don't understand this you have a lot to learn. Best get to studying.

 

[Chenkers]

I just called my broker and they said they currently have a problem which is causing the margin requirement of TSLA to be 100%. They are working on fixing the problem. They could not guarantee no liquidations once pre-market opens though.

Liquidations with IB do not normally start until 5-10 minutes after market opens for positions held in that market. So they have just over 5.5 hours to sort it out. If there's a mass of liquidations they could expect class actions, despite whatever terms and conditions they may impose.

 

[Matias]

The stock market is not random, there is a massive variance in the experience, expertise, tools, knowledge and awareness across different market participants. If you don't understand this you have a lot to learn. Best get to studying.

Ok. The idea to make money with trading options is based on the presumption, that one is better at predicting stock movements than market participants in general.

This answers my question.

Good luck.

 

[adiggs]

I don’t have any problem with the zero sum if I’m the player collecting the 1 dollar more than 50% of the time. My point is, why would one player more than 50% of the time be the one getting the one dollar? Because stock market is random walk, eventually profits and losses with this kind on trades should cancel each other out?

To be clear - the stock market is best approximated with a random walk, but isn't actually a random walk. Looking only at TSLA it's a random walk going up over a longer time horizon.

More generally the whole market is the same.

Ok. The idea to make money with trading options is based on the presumption, that one is better at predicting stock movements than market participants in general.

This answers my question.

Good luck.

At least for me and when I got started, one of my underlying premises was (and is) that I study and follow TSLA so closely that I have an information edge on Wall Street particularly, and most of the market more generally. That information edge primarily helps me with long term buy and hold TSLA strategies but I've also been spending the last couple of years figuring out how to turn that information edge to a more income oriented approach to TSLA.

I am confident that I am much worse than the market in general at (rounding error) everything else.

Because it underlies my trading, I also watch for what Wall Street has to say (as well as what friends / acquaintances are asking about) to measure the degree to which that continues to be true.

Because I believe it doesn't make it so.

 

[Matias]

To be clear - the stock market is best approximated with a random walk, but isn't actually a random walk. Looking only at TSLA it's a random walk going up over a longer time horizon.

More generally the whole market is the same.

At least for me and when I got started, one of my underlying premises was (and is) that I study and follow TSLA so closely that I have an information edge on Wall Street particularly, and most of the market more generally. That information edge primarily helps me with long term buy and hold TSLA strategies but I've also been spending the last couple of years figuring out how to turn that information edge to a more income oriented approach to TSLA.

I am confident that I am much worse than the market in general at (rounding error) everything else.

Because it underlies my trading, I also watch for what Wall Street has to say (as well as what friends / acquaintances are asking about) to measure the degree to which that continues to be true.

Because I believe it doesn't make it so.

Thank you for answer. As you probably know, random walk theory is the current standard model of the stock market. There are however some prominent figures, who don’t believe, that movements are completely random. But even if they are not completely random, they may be so random, that it is very difficult to make money with this non randomness.

 

[rikkert]

Liquidations with IB do not normally start until 5-10 minutes after market opens for positions held in that market. So they have just over 5.5 hours to sort it out. If there's a mass of liquidations they could expect class actions, despite whatever terms and conditions they may impose.

Looks like they just fixed it.

 

[saniflash]

Looks like they just fixed it.

can confirm on this end as well. Though it seems to have only affected accounts with portfolio margin, because in my other non-PM account, I didn't see the problem.

 

[Drezil]

I considered switching to IBKR but one thing you need to be careful is I heard IBKR will not give u a margin call at all, they will just sell for you, this may trigger capital gain/losses and other repercussions. With my brokerage they will give me 24-48 hours to resolve so that is worth something to me. Also the maintenance requirement of different brokerages are different, mine gives me 30%.at the end of may I would have been margin call at around $580, and the stock was as low as $620.

It is not THAT bad. As I fly close to the sun regularly, i can talk from experience.

When your margin-buffer falls below 10% the start bothering you with messages to fix the situation.
When your margin buffer goes negative you still have some minutes to react.

And they always tell you they give no margin calls, yet I already had received 2 of them via mail in my time there

If you have limit-orders open then they also can fire these at market if that also fixes your margin and is better overall then the thing their Algo came up with ..

I think most of the hard communication they got is that customers can not just lean back and say "but i have 24-48 hours to f things even more up to 'solve' my margin problem"..
And that people don't even try to call them to weasel themselves out of the situation..

They are not perfect by any means.. but most critic reads like they just liquidate everything if they feel like it

 

[Drezil]

Thank you for answer. As you probably know, random walk theory is the current standard model of the stock market. There are however some prominent figures, who don’t believe, that movements are completely random. But even if they are not completely random, they may be so random, that it is very difficult to make money with this non randomness.

Yes, it is best SIMULATED by a Brownian random walk with an underlying upwards sloping Trend. Not uniformly random. But as you said most people mix up simulation with reality.

But the thing is: the market is evolving over time. Like the parameter in the simulation also drift randomly.

And you can anticipate and play every change in parameters as well. There are many non-directional bets where you profit off the rising or falling variance of the model..

But everything is a bet about the future. And all prognosis are hard.. especially the ones regarding the future
Even "buy and hold share" is such a bet. You bet the company does not go bankrupt and will have an addressable market that will still generate income and makes it worth something. There is no safe investment. Even if you put the money under your pillow it will wither away from inflation.
There is only different degrees of risk - and a fair risk/reward, because markets are efficient.

Stock market is a random game of imperfect information. Akin to poker. Mathematically poker is also zero-sum. But yet still people make a living with playing it. There is a saying: you don't play the cards, you play the table.

Stock market is the same. If you have an information edge over others (because you love things and research like crazy) you can capitalize on that. Or you get insider information directly.. i.e. look into the others cards at the poker table

 

[CHGolferJim]

Rolled 0715-c$700 to 0729-c$700 for a $30 credit in a Beneficiary IRA. Kind of risky, but not expecting much the next 2 weeks beyond an unimpressive 2Q ER. Although given recent history, we could have a plodding ER and the stock could still take off (low correlation of SP to fundamentals). Will just keep on rollin’ if that happens.