Wiki Selling TSLA Options - Be the House

[Chenkers]

Question about that 2nd paragraph, what is the value of rolling the protective puts over letting them expire and then opening replacements on Monday? That would be even cheaper as you wouldn't be buying out the current week puts (literally pennies either way ).

Still - looks like extra gyrations over what's needed.

The account is now in a position where I could let them expire but I've rolled them anyway (habit) to provide a bit of extra positive safety margin buffer on the account (~20%). Previously when the share price was lower these protective puts were required to keep the account afloat with a positive maintenance margin buffer, partly due to the extra leverage of sold Jan'23 BPS.

 

[MikeC]

This is what I’ve heard in the past. While this is wonderful news, anyone have any idea about the math behind it? It doesn’t seem to make any sense but here we are.

Well, we were recently in the 600s, were the expected premiums just 2/3 of what they are now? I don’t know but I don’t think so.

IV muddies the picture, but my logic would be that the price of an option for 100 shares has an inherent value regardless of the proportion of the market cap the strike happens to be.

Also, I don’t think Black-Scholes uses market cap or anything like that to price contracts, does anyone know?

 

[Chenkers]

Well, we were recently in the 600s, were the expected premiums just 2/3 of what they are now? I don’t know but I don’t think so.

IV muddies the picture, but my logic would be that the price of an option for 100 shares has an inherent value regardless of the proportion of the market cap the strike happens to be.

Also, I don’t think Black-Scholes uses market cap or anything like that to price contracts, does anyone know?

Using a black-scholes calculator (Option Price Calculator) a $970CC with curent price of $900, IV 55% and 7 days to expiry gives a theoretical CC price of $6.17. Doing the same for the 8/14/20 case of 1600cc, $1485 price and 69% IV gives a theoretical CC price of $18.43. So a similar CC priced at $8.90 by the MM's seems pretty low at the time.

 

[juanmedina]

Good stuff:

 

[Yoona]

Good stuff:

perhaps he is right?

if i apply his 2022 rule to TSLA fibs (ie, must be >19.5% decline and must be >50% retracement) :

• starting from the 1/3 1199.78 Close to 8/12, sp needs to be >918
  • Close was >918 2 consecutive days (8/3-8/4) just before EM's Friday sale
  • another Close >918 next week will confirm <--- we need this to happen; another nail in coffin
• starting from the 4/4 1145.15 Close to 8/12, sp needs to be >886
  • Close was >886 5 consecutive days (7/29-8/4) just before EM's Friday sale
  • yesterday Fri Close was >886 again

 

[MikeC]

Using a black-scholes calculator (Option Price Calculator) a $970CC with curent price of $900, IV 55% and 7 days to expiry gives a theoretical CC price of $6.17. Doing the same for the 8/14/20 case of 1600cc, $1485 price and 69% IV gives a theoretical CC price of $18.43. So a similar CC priced at $8.90 by the MM's seems pretty low at the time.

Using that calculator, it does seem that premium is proportional to strike price, at least when ATM. So I may be wrong about the contract premium being close to the same per 100 shares before and after a split. Maybe TSLA appreciated so quickly in that time period that it compensated for the lower strike price after the split.

 

[OrthoSurg]

Rolled my -p1050 16/9 puts to December because my -p1200 for exercised 42 DTE and I was getting closer and closer. Got a $50 credit along the way. Elon’s selling was my trigger to roll because the chances of breaking the bull trend are getting higher also with AAPL almost at ATH. Might not get to 1050 within 1 month, yet.

 

[FlamingPIG]

perhaps he is right?

if i apply his 2022 rule to TSLA fibs (ie, must be >19.5% decline and must be >50% retracement) :

• starting from the 1/3 1199.78 Close to 8/12, sp needs to be >918
  • Close was >918 2 consecutive days (8/3-8/4) just before EM's Friday sale
  • another Close >918 next week will confirm <--- we need this to happen; another nail in coffin
• starting from the 4/4 1145.15 Close to 8/12, sp needs to be >886
  • Close was >886 5 consecutive days (7/29-8/4) just before EM's Friday sale
  • yesterday Fri Close was >886 again

I don't think we can apply this with TSLA. In just 1 yr span, TSLA drops 20%+ and retrace 80%+ for 3 times back to back. Lol

 

[CHGolferJim]

In preparation for the split and possible Twitter resolution, I closed 54% of my covered calls: 8/19 $975 at 50% profit in 2 days + half of expensive 9/2 $765 => $3k credit by selling 4/21/23 $975 (cost on a buy-write from some months ago that has stagnated during the SP drop).

The above was done mid-morning 8/12. Just for comparison, the same set of transactions would have yielded a net $4k debit (-$7k) at 8/12 closing prices (+~$30 SP). Good timing for a change.

 

[Discoducky]

Has a date been set for Biden signing IRA? I haven't seen one. It would be very helpful to know this for options trading this week.

Wed and Thurs for market stuff which could hamper a bull run...

Wed is Retail sales and FOMC minutes
Thurs is Jobless claims

 

[CHGolferJim]

Has a date been set for Biden signing IRA? I haven't seen one. It would be very helpful to know this for options trading this week.

Wed and Thurs for market stuff which could hamper a bull run...

Wed is Retail sales and FOMC minutes
Thurs is Jobless claims

Good question. A search (which you probably did) indicated he’s said only vaguely “next week”. Wise to put it before the Fed minutes I should think.

 

[Yoona]

been thinking of 8/19 Short Straddle... but first: make sure i really understand it

i wish i knew this when i first started on straddles...

how to limit risk on Short Straddles by hedging and continuously adjusting

Delta Neutral Option Strategy – Short Straddle with Delta Hedging

A delta neutral option strategy is essentially a volatility trade. In a short volatility example, traders want to maximize their time decay whilst simultaneously delta hedging to keep their directional exposure in check. By doing this, theta

optionstradingiq.com

key takeaways:

• never have naked straddles, always hedge (especially if held overnight)
• buy hedges close to the breakeven (hedges also reduce margin requirement and limits risk)
• risk management: risk = max loss / margin reqt (ie, am i willing to lose 14% of capital)
• major profits come from the adjustments, not from the initial credit (which requires a bulls eye at expiry)
• reserve some capital so that you have room to open adjustments
• "shift the center" to the breakeven once position is profitable
• after shifting, book the profit when sp goes back to the center
• the point of adjusting is not to make profit but to reduce loss and risk of loss

 

[BornToFly]

Because short straddles benefit from a SP that isn't moving, the next two weeks might not be the best time to try them. Maybe a week after the stock split if nothing seems to be happening (anymore)...?

 

[Drezil]

I don't think we can apply this with TSLA. In just 1 yr span, TSLA drops 20%+ and retrace 80%+ for 3 times back to back. Lol

I would think that you have to at least ist Tesla's beta for modifying the drawdown trigger.. so roughly -35% instead of ~20% and then use the retracements from there with a max -drawdown of 17% after we cross the bull-signal again..

And that should hold up quite good and only trigger once or twice per year

 

[SebastienBonny]

Using that calculator, it does seem that premium is proportional to strike price, at least when ATM. So I may be wrong about the contract premium being close to the same per 100 shares before and after a split. Maybe TSLA appreciated so quickly in that time period that it compensated for the lower strike price after the split.

I don’t think it’s possible that premiums stay the same after a stock split. I do think premiums can be better after a split than before because of more uncertainty about where the stock price is going to go (in my opinion). A few weeks ago, I read here as well that premiums were better after the previous split than before, so we can expect that. If an ATM call nets 30 now, I think an ATM call will net you more than 10, maybe 15 after the split.

 

[Max Plaid]

OK, so the 10x -p900's that technically expired on Friday with the $900.09 close just got assigned

So now I have 3000x $TSLA, which is slightly more exposure than I would like... and 10x -p900's for this week, which I think I'll need to close out, especially as I don't quite have enough cash to cover a further assignment

Thinking to write ITM against some of these shares to cover a possible down-side move post-split, worst-case scenario, I get my money back...

 

[BornToFly]

OK, so the 10x -p900's that technically expired on Friday with the $900.09 close just got assigned

So now I have 3000x $TSLA, which is slightly more exposure than I would like... and 10x -p900's for this week, which I think I'll need to close out, especially as I don't quite have enough cash to cover a further assignment

Thinking to write ITM against some of these shares to cover a possible down-side move post-split, worst-case scenario, I get my money back...

+1. Depending on how badly you want the shares gone, sell something like an 850CC. The higher above 900 the SP when you sell it, the better the premium. Or if you don't want to buy back the -p900s, see if there is a little pop at the open and sell 800CC. Of course if there is a drop at the open, now you won't make money on the ITM CC for shares you got at 900, and buying back the Puts got more expensive....

 

[phantasms]

On Friday I thought a lot about what the right move was for me today. I'm all out of cash and have 100 shares from a 900p that exercised. I put in a good to canceled order in of 970c at 10.01. I feel like that's an ok spot for me to take some profits on this train if we close above 970 this week. I've got to imagine we get a pullback after the split and also I'd like to have some cash if this is actually just a bear market rally.

....Of course we all know that if the stock gets to $1100 this week I'll be crying and freaking out closing it for a $3000 loss.

Good morning!

So far so good[lucky]. I'll close if we get a solid pullback and I can swipe a quick $5 win.

 

[BornToFly]

Opened 1100/1200 BCS on the opening pop. Waiting for 1120/1200 to fill.

 

[Max Plaid]

+1. Depending on how badly you want the shares gone, sell something like an 850CC. The higher above 900 the SP when you sell it, the better the premium. Or if you don't want to buy back the -p900s, see if there is a little pop at the open and sell 800CC. Of course if there is a drop at the open, now you won't make money on the ITM CC for shares you got at 900, and buying back the Puts got more expensive....

Well initially I went for a straight sell limit on the 1000x shares @$925, but SP was reluctant to go above $920, so after some consideration I closed out the -p900's net +$8 and sold 10x -c900's @$33.1

So I have a "risk" that I bag-hold 3000x (=9000x) $TSLA going forwards if we were to get a market dump this week, but my strategy then would be to sell -c900's/-c300's every week until recovers, or 10% above the SP if it were to drop below $800

We'll see - I think Tesla as a company is going to do very well 2H22, but a lot depends on the macro