Wiki Selling TSLA Options - Be the House

[bxr140]

If it really WAS easy or free money, then realize that there are always more sophisticated and well capitalized entities in the market than you, and they would be mining out all of the value in that free or easy money, until that "free and easy" was priced into the market, and it would no longer be free or easy.

YUS!

I've implied this before, but if you're reading this post (or writing this post) you are a retail trading hack and a target for people way smarter than you, way better that the market than you, and with way more money than you (that they've taken from other retail hacks).

The goal is not to beat them, just to not be eaten by them and hopefully make a buck in the process. Your goal is to make sure your car is locked so the thief hopefully moves on to the net door handle down the street, so to speak. That's why IMHO some kind of price analysis is so important for ANY kind of position, whether you prefer technical or fundamental or some combination. That's why IMHO its worth understanding high probability market moves and how to position around them. Pro gap vs novice gap is a classic, for instance.

 

[juanmedina]

If nothing else, one of the subtle risks that can be hard to think of as a risk (using a made up example)....

if you sell a put for $20 instead of buying the shares, and then watch the shares go up $100 which enables you to buy back / close the put for $1, it's easy to look at that $19 in realized gains and be thinking free money.

Or you could look at it as trading a $100 unrealized gain for a $19 realized gain, which doesn't sound nearly as good. If you were to then sell those shares you had bought instead (buy shares strategy, vs sell put strategy), then you'd have a $100 realized gain vs. a $19 realized gain.

And you tied up about the same amount of capital earning that $19 as you would have buying the 100 shares (capital intensity high). And that really makes the option sale look bad (risky).


It's a made up example that isn't far off of some of the trades I've done over the summer, so it's at least directionally accurate. Whether that's actually a bad outcome is more context dependent, and isn't as simple as comparing a $19 gain over a $100 gain. Understanding that risk though is important in your own context.

I consider @bxr140 more flexible approach to be superior to my own. It's not enough superior (for me) to invest the time in deeply learning other strategies and to learn and start making use of the other strategies. That's not a permanent decision for me - just a decision that has held over the summer and fall.


Another way I like to think of this stuff - whatever your decisions are, own them! I'm a big believer in an idea I encountered elsewhere - Strong convictions, Weakly held. I've got convictions based on my research and understanding of the world and I'm acting on them (and making money based on them). And I'm not done learning, and changing what I'm doing as my understanding of the world expands. Which includes conscious choices to not go in some directions (but strong convictions, weakly held - maybe next week!)

I almost exclusively sell covered calls. The few times that I have sold a put was on margin but only one put at the time and just for fun. I also sold some puts for my parents because they want to stay cash and they will be need the money soon for a purchase and they rather maybe have a little gain than just having the money sit at the bank. So far hold and selling call have worked for me but I agree it cannot be this easy.

 

[bxr140]

Another way I like to think of this stuff - whatever your decisions are, own them! I'm a big believer in an idea I encountered elsewhere - Strong convictions, Weakly held. I've got convictions based on my research and understanding of the world and I'm acting on them (and making money based on them).

I'd thumbs up your post but giving a nod to "bxr's superior approach" seems a little to narcissistic, even for me.

Slightly more serious, for me its not about ranking philosophies and strategies against one another, its about fully understanding the risks and opportunities of one's own methodology. My risk profile isn't any better or worse than anyone else, its just different. The main reason I've been a bit heavy handed in this thread against selling options is mostly because of the general feedback on how easy it is and ostensibly, how little risk it entails.

The only person you need to be true to when opening a position is yourself. Understand the risk, understand the potential. If it's enough to satisfy you, enter. If you have no idea the risk, if you have no exit strategy, if you don't understand bailout options, do not enter.

 

[adiggs]

I'd thumbs up your post but giving a nod to "bxr's superior approach" seems a little to narcissistic, even for me.

Slightly more serious, for me its not about ranking philosophies and strategies against one another, its about fully understanding the risks and opportunities of one's own methodology. My risk profile isn't any better or worse than anyone else, its just different. The main reason I've been a bit heavy handed in this thread against selling options is mostly because of the general feedback on how easy it is and ostensibly, how little risk it entails.

The only person you need to be true to when opening a position is yourself. Understand the risk, understand the potential. If it's enough to satisfy you, enter. If you have no idea the risk, if you have no exit strategy, if you don't understand bailout options, do not enter.

Funny for the start, and Like for the rest. But no dual ratings - so you get Funny.

 

[Tathagata]

What other kind of trades do you recommend? you have to consider that most people are not as well verse on trading as you are. In my case I mostly held index funds for many years and then decided to buy some Tesla stock. I later bought some Tesla options and I got lucky and after that I started selling option which seemed very straight forward and so far it feels like really easy money.

Do you have any book recommendations? courses? etc. I am really interested about learning more about trading.

On the wheel, I end up closing p345 for Friday for $1.7. I am feeling an easy about the elections and Corona shut downs and the stock possibly taking a **** from some posts from the main tread. Do you guys have any recommendation on how to hedge in this circumstances? I see some people are selling their shares on the main thread.

Does anyone here use collars? I was also looking for a hedge through elections and decided set up a protective collar: sold 500 strike calls (equal to my amount share lots/ LEAPS) and used to proceeds to fund the purchase of 330 strike puts, all expiring December 18th. If my view changes and I don’t feel the need for downside protection then I can sell higher strike puts and buy higher strike calls turning this into an iron condor...

Also, if there is a major pullback in share price, I could sell the short puts at a profit and use the proceed to buy more shares/ LEAPs

 

[Mokuzai]

I sold some $400 puts for Nov 6 which is looking like might be assigned unless there's a pop on whatever results from Tuesday.

This morning's bump allowed me to close this out at almost 40% profit. This could wildly go either way after tonight so I'll look to re-write something after the dust settles.

 

[Nate the Great]

I feel like I have noticed a pattern. If correct, 450-460 next week, ending on Nov 13.

 

[juanmedina]

Why is the IV so incredibly low 58-56%?

 

[adiggs]

Why is the IV so incredibly low 58-56%?

#216384

@Artful Dodger posted this graph over in the main thread. What I get from it is that the Bollinger bands have been steadily shrinking for a month or more, indicating that the market is pricing a smaller and smaller window in which the shares will be trading.

That is a reasonably good working definition for low IV.

 

[bxr140]

Why is the IV so incredibly low 58-56%?

As @adiggs points out volatility is, among other things, a function of price action. With the generally consolidating price (BB's being a good way to visualize that) it makes sense that volatility will go down. There's also a function of 2020 in there, where the current IV30 really isn't THAT low relative to 2019. Way back then high IV30 was breaking above 60. It does all kind of make sense; there's no way 2020 price action is sustainable for TSLA.

FWIW BBW is a good way to visualize the ebb and flow of consolidation and expansion, since (like BBs) its priced normalized since its really a function of standard deviation, and unlike BB its a simple line chart that enables more layered analysis. I don't use this particular indicator, but you can see below that low BBW generally corresponds to a local low in volatility and vice versa. One could imagine dropping a trailing/smoothing indicator on the BBW (some kind of moving average or whatever) with the intent of crossovers and/or inflections being signal points.

...and so goes the rabbit hole of technical analysis.

Note that I've been using IV30/IV360 crossovers with reasonable success, though I can't drop a MA onto Fidelity's IV chart (or my other platform's volatility tools) so its less of a crossover-as-signal and more of a squint-smoothing 'looks like IV is starting to reverse" kind of analysis.

 

[adiggs]

I had a Nov 365 put that I closed today near $2 for an 85% profit on the position. there was still another couple of weeks, but only $2 left to earn. I immediately opened a Dec 370 put at ~$12 as well (near the .20 delta).

I could sit out for a day or week or so and hope for a better entry (key word for me - hope). I tend to bias towards staying in the market ( go go time decay) as well as lower effort (I don't need to watch for an entry). Being back in immediately also works best with the semi-permanent and skewed strangle (skewed in position size and how far OTM each side is). By best - it means that whether shares are going up or down, I'm benefiting.

 

[bxr140]

I had a Nov 365 put that I closed today near $2 for an 85% profit on the position. there was still another couple of weeks, but only $2 left to earn. I immediately opened a Dec 370 put at ~$12 as well (near the .20 delta).

I could sit out for a day or week or so and hope for a better entry (key word for me - hope). I tend to bias towards staying in the market ( go go time decay) as well as lower effort (I don't need to watch for an entry). .

What I usually do when rolling sold contracts (your as-described double trade would have more profitably executed as a roll) is compare thetas for the outgoing and incoming contracts. Its not an exact science as theta increases faster for the closer contract, but in conjunction with time value of the two contracts it can inform whether or not its worth rolling or holding.

IV can help in there too as a tiebreaker if the above assessment is close. If IV30 is low, for instance, it might make sense to hold off on the roll a couple days to see if it increases based on the basic pendulum theory. For timeframes that you're looking at in the example above, that volatility increase will 1) unfavorably impact the farther expiration CV more than the closer one, and 2) will likely correspond to fairly significant underlying movement (which could be favorable or unfavorable; that's where price analysis comes into play). Conversely, if IV is high it might make sense to grab the farther contract so when IV drops off it burns off more extrinsic value.

You're spot on that selling contracts is all about burning extrinsic value. The above illustrates some second order logic on optimizing that burn with the benefit of mitigating some risk.

 

[adiggs]

What I usually do when rolling sold contracts (your as-described double trade would have more profitably executed as a roll)

I realize I misspoke, or at least implied something not quite right. In my close./ open scenario today, the "immediately" actually took more like 1/2 of the trading day. I did a buy-to-close about .10 or .20 below the bid and waited an hour or two for that to hit. Then I did a sell-to-open another .10 or .20 above the ask and waiting another little while for that to fill. I don't know that the overall net credit was available today as a roll. And of course I could have missed on either fill and been incomplete on the overall trade.

BUT your real point is taken - I don't usually spend time with open orders waiting to fill like this. On both sides, I was also fine with the order not filling and trying again tomorrow, or next week. But heck - the extra time got me WAY better price improvement than Fidelity would have gotten me (at least time ).


For some reason, the roll transaction works fine in my Roth IRA, but gives me grief about an invalid position in my brokerage. I've successfully rolled a few times in the brokerage, but mostly it fails and I end up needing to do the double trade. Gotta get that figured out

 

[juanmedina]

this guy said that he is going to sell calls for income lol

 

[FS_FRA]

OK, so dipping my toes in finally....

Figuring we should see a pop in the SP next week, so wrote NOV13 415p for $6.05

Max Pain for NOV13 currently at 420, but there's a huge number (7708) of 500c


...off to the races

 

[Nate the Great]

For those of you wanting to sell options puts.

Would pricing be better on Monday versus today (Friday)?

I am referring to Nov 13th (Weeklies).

 

[adiggs]

For those of you wanting to sell options puts.

Would pricing be better on Monday versus today (Friday)?

I am referring to Nov 13th (Weeklies).

I believe that for these short dated puts, option premiums will be higher the lower the share price is. For me, I use lower share prices primarily to sell lower strike puts, rather than increase the premium I receive.

You will also lose a day of Theta (time decay) by waiting until Monday.

Vega will tend to have a smaller impact (change in option price per change in IV) on the option premium on short dated options compared to long dated options.


As a result, I think that the answer to that question is mostly a function of whether you think the share price today is going to go down further on Monday. With the offsetting factor that if the shares are very flat, then the option premium will be lower by Theta (which tends to be pretty aggressive as a % of option premium as you get this close to expiration).


My bias is to be in more than not, and to avoid waiting. In this specific case and choice, you get that incremental Theta, though there might not be much of that between late in Friday trading day, and early Monday trading day.

I'm also opening and closing position while ignoring the possible election impact. Despite the passion around the politics, I see it as a nothing-burger for Tesla (and of course, I could be very wrong, as is true of everything that we do ).

 

[bxr140]

For those of you wanting to sell options put/calls.

Would pricing be better on Monday verses Friday?

There's a lot of "it depends" in there.

Price is generally better on Friday, since there's two days of time decay on the weekend.

BUT, weekends are often where we see gaps, as there's more time for things to happen, whether they're company specific (a fatal accident reported while using autopilot) or macro/sociopolitical moves. If there's an unfavorable gap you could be in a bad way, especially on a weekly where 1) the premium is so small to begin with that your break even is really close, and then 2) because there's not a lot of time for price to recover from an unfavorable move. Of course if a weekend gap is in your favor you could realize much of your position's profit Monday AM and even roll to a new position for the week.

Somewhat related, there's a strategy of scraping time value on SPY over the weekend, as SPY has options that expire on Monday. So, sell on Friday just before the bell, close on Monday after two free days of theta.

 

[ggr]

You will also lose a day of Theta (time decay) by waiting until Monday.

Vega will tend to have a smaller impact (change in option price per change in IV) on the option premium on short dated options compared to long dated options.


As a result, I think that the answer to that question is mostly a function of whether you think the share price today is going to go down further on Monday. With the offsetting factor that if the shares are very flat, then the option premium will be lower by Theta (which tends to be pretty aggressive as a % of option premium as you get this close to expiration).


My bias is to be in more than not, and to avoid waiting. In this specific case and choice, you get that incremental Theta, though there might not be much of that between late in Friday trading day, and early Monday trading day.

My own observation is that Theta decay is based more on wall-clock-time than Wall-Street-time. Basically it's there to take into account external events, news, and other stuff that might happen at any time, not just while the market is open. So the difference between today and Monday is probably bigger than you're estimating.

 

[bxr140]

My own observation is that Theta decay is based more on wall-clock-time than Wall-Street-time.

Yes!

Theta burns every clock hour until the contract expires. The theta represented in an options chain is kind of the instantaneous daily time decay if that makes sense...its the time decay you would earn in 24 instantaneous hours with no price movement. Theta is not a fixed or step-functioning number (it doesn't just change at market open or whatever) but rather is constantly changing way down in the significant digits every minute of every calendar day even if underlying isn't moving or the market is closed, including weekends and federal holidays.

In general theta is an ever increasing percentage of extrinsic value, which typically manifests as the theta value increasing throughout most of the life of a contract, but at some point (typically close to expiration) theta will start to decrease, because of the rapidly decreasing extrinsic value. Put another way, as time moves on theta is generally a bigger and bigger piece of the contract's extrinsic value pie...but as time moves on that pie generally gets smaller and smaller.