Adiggs,
What kind of results were you getting with apple options? Many thanks!
Happy to answer, but important to realize this was a one time thought experiment using real numbers for TSLA and AAPL options on the date performed (August?). I haven't attempted to repeat the exercise, so I don't know how well this represents reality (projecting the future off of a single data point -- bad). I also know nearly nothing about AAPL or AAPL options, so I don't know if I really picked comparably risky options.
That said, my method was to look at a range of options I would be selling at that particular point in time for TSLA, and go find similar options (delta and expiration date) for AAPL. I assumed as input a cash amount for covered puts, a similar amount for buying AAPL shares, and then selling options using those two resources. Order of magnitude - about $800k of each (cash and shares).
I also didn't account for taxes or tax advantaged accounts - just looked at the end result. I wanted to answer the question - given that level of resource, would I be able to achieve a good level of income should IV on TSLA options drop on a sustained basis to something closer to AAPL options IV. I think at the time, that Apple IV was in the 40s.
Summary:
The short ending answer is that I got the "low" IV option sales yielding roughly 1/2 of the "high" IV option sales. I would only do these actual option sales using TSLA (or some future company that I start studying closely), but that's an indicator of how these will evolve as TSLA IV goes down.
That "low" IV income was ~50% higher than a REIT or other 8% dividend yielding investment (such as one I already own a bit of).
Summary finding 2:
I was also testing income/month at different expirations in the future. It seemed like the income was fading as I went out in time, but it didn't fade very fast for the 1-3 month options, and faded a lot for the 1 year+ options. That leads to my initial conclusion and behavior change, of shifting to monthlies for routine option sales (this last month, and next month, are anything but routine).
One important finding for me - I could get roughly 25% better results from the weeklies, but I estimate my time/energy/effort as being 2x for the weeklies over the monthlies.
Method:
My baseline is an income oriented REIT I found from a company called Fundrise. That income oriented REIT targets 6 to 10% annual return / dividend, and has so far been very close to 2% per quarter (I've already got a small stake here).
On $1.6M, that's $32k/quarter and $128k/year, which I consider to be safe enough for my purposes. I also didn't fudge this downward at all, but took this as-is. If I were to use treasuries or short term bonds as the baseline comparison, then this will be a lot lower, and the comparison to option sales looks a lot better for the options sales.
For TSLA, the option sales assumptions I worked up for TSLA came to $360k/year. The actual option premium results were closer to $35k/month, but I fudged that down to $30k/month to provide some head room. Something like 60 to 90k/quarter, or 16-24% / year.
With similar assumptions (I need a lot more AAPL shares for instance, to arrive at a similar investment level in AAPL shares), I got to $20k/month / $254k / year. I fudged this down as with the higher IV options, but the margin here is thinner. I decide to treat this as $15k/month or $180k/year, roughly 1/2 of the TSLA results, to provide some additional margin in the numbers (I don't want every month to be too high of a minimum, in order to achieve the annual income number).
This was as far as I got. I haven't repeated the exercise, which seems like a REALLY good idea when TSLA option IV comes back down.
We’re in a different league here. I’m lucky to sell 4 contracts, though this is in an IRA so no margin and they must be covered. I did buy 50 contracts of some OTM calls a while back, but couldn’t handle the volatility and sold most of them earlier during this week’s run up. I’m still holding a handful until the next week or two.
