Wiki Selling TSLA Options - Be the House

[EnzoXYZ]

Could be, maybe the editorial below didn't come through as apparent as I had wished.



A situation where you have a long term shares that you don't care about their near term value fluctuations is actually what I was referring to.

In the end though, it all comes back to knowing why the position is being built and what the practical opportunities and risks are for that position vs one's price analysis.

For instance, the hypothetical jan23 $1000 -C might pay out $10k if closed in Feb with TSLA at $500...but it also starts costing money to close in feb with TSLA at/above ~$750 (those are hand-wavey best case guesstimates based on IV bottoming, so actual underlying values will likely be lower in both cases). Of course one can still hold the -C and hope for a reversal but its also very possible that price will stay and/or keep going from there, putting your jan 23 -C deeper and deeper into the hole, with few good options for getting out without a realized loss to your account balance.

While the hypothetical Feb 21 $1000 -C might only pay out $1.6k, it does so straight up to $1000. Definitely a different risk profile that someone keen on not losing money and definitely not losing their shares would probably want to consider.

Just as a random building off the above feb hypothetical, an interesting play might be to use that Feb 21 $1000 -C to fund, for instance, a put spread. That $1600 can buy a Feb 21 590/560 put spread (buy the 590, sell the 560) such that if TSLA is between 590 and 1000 in feb you break even, but if price is under 560 in feb you basically make ~$3200. Certainly some tweaking on both sides could further optimize return, but the point is that its all about shifting around risk and reward.

Is trading options your full time job? You’re very knowledgeable and I would appreciate some context on your experience. Any reading or videos you would suggest besides ones already covered here? What options strategy is your “go to.” Thanks for providing all your educational insights.

 

[Jamojones]

I decided to create this thread as a more focused variation of the Option Trading and Advice thread, with that focus on the option strategy known as The Wheel.

The thing to understand up front - I'm not a financial advisor, nor am I particularly expert in options trading. So far my experience is almost completely in the options selling side. My forays into option buying either ended in large losses, or are currently losing (index puts). But the option selling has worked great for me!

My first and strongest recommendation - if you're new to options trading, or haven't studied it systematically, then I commend the training here:
Free Options Trading Course from Option Alpha | Option Alpha

This took me about 30 hours to go through all of it (1.25x speed worked great for me). And I urge you not to skimp.

This is both general option trading education, along with education about a particular option trading strategy (selling volatility). You're going through that material for the general education, and you'll pick up information about that particular strategy at the same time (it happens to make use of the same edge in the market as The Wheel).

From here on, I'm assuming the level of knowledge conveyed in that linked education.

Option Alpha is great content. Kirk or one of his team always reply and are very helpful. My other go to for options education (and brokerage) is Tasty Trade.

 

[gabeincal]

No I did not. i waited.... Annoying, but learnt something new I suppose...

So I could not help thinking MM's will keep the SP below 650 for this week. Which means I just made $9k selling 9 x 650 CC's.

Edit: And I still hope that we peak over $700 next week, when I unload all my Mar '21 700s, and buy back some stock and pay off all my margin. That would be a decent win in comparison of SP staying at 5xx-6xx until the new years and start a steady climb which would make my Mar 700s pretty much worthless.

To @dl003's point I think the IV climb is now done for the year. Better take some profit off the table.

 

[dl003]

While TSLA peak is yet to come, I think that the premium peak has past. Sadly, last Monday was the peak. However, I did sell 6/21, 7/21 & 9/21 1200 calls yesterday because the chart didn't look good.
1. IV crush on Monday. Once IV crush has begun, it's not going to reverse.
2. The Etsy chart showing index buying mostly done AH on Friday. As option selling banks on exuberance, I don't think we'll see much exuberance if indexers are not going to participate during market hour.
Note that I'm selling a set of calls for each 100 shares. That's the only thing worthwhile. I'm also selling 350 puts as insurance: if TSLA makes further advances in 2021, I will use the put premium to roll my calls upward to 1400, 1500 calls same expiry. Call premium will go toward more shares or LEAP DITM calls if and when TSLA drops significantly.
I refuse to call this a bearish bet. There will always be gamblers and I'll gladly play the house. Will never sell shares.

 

[bxr140]

Is trading options your full time job? You’re very knowledgeable and I would appreciate some context on your experience. Any reading or videos you would suggest besides ones already covered here? What options strategy is your “go to.” Thanks for providing all your educational insights.

Happy to help, and definitely not pro. I'm just a retail trading hack like the rest of you lot.

I'm an engineer by design (though someone had the good sense to promote me out of harm's way to management years ago) and that fuels my deep in the weeds studies of options. I've always been a self directed learner and videos just aren't the way my brain works so I don't have any particular educational tools to recommend, but there's plenty of entry and mid level stuff out there and I think Tasty among others has some relevant videos on deeper and more nuanced options concepts. I'm sure there's a number of paper resources as well, if that's your bag.

For me, I love the pursuit of a well crafted position and the satisfaction of being right and not just lucky, (safe but opportunistic, etc) so I really make a point to start with a top level objective and then play out the upside and downside scenarios. Right now, for instance, I'm messing around with an asymmetric TSLA double calendar that profits in both underlying directions in the near term (~1 month) and then transitions into a bullish P/L through earnings. Still trying to figure out if I want the spreads to be credit or debit...or split...and still working the right entry timing for volatility... Time will tell if I can square the strategy before its too late to enter. (Life also has to happen, you know?)

 

[adiggs]

I'm joining @dl003 - sold some covered calls this morning, though not as far out in time. Feb expiration, 1100 strike.

And I'm very happy to be selling options again.

 

[juanmedina]

While TSLA peak is yet to come, I think that the premium peak has past. Sadly, last Monday was the peak. However, I did sell 6/21, 7/21 & 9/21 1200 calls yesterday because the chart didn't look good.
1. IV crush on Monday. Once IV crush has begun, it's not going to reverse.
2. The Etsy chart showing index buying mostly done AH on Friday. As option selling banks on exuberance, I don't think we'll see much exuberance if indexers are not going to participate during market hour.
Note that I'm selling a set of calls for each 100 shares. That's the only thing worthwhile. I'm also selling 350 puts as insurance: if TSLA makes further advances in 2021, I will use the put premium to roll my calls upward to 1400, 1500 calls same expiry. Call premium will go toward more shares or LEAP DITM calls if and when TSLA drops significantly.
I refuse to call this a bearish bet. There will always be gamblers and I'll gladly play the house. Will never sell shares.

why do you think IV is not going to reverse? IV is been flat today. If things get crazy tomorrow or Friday it can go up a little. But I do agree that we missed the train on the top IV. @gabeincal had the right idea; I though we would see 120% IV.

 

[dl003]

why do you think IV is not going to reverse? IV is been flat today. If things get crazy tomorrow or Friday it can go up a little. But I do agree that we missed the train on the top IV. @gabeincal had the right idea; I though we would see 120% IV.

The short answer is this whole week is an event. As the days pass, there's less and less uncertainty about where the SP might end up.
The long answer is that the mechanism by which IV increases is a positive feedback loop. It starts with massive speculation via call purchase, accompanied by share accumulation, forcing MMs to delta hedge (a gamma squeeze), which then further increases appetite for calls. It takes time to both build up and dissipate and we're only on day 3 of a crush. The main event ends in 2 days and Friday also in 2. There's no point in forcing a gamma squeeze in the middle of the week with only 2 days to go unless you are a super whale and for some reason hate MMs with a passion. Otherwise, you'll be trying to force a squeeze while everybody else is in profit-taking mode and MMs are unwinding their hedges. The momentum is set.

 

[adiggs]

My own plan is to be looking at something in the 6-24 month timeframe; my guess is 9-12 months is where I'll land. I'm looking for a high "pre-sell" price, and a premium of something like $5-15/month (probably closer to $5). My thinking is that the shares aren't going to be used for something else, and if I can lock in a really good cc setup, then I'll be benefiting from that for the next year (over selling cc each month, which will probably have a lower strike and comparable or slight better premiums).

Following up on this covered call plan...

My original plan was to be looking at a covered call position sometime next week or the week after, and something further out - say 6-24 months out. Since this inclusion event isn't working at all the way I expected, I decided this morning to go ahead and proceed with a new CC position now.

I found the Feb '21 1100 strike gets me an adequate premium - $15 that I assume I'll close at 2/3rds for a $10 profit - for that time period. Since I haven't seen a spike and I've got other exposure to a spike should it happen, I find myself questioning what I think will happen, and what will actually happen, and therefore thinking I really don't know what will happen. Ok - I never knew.


I don't know what post-inclusion trading will look like. Is $600 the old $400? Will we go back to $400? I am increasingly thinking that inclusion will be a non-event, but the post inclusion trading is going to be interesting. What price does TSLA settles at after 1/10th to 1/6th of the shares are taken out of circulation by a new buy and hold investor?

I'm pretty comfortable with "it'll be less than $1100 by mid Feb".

 

[Jamojones]

Happy to help, and definitely not pro. I'm just a retail trading hack like the rest of you lot.

I'm an engineer by design (though someone had the good sense to promote me out of harm's way to management years ago) and that fuels my deep in the weeds studies of options. I've always been a self directed learner and videos just aren't the way my brain works so I don't have any particular educational tools to recommend, but there's plenty of entry and mid level stuff out there and I think Tasty among others has some relevant videos on deeper and more nuanced options concepts. I'm sure there's a number of paper resources as well, if that's your bag.

For me, I love the pursuit of a well crafted position and the satisfaction of being right and not just lucky, (safe but opportunistic, etc) so I really make a point to start with a top level objective and then play out the upside and downside scenarios. Right now, for instance, I'm messing around with an asymmetric TSLA double calendar that profits in both underlying directions in the near term (~1 month) and then transitions into a bullish P/L through earnings. Still trying to figure out if I want the spreads to be credit or debit...or split...and still working the right entry timing for volatility... Time will tell if I can square the strategy before its too late to enter. (Life also has to happen, you know?)

Are you not always selling for a credit?

 

[gabeincal]

Mar ‘21 1000c is at $17.20 right now. If I manage to avoid being assigned on the 650s this Fri, I might shoot for those next!

 

[gabeincal]

Following up on this covered call plan...

My original plan was to be looking at a covered call position sometime next week or the week after, and something further out - say 6-24 months out. Since this inclusion event isn't working at all the way I expected, I decided this morning to go ahead and proceed with a new CC position now.

I found the Feb '21 1100 strike gets me an adequate premium - $15 that I assume I'll close at 2/3rds for a $10 profit - for that time period. Since I haven't seen a spike and I've got other exposure to a spike should it happen, I find myself questioning what I think will happen, and what will actually happen, and therefore thinking I really don't know what will happen. Ok - I never knew.


I don't know what post-inclusion trading will look like. Is $600 the old $400? Will we go back to $400? I am increasingly thinking that inclusion will be a non-event, but the post inclusion trading is going to be interesting. What price does TSLA settles at after 1/10th to 1/6th of the shares are taken out of circulation by a new buy and hold investor?

I'm pretty comfortable with "it'll be less than $1100 by mid Feb".

Hmm. Feb ‘21 1100c is listed at $7 for me.

 

[Jamojones]

Hmm. Feb ‘21 1100c is listed at $7 for me.

What about closer to the money but still at the ends of the expected move. 460/800 strangle for almost $50 - Feb19th

 

[bxr140]

Are you not always selling for a credit?

Sorry...its easy to get off topic since this is the most active thread on options. That particular strategy--a double calendar--is made up of two opposite spreads, each of which can be built as a credit or debit. (FWIW I'm also contemplating a vertical spread on one side of the double...which by definition would not be a "calendar", but I digress...)

 

[Jamojones]

Sorry...its easy to get off topic since this is the most active thread on options. That particular strategy--a double calendar--is made up of two opposite spreads, each of which can be built as a credit or debit. (FWIW I'm also contemplating a vertical spread on one side of the double...which by definition would not be a "calendar", but I digress...)

Isn't something that your collecting a credit for up front typically a higher probability trade? Thats all I was wondering about.

 

[adiggs]

Hmm. Feb ‘21 1100c is listed at $7 for me.

My bad - I was looking at the end result cash received, and that hit my income number. You're right

 

[adiggs]

What about closer to the money but still at the ends of the expected move. 460/800 strangle for almost $50 - Feb19th

I'm usually much closer to ITM than this particular position. As I mentioned though, I'm feeling a bit gun-shy about my predictions of the market right now, and the inclusion event isn't really over either, nor do we know what the post-inclusion event share price trading level will be.

I want to sell some calls now, I can get the monthly income level I seek, and I'm so far OTM that I like it .


More particularly, the Feb 1100 is about a .08 delta. If I came up to the .15 delta, then I'd be at the 950 strike and collection a $13 premium.

And won't we all be happy if that Feb 1100 strike is in danger of being assigned at expiration!

 

[gabeincal]

What about closer to the money but still at the ends of the expected move. 460/800 strangle for almost $50 - Feb19th

I need to look into strangles. I so far only purchased and sold calls. Oh and shitputs when I get a margin call

 

[bxr140]

Isn't something that your collecting a credit for up front typically a higher probability trade? Thats all I was wondering about.

Probability--ostensibly, the probability of earning profit on a position--is a function of future underlying movement, not of position type. /Reward--the amount you may lose or gain, the latter of which may also be a statistical probability though the former should NOT be--is a function of all manner of things including position type and underlying movement. Both most be assessed at the same time; reality is far too nuanced to make blanket statements that pertain just to one or the other.

In fact, its a really good idea to actually build a spreadsheet that calculates the overall worthiness of a position based on objective rack up of probability enhancers and significant price points, even if individually some of those line items might be subjective. That spreadsheet can double as a good trade tracker as well where you can (again, objectively) assess your performance and if necessary adjust your strategy.

 

[Jamojones]

Probability--ostensibly, the probability of earning profit on a position--is a function of future underlying movement, not of position type. /Reward--the amount you may lose or gain, the latter of which may also be a statistical probability though the former should NOT be--is a function of all manner of things including position type and underlying movement. Both most be assessed at the same time; reality is far too nuanced to make blanket statements that pertain just to one or the other.

In fact, its a really good idea to actually build a spreadsheet that calculates the overall worthiness of a position based on objective rack up of probability enhancers and significant price points, even if individually some of those line items might be subjective. That spreadsheet can double as a good trade tracker as well where you can (again, objectively) assess your performance and if necessary adjust your strategy.

Strategy or position type have a great deal to do with probability of profit! I would say the that set up and management of the position have more to do with profitability then the actual underlying movement.