Wiki Selling TSLA Options - Be the House

[bkp_duke]

Hello, my first post here. I have been following this forum now for the last few months. I sold a CC expiring Feb 12 $1075 (sold when SP was $770). I cant believe that I am actually now getting worried about it. I do not want my core shares to be called away because the cost basis is low. I am using TDA currently. I applied for portfolio margin. Can someone please guide me about buying shares on margin in case the SP gets to $1075?
Thanks!

If you don't want your shares called away, read about rolling the call (it's too early now, you want to take advantage of more time decay as the the call expiration gets closer).

Probably the Thursday before expiration, or the Friday of expiration, you simply "Roll" the call to a higher price, at a later date. Pocket the difference in premium, and be happy that your shares are not called away.

EDIT - @ammulder beat me by 2s, tops!

 

[gabeincal]

If you don't want your shares called away, read about rolling the call (it's too early now, you want to take advantage of more time decay as the the call expiration gets closer).

Probably the Thursday before expiration, or the Friday of expiration, you simply "Roll" the call to a higher price, at a later date. Pocket the difference in premium, and be happy that your shares are not called away.

EDIT - @ammulder beat me by 2s, tops!

What if they are getting close to ATM? Do you still wait until last Fri and even let them go into ITM?

 

[bkp_duke]

What if they are getting close to ATM? Do you still wait until last Fri and even let them go into ITM?

I've been looking at what the difference between the call price + strike price vs. share price (is that delta?)

Example:
$700 Calls today are about $145 at the time of this post, with a share price of $845. So there is no theta left to decay it seems, so it would look like a good time to roll those calls (I rolled them earlier, but it is an example).

If the call price were say $165 and no other variables were changing, that's a lot of difference and I would only roll if the new call had an even higher difference.


Sorry, still learning all the terminology, so someone correct me please if I am wrong.

 

[Budding]

Don't panic! You have time yet. If you read up the thread a bit, you will see many people discussing rolling the call (effectively, buying your Feb 12 $1075 back and selling perhaps a March or April one at a higher strike price, where the total transaction gives you a little profit and more room for the price to run before threatening your new call). That wouldn't require using margin.

The one thing I'll say about opening a new margin account is that when I did it, I got an approval note early some morning, and the margin numbers in my account made zero sense for that whole day. I thought I completely misunderstood margin, but it was just that the numbers didn't settle until the following day. Maybe your broker is better, but if the whole thing seems whacked when you're first approved, give it a day.

If you don't want your shares called away, read about rolling the call (it's too early now, you want to take advantage of more time decay as the the call expiration gets closer).

Probably the Thursday before expiration, or the Friday of expiration, you simply "Roll" the call to a higher price, at a later date. Pocket the difference in premium, and be happy that your shares are not called away.

EDIT - @ammulder beat me by 2s, tops!

Thanks for the input! I think I will roll it over in that case. Margin seems so stressful if the price drops. But the reward would be much higher as well. Well, I would like to sleep okay at night so will pass on those potential gains.

 

[juanmedina]

Wow I have the worse timing ever. I always sell weekly call and when I venture into selling longer term calls I get train railed. I am also moving my accounts from Vanguard to E-trade so I can't do absolutely nothing. Congrats to you guys who are available to capitalize on this amazing run.

 

[adiggs]

Wow I have the worse timing ever. I always sell weekly call and when I venture into selling longer term calls I get train railed. I am also moving my accounts from Vanguard to E-trade so I can't do absolutely nothing. Congrats to you guys who are available to capitalize on this amazing run.

I'm feeling the same

Which is kind of silly when the portfolio has gone from "enough" to retire, to 50% more than "enough". It's fun making ever increasing amounts of money, whether realized or unrealized. But it also can't go on forever (duh). It CAN go on longer than individual investors can remain solvent - that's the nature of markets.


The trade I've been covering here is working as intended, even if the call I rolled to next week yesterday is now $100 ITM. Pretty good timing on getting that rolled; it'll be worth $14 in incremental earnings between now and next week.

I haven't looked, but I'd guess that there won't be a desirable roll next week, and it'll be time to bow out with a $35+$9+$4 gain in 2 weeks (on the call side). That's a good result. It's a lot less good than buying the shares at $735 and simply holding.

I guess this is an example of what somebody else pointed out - you pursue this general approach to smooth out the highs and the lows. It hurts to the upside (such as today), but is beneficial to the downside. And I'm more focused on alleviating pain from downside moves (more exposure to upside, but I also want to avoid needing to work again on a 50-80% downward move).


I also have a sizable 900c expiring in Feb that was really far OTM when I sold it. It's still OTM so 100% of it's ~$90 premium is time value. Much too early to roll. So I'm letting it run, and semi-hoping for flat to down for a month from here.

 

[phantasms]

I sold a Feb $1010 call for about $1k a couple weeks ago.

I think I don't want to lose those shares. It looks like I could sell a June $1250 call for $10k. June would put me into short term tax. I could then buy back my other call for $6k and be up the $4k.

Thoughts?

 

[sub]

How many of you are selling calls against all your shares vs only part of them? I'm playing with a strategy (papertrade, backtesting) where I only sell 10-20% CC at a better premium and then use the rest for planned adjustments as price moves against my CC's. Combining it with another position to neutralize delta. If it works well I'll discuss here.

 

[gabeincal]

How many of you are selling calls against all your shares vs only part of them? I'm playing with a strategy (papertrade, backtesting) where I only sell 10-20% CC at a better premium and then use the rest for planned adjustments as price moves against my CC's. Combining it with another position to neutralize delta. If it works well I'll discuss here.

i’m one of those selling CCs against all my shares. Sold feb 9 920s that I just rolled to feb 26 975s but I might have to just tap out in Feb.... Crazy price action doesn’t work with covered calls Hey, you can’t always get what you want...

 

[sub]

Yeah, this has to be tracking funds still buying in. I've been working on a strategy since S&P inclusion was announced with the plan to wait until after Q4 earnings dust has settled. The premiums were crazy high last month, it was tempting.

 

[ReddyLeaf]

FYI, IV must through the roof, or the MM are just plain manipulating. In what alternate universe does a DOTM put become MORE valuable when the underlying SP rises 8%? The 2/19 585p that I sold weeks ago is UP 16% today. They just want to twist the knife and not allow me to buy back, thereby freeing up the cash to buy the stock. Damn. Well, screw you MM, I bought in another account and sold 3/19 1000c at $80 against it. I’l wait for that put to expire worthless and then reevaluate after the earnings announcement.

 

[Oil4AsphaultOnly]

How many of you are selling calls against all your shares vs only part of them? I'm playing with a strategy (papertrade, backtesting) where I only sell 10-20% CC at a better premium and then use the rest for planned adjustments as price moves against my CC's. Combining it with another position to neutralize delta. If it works well I'll discuss here.

Another one who sold cc's on all my shares. I had already sold all my trading shares before (applying the wheel there), and just go greedy and sold CC's against my core holdings.

This is in my IRA, so was able to roll the ITM CC's without having to worry about CGT's.

Been trying to understand bxr140's posts about there being better risk/reward trading strategies, but I still don't get it. So I'm sticking to the wheel and rolling CC's, because I figured it's better to profit less doing what I know than to do something I don't understand in hopes of earning more.

 

[juanmedina]

I'm feeling the same

Which is kind of silly when the portfolio has gone from "enough" to retire, to 50% more than "enough". It's fun making ever increasing amounts of money, whether realized or unrealized. But it also can't go on forever (duh). It CAN go on longer than individual investors can remain solvent - that's the nature of markets.


The trade I've been covering here is working as intended, even if the call I rolled to next week yesterday is now $100 ITM. Pretty good timing on getting that rolled; it'll be worth $14 in incremental earnings between now and next week.

I haven't looked, but I'd guess that there won't be a desirable roll next week, and it'll be time to bow out with a $35+$9+$4 gain in 2 weeks (on the call side). That's a good result. It's a lot less good than buying the shares at $735 and simply holding.

I guess this is an example of what somebody else pointed out - you pursue this general approach to smooth out the highs and the lows. It hurts to the upside (such as today), but is beneficial to the downside. And I'm more focused on alleviating pain from downside moves (more exposure to upside, but I also want to avoid needing to work again on a 50-80% downward move).


I also have a sizable 900c expiring in Feb that was really far OTM when I sold it. It's still OTM so 100% of it's ~$90 premium is time value. Much too early to roll. So I'm letting it run, and semi-hoping for flat to down for a month from here.

Maybe we are addicted to money . We also hit our more than "enough" to retire number and I wonder what is the end goal because even thought we hit our goals this continues to be stressful. My wife is upset at me about selling the calls and the potential of loosing our shares LOL.

 

[adiggs]

Maybe we are addicted to money . We also hit our more than "enough" to retire number and I wonder what is the end goal because even thought we hit our goals this continues to be stressful. My wife is upset at me about selling the calls and the potential of loosing our shares LOL.

Funny - my wife and I JUST ended that same conversation (keep the shares, the 840 calls I sold for '22 are looking particularly bad, ..). I'm trying to get her to see the worst case end result (that account would be up > 2x) to the upside, and that the possibility (back then) of the shares going down was made less risky.


My view on things is that as long as this is fun to me, I'll continue. And I'll be keeping a very close eye on the risk. I view the option sale income as mitigation to a downside move, which by the way I consider to be inevitable sometime in this decade (now to 2030). In particular I think that we'll see at least a 50% move down at some point. And 2 or 3 of them wouldn't surprise me. It might be from $2000/share to $1000/share - that'd be ok in my book.

At the strategy level, I'm now spending as much time on downside risk mitigation as I do on income or growth.

 

[adiggs]

In my non-mathematical way, I believe I'm seeing IV increase today (it needs to be a reasonably large increase to be able to see it so clearly in option prices).

One example - I sold the Sep '21 600p awhile back (shares in the mid 400s at the time). I figured >600 by September was easy mode (that's aged well).


Anyway today on a $46 move up (should drive the put premium down), that put premium is current down 25 cents ($0.25). I'd have expected something closer to $10 to 20.

The good news on that position is that the put premium is decaying fast enough ($225 down to $77) that it has me thinking early close when I was originally thinking that July would be the earliest that an early close was something reasonable to do.

 

[dakh]

I wouldn't quite go that far as the wheel--when applied conservatively--can be pretty safe, and is a good entry into selling options. It does have the downside of fooling people into believing its all easy/free, but I've soapboxed enough on that topic...

I'd say the most important thing with the wheel is to not use it as a primary trading strategy, because there are much more efficient ways to earn weekly/monthly/annual profit. Its a great secondary strategy for otherwise unused capital that, when appropriately used, can again be pretty low risk.

Any hints on which ones to start researching? Just simple spreads and verticals?

It is true that the big downside of selling options is that one bad cycle can wipe out multiple cycles of profit. This can be realized in a few ways, one of which is to cut bait at a loss and reset the whole strategy. The value to this, as you rightly note, is that it gets you right back to whatever optimized positions your strategy defines. Another exit strategy is rolling the underwater position every cycle until you get back to the surface. I prefer this method, and I hard-rule that rolling is never done at cost to me, so it can sometimes take quite a few cycles as the rolls are typically to less than optimal strikes. Paying to roll really isn't an <ahem> option in this situation--for instance, one strategy would be to pay as much to roll the underwater contract as you collected on that contract [before it went underwater]. While certainly plausible, this basically leaves you with the best case scenario of breaking even over the two cycles...and potentially more cycles of the winds don't shift in your direction. While opinion vary widely, for me its a bad deal to tie up capital to make literally no money...

So if we go back to the current TSLA situation. My mistake is I entered a -C780 position late on Tuesday when TSLA was at 735 because I saw the stock being relatively stable and I thought Ok, looks like the S&P shenanigans are over and I can dip into the call selling again. Seemed pretty safe to me. Now we got this monster spike and today I'd then need to come up with a prediction on where this is going to go next week. If we go by the story line that S&P benchmarked funds are the buyers and there's a ton of them still hungry (i.e. keep going up or stays where it's at), the logical thing to do would be to simply get assigned and go to selling puts side.

What I'm getting from your post here is a shift in mentality that I needed. Instead of thinking "let me make some extra from my TSLA holding while it's stagnant" I need to be thinking "here's your $400K working capital, what are you gonna do with it to get some returns". This is super valuable, thank you!

 

[dakh]

I think out of my -5 780c I'll let 3 get assigned, roll 1 into ATM and pay the difference (given the AH action might be substantial), and roll 1 for neutral cash whatever that strike price ends up. And see how they do.

Ok so I rolled this week's -1 c780 to next week's -1 c800 for free and another -1 c780 to next week's c860 for -$4300. The other 3 contracts are getting assigned, for about $26K of a "loss" vs underlying, that I got paid about $1K for lol. That is where the sting really is, once the OTM call goes deeper ITM, whatever you got paid for it is peanuts compared to what you're missing out on in the underlying appreciation.

I'm thinking it might be wise to just set stop loss orders on these contracts once the underlying goes ITM, to limit the exposure to the part of the curve where we're not primarily selling time decay anymore.

Or just use a different strategy that is more pure time decay play.

Poor me, this $30K loss might just be what I'll be missing to reach a 7 figure gain for this week.

 

[adiggs]

If we go by the story line that S&P benchmarked funds are the buyers and there's a ton of them still hungry (i.e. keep going up or stays where it's at), the logical thing to do would be to simply get assigned and go to selling puts side.

My hypothesis is that the primary driver of this move up is that the index funds DID get the shares that they needed. However the various actors in the market that benchmark their results against the S&P 500 don't have all of the shares that they want.

Thus the overall situation is a huge reduction in the supply of shares (the 100M+ that got into the index fund hands), while demand is effectively unchanged or even increased. Supply / demand imbalance like that - the share price is going up until the new balance point that yields roughly equal supply and demand is underway.

Back before inclusion I thought (with no math behind it) that the balance would be somewhere in the 600s. Now - I really don't know where that balance will be found.


I've seen this sort of "OMG - we've got the wrong value on this company" back in 2013. That turned into a roughly 6x move over 6 months. 6x from the inclusion announcement would take us into the $2400/share range, and probably another split. I have a hard time saying that I really think that is what will happen, but recent prognostications along these lines have been wrong

 

[redan]

The other 3 contracts are getting assigned, for about $26K of a "loss" vs underlying, that I got paid about $1K for lol. That is where the sting really is, once the OTM call goes deeper ITM, whatever you got paid for it is peanuts compared to what you're missing out on in the underlying appreciation.

Did you explore rolling out for a longer period, at a much higher strike, to remain cost-neutral on the roll but if eventually called, it would be at a much higher strike? There are a lot of new really high strikes being opened each day. I'd hate to let the shares go at $780.

 

[LN1_Casey]

How many of you are selling calls against all your shares vs only part of them? I'm playing with a strategy (papertrade, backtesting) where I only sell 10-20% CC at a better premium and then use the rest for planned adjustments as price moves against my CC's. Combining it with another position to neutralize delta. If it works well I'll discuss here.

I only have enough shares to sell 2 covered calls at a time since I sold some to buy my car. However, that being said, I only sell one at a time, so I'd always have a nice little pile if one was called away. Further, if the 2nd 1/2 of my shares were called away, the taxes would be super painful as they're not all long term yet and they all have a fairly low average. So I avoid touching those.

That being said, I have bought back the covered call for next week $950 I sold for a painful amount. Ah well, lessons learned. Sold a 800 put instead to almost make it up. I'll probably sell more semi-aggressive puts, as if it does pop, it'll be margin, and then I can sell covered calls against those shares (which would all have the same buy date, nicely), as well as a much higher price point so I'd not have as much taxes were it to be called away.