Wiki Selling TSLA Options - Be the House

[st_lopes]

Another week and this covered call contract (770c for this week expiration) is even deeper ITM than it was last week.

The decision to make this week - roll or let it go to expiration. Letting it go to expiration this week will yield $35 buy/sell profit on the shares plus $13 in premiums ($48 in 2 weeks; I'm happy with $10 in 2 weeks).

As a reminder, I've opened this covered call primarily to investigate and get experience with rolling contracts. And I am particularly interested in exploring, in a skin-in-the-game way, these deeper ITM situations.


As of this moment (Tuesday of expiration week), the call strike is 770 with the shares at ~860 (theta = 1.58). $90 ITM. The option is selling for ~$92. Resolving those approximate values gets me to a time value as of this moment of ~$2-2.50. That's getting pretty low, so I went looking, and surprising to me - there are decent rolls available. It might be that waiting until later in the week will be better or worse, but I know I can do well right now.

Choices I've evaluated (I haven't yet bothered with keeping the strikes the same):
- Jan 22 775c for a net 4.60 credit (and $5 improvement in the strike); theta = 1.52
- Jan 22 780c for a net 0.40 credit (and $10 improvement in the strike)

- Jan 29 780c for a net 16.60 credit (and $10 improvement in the strike) (theta = 1.59)
- Jan 29 790c for a net 10.45 credit (and $20! improvement in the strike) (theta = 1.66)
- Jan 29 800c for a net for a 4.45 credit (and $30!! improvement in the strike)
- Feb 5 800c for a net 14.80 credit (and the $30 improvement in the strike). $4 credit + $10 strike improvement over the 2 week / 790.

As an additional point of comparison, the Feb 19 850 strike call yields a $4 credit, while the March 900 strike yields a $10 credit. I'm not interested in either position, but it does help me understand the range of strike improvements that might be available.


I think that the Jan 29 790c is my best bet. The credit keeps me in the $4-5/week range, and the strike improvement is noticeably better than anything in the 1 week roll. If I let this go to expiration, then I'll be adding $30 and change to the overall position profit in the next 2 weeks (really 13 or 14 trading days).

The alternative I would consider is the Jan 22/775c. I'd like to keep the weekly credit in that $4-5 range, so that if the shares come back in a big way and the calls go OTM, then I'll have a good week to week premium left over.


My decision for now - time decay is approximately the same on all of the positions I'm considering, so wait. I'll allow this position to continue aging and keep an eye on evolving possibilities.


On the put side, I rolled up all of my puts (715 and 760 strikes) to 795 expiring this week. That gets me $5 in premium to age over the remainder of this week instead of $1. The 795 strike was chosen for being just the other side of $800.

My only add'l thought, which I am now just repeating, is to consider timing of ER. On announcement of date, I expect that the IV for contracts in that week will spike significantly. Would make for an interesting opportunity to maximize your extrinsic value.

 

[st_lopes]

Busy day...

Closed 1000c 01/15 at 80% gain. Sold 920c 01/15 for this week, only on the shares that I need to sell in coming weeks.

Rolled 03/19 1000c to 02/19 900c for a slight credit. Clipped $10 premium on that. Will likely roll this batch to earnings week once date is confirmed and we see impact to IV on those calls.

Added to the 750p 01/15 pile with the additional margin buying power created from last week’s run up.

Added a lot of shares to the pile with clippings.

Clipped 750p 01/15 at 70% gains; opened 780p 01/22 at 13.44 average.

And just counting down the days on my 920c 01/15 and 900c 02/19. As mentioned upthread, I will look to roll the 900c 02/19 opportunistically, potentially to earnings week if the extrinsic value on those contracts are interesting.

 

[gabeincal]

That's pretty much it.

Why do you want to go so far our in CC? At 1055ish Tesla would have a 1T market cap... @FrankSG has a financial model so you can make a more educated guess choosing the strike and time for your covered calls. That model is somewhere in his blog here:. Tesla Investor Blog

I would add that if the SP makes another 5x this year, op will be scrambling to roll these contracts or buy them back for a huge loss. Or even worse, speculate for a drop in the next year or so and lose even more to the upside.

I would suggest selling cc for the desired / acceptable strike a lot closer in date!

 

[Sanny]

That's pretty much it.

Why do you want to go so far our in CC? At 1055ish Tesla would have a 1T market cap... @FrankSG has a financial model so you can make a more educated guess choosing the strike and time for your covered calls. That model is somewhere in his blog here:. Tesla Investor Blog

It is just my greed - the further out cc is the more premium I collect. My idea is that I will be happy if I sell cc 2 years out and it executes in the next 2 months or so.

 

[gabeincal]

It is just my greed - the further out cc is the more premium I collect. My idea is that I will be happy if I sell cc 2 years out and it executes in the next 2 months or so.

But it doesn’t have to execute. You will be stuck in the position while the sp leaves you standing for years.

 

[Sanny]

But it doesn’t have to execute. You will be stuck in the position while the sp leaves you standing for years.

Maybe I misunderstand the mechanics? In my understanding for $1300 Jan 2023 CC the scenarios are 1) the price goes to $1300+, my CC executes and I cash out 2) the price goes down from now and I can either wait or re-buy the CC cheaper 3) the price goes up but does not reach $1300 - I'm stuck with my position unless I want to re-buy the CC with a loss.
Anything I miss here? I'm genuinely trying to understand all possibilities.

 

[MP3Mike]

1) the price goes to $1300+, my CC executes and I cash out

It doesn't automatically execute. The person holding the call can wait and execute it whenever they want to. As soon as it hits $1,300, a month later, 1 week before expiration, or at expiration. (So they can use their $130k for another 2 years to earn more money while they wait to execute the call, while you are stuck holding the shares and CC for 2 years before you get your cash.)

 

[gabeincal]

It doesn't automatically execute. The person holding the call can wait and execute it whenever they want to. As soon as it hits $1,300, a month later, 1 week before expiration, or at expiration. (So they can use their $130k for another 2 years to earn more money while they wait to execute the call, while you are stuck holding the shares and CC for 2 years before you get your cash.)

Yep, what he said!

 

[ReddyLeaf]

I would add that if the SP makes another 5x this year, op will be scrambling to roll these contracts or buy them back for a huge loss. Or even worse, speculate for a drop in the next year or so and lose even more to the upside.

I would suggest selling cc for the desired / acceptable strike a lot closer in date!

If the SP does 5x this year (well, that’s about $4000), I promise to never sell another put again. Now CCs, that’s another matter. I will sell one of those every year until I die.

 

[LN1_Casey]

If the SP does 5x this year (well, that’s about $4000), I promise to never sell another put again. Now CCs, that’s another matter. I will sell one of those every year until I die.

IDK, selling a put seems safer in a bull Tesla marker than selling CCs. Not advice, of course.

The OP was about selling a CC at $1300 for 2023 and the possible repercussions thereof.

 

[juanmedina]

If the SP does 5x this year (well, that’s about $4000), I promise to never sell another put again. Now CCs, that’s another matter. I will sell one of those every year until I die.

I looked through @FrankSG financial Model published on May 24, 2020 and in his Bull case for 2022 Q4 was $4438 presplit prices or 945B market cap. Is there an updated model Frank lol?

My TSLA Investment Strategy

Do people really see 5x this year? more than 2x Apple?

 

[Sanny]

Thanks! That's the part I was missing.

It doesn't automatically execute. The person holding the call can wait and execute it whenever they want to. As soon as it hits $1,300, a month later, 1 week before expiration, or at expiration. (So they can use their $130k for another 2 years to earn more money while they wait to execute the call, while you are stuck holding the shares and CC for 2 years before you get your cash.)

 

[ReddyLeaf]

IDK, selling a put seems safer in a bull Tesla marker than selling CCs. Not advice, of course.

The OP was about selling a CC at $1300 for 2023 and the possible repercussions thereof.

I looked through @FrankSG financial Model published on May 24, 2020 and in his Bull case for 2022 Q4 was $4438 presplit prices or 945B market cap. Is there an updated model Frank lol?

My TSLA Investment Strategy

Do people really see 5x this year? more than 2x Apple?

Seriously, I don’t expect a 5x SP this year, next, or even by 2023. If/when it gets that high, it will be ludicrously past my retirement number, and I won’t care about losing shares through a CC. Heck, I was just looking at strikes and noticed there are $1700s available up to Mar2023, which if I could sell for $300, would be past my number. I’m not interested in islands, just helping the transition to a carbon free economy. As it is, some of my profits are going back to Tesla when I buy a new vehicle, solar panels, and PowerWall for myself and family.

 

[ammulder]

IDK, selling a put seems safer in a bull Tesla marker than selling CCs. Not advice, of course.

LOL, Tesla volatility...

So last Friday, I recalled reading all these posts about selling a weekly put on Friday to capture the weekend time value decline... wanting to be aggressive, with the stock at $880 I sold an $860 put for 1/15 for $38. Then the price declined to like $865 after hours, which was a little uncomfortable, but there’s always that big Monday jump...

...until there isn’t. I just about vomited when the put price went over $60. OK, I was telling myself I wanted to be aggressive to try the wheel rotation, but it’s little consolation when the stock price goes $40 below the strike-less-premium... meaning if I then switched to selling a covered call it might be hard to get much money for a weekly call and still set the strike price to $860 so I’d be making back the money I’d have to put up when the put was exercised...

All right, suffice it to say I’m much happier today. This may yet workout fine. (But it also may not.) I certainly wasn’t anticipating a $70 decline the day after I sold a put! Why didn’t one of you geniuses tell me to capture the weekend time value decline *except at the end of a giant win streak*?!?!

...to be continued...

 

[gomchi]

LOL, Tesla volatility...

So last Friday, I recalled reading all these posts about selling a weekly put on Friday to capture the weekend time value decline... wanting to be aggressive, with the stock at $880 I sold an $860 put for 1/15 for $38. Then the price declined to like $865 after hours, which was a little uncomfortable, but there’s always that big Monday jump...

...until there isn’t. I just about vomited when the put price went over $60. OK, I was telling myself I wanted to be aggressive to try the wheel rotation, but it’s little consolation when the stock price goes $40 below the strike-less-premium... meaning if I then switched to selling a covered call it might be hard to get much money for a weekly call and still set the strike price to $860 so I’d be making back the money I’d have to put up when the put was exercised...

All right, suffice it to say I’m much happier today. This may yet workout fine. (But it also may not.) I certainly wasn’t anticipating a $70 decline the day after I sold a put! Why didn’t one of you geniuses tell me to capture the weekend time value decline *except at the end of a giant win streak*?!?!

...to be continued...

I did the same too. Lets hope this works...

 

[TMThree]

I've been doing options for a while but I never hold them to the end. How does a multi leg option work when you get to expiration? do people tend to exit early or can you sit on it till the end? or is this a dumb question because each type of strategy might be done differently?

I'm looking at what happens to calendar spreads and straddle if you go to expiration.

 

[sub]

Can anyone help me with the math on when to buy back this weeks options and sell next week? Mine are down to .12 so not much profit there. Seems rolling to next week is the route to go. Anyone have a formula on when the exact right time is to roll to another option based on option value and theta?

 

[adiggs]

FWIW, I'd probably suggest another weekly (if you can) on the roll, and then next week do a 2-3 week roll depending on where premiums end up. Another week will allow volatility to run up toward earnings (if you think that's going to happen) and as you've noted upthread, ~3 weeks is a pretty good sweet spot for playing the sell-for-income game as opposed to weekly, and hopefully that maximizes capture of post earnings volatility drop.

This makes good sense to me, and is also in alignment with the other purpose of this position (besides making money); gaining experience and learning with these sorts of situations. So a 1 week roll is better than a 2 week roll as it generates experience twice as fast! Or something like that.

I do think volatility will run up into earnings. Assuming earnings between 1/22 and 1/29, then hopefully that volatility increase will be well underway by 1/22.

 

[adiggs]

My only add'l thought, which I am now just repeating, is to consider timing of ER. On announcement of date, I expect that the IV for contracts in that week will spike significantly. Would make for an interesting opportunity to maximize your extrinsic value.

This is probably what I will do - the ER related points you and @bxr140 have made are good ones.

The tricky thing here is that I won't be able to do what I would really like to do in this situation - sell the new covered call the day of the earnings announcement. I'll need to keep the position alive via a roll, so I don't have the choice of closing on 1/22 and then opening a new position on 1/26 or something like that.

But hopefully some or most of the volatility will be in the option prices by 1/22 - that is as close as this particular roll will get to earnings (due to the call contract being so far ITM).


However I've also been selling puts as we go along, and staying out of any new put positions after 1/22 also makes a lot of sense to me.

 

[adiggs]

Can anyone help me with the math on when to buy back this weeks options and sell next week? Mine are down to .12 so not much profit there. Seems rolling to next week is the route to go. Anyone have a formula on when the exact right time is to roll to another option based on option value and theta?

I usually roll winning option positions at 2/3rds to 4/5ths profit. That sometimes means rolling towards the share price (same expiration) as the shares have moved so far away. I've done that this week with some puts that had decayed down under $1 (up to about $5 - $4 more to decay over the remainder of this week).

The general guidance I've seen from other sites that are teaching specific trading strategies is more like 50-67%. The more aggressive closes frees up capital to open a new position, and you've already captured a lot of the value in the position.


One criteria I've used, though not systematically, is to compare of theta on the current position to the theta on the new position I want to be in. When the new position theta is higher (and I go for noticeably higher to avoid over trading), then that's a good indicator to me that it's time to roll. The way I've thought about this previously is that when the option price has decayed (using a made up example) from $10 down to $1, then there just isn't as much opportunity to earn $ (in absolute dollars). In that case a new position at $5 will probably have a higher theta; it will definitely have more premium to be decaying.

In your case, that position only has another $0.12 to be earned. If there's a new position that you like better then it's time to move.

Yet another way - taking the position as it is, not as it has evolved, would you open that position today? Is there a different position you would open today using those same resources? If you wouldn't open today, it's time to close; if you have a different position you would rather be in, then it's time to make that shift.

(MHO. not advice)