Wiki Selling TSLA Options - Be the House

[adiggs]

I just read over the last page and all of the specific trading approaches, decision making, and related details and I am simply in awe. My big thinks to all for that. Thank you all for the details, the scale of the results you're producing, and so forth. This is exactly the sort of information and detail that I was hoping we'd have many people contributing to.

I handed out lots of likes and informatives.


It seems that I'm a slow learner but I'm closest in approach, current results, and decision making as @Mokuzai is using. I'm not all the way there yet as I've got some longer dated positions (2 month calls when I opened) to be close to expiration, before adopting pretty much that identical strategy for myself. I'm also working at a similar order of magnitude, as (like them), my retirement date is tomorrow. (And to be clear, I arrived at that approach separately, and even if I hadn't - I'm still making my own decisions, choosing my own strikes, and experiencing my own consequences).

So generating a relatively small amount of income is a pretty nice bonus for retirement, while also being unnecessary. I like the additional choices in life that this provides and more important, I enjoy the process (I like following the economy, TSLA, and business in general).

 

[dl003]

As for me, I took a Kirkhorn-esque approach and target 1% return on my capital each week. That's 50%, if achieved, which can afford a generous retirement with just $200k in the account. Each week, I sell about half of my short strangle target on Thursday of the week before. Since I'm using PM, I can be quite safe with my strikes. Right now my system consists of calls 25% above and puts 20% below the stock price. When Monday rolls around, I sell more as I gauge how TSLA performs for the week. I roll them daily when the stock moves violently in one direction. According to historical data, +25% / -20% seems to be the max range for the stock in any 5 day period, apart from big/black swan events. As the week progresses and the stock doesn't make any big move, I start tightening the strangle, collecting more premium. I prefer starting out with a loose strangle and working my way in, over starting tight and rolling my way out.

 

[adiggs]

Going into 2021 I had the goal of generating at least $5k/week by trading options. My employment was eliminated due to a merger but TSLA has made employment optional. Ended up with severance, bonus and unemployment so feels like I'm getting paid to take early retirement. Started looking into short strangles as an income generation strategy.

Basic strategy is on Wednesdays I'll sell calls and puts for the following week. If any leg is ITM on expiry day then I roll that leg two weeks out. I watch the market every day in case I need to react to something but basically only have to act one or two days a week to keep it going.

Started out looking about $75 above and below the trading price as my entry points. This ended up being way too close on the call side but fine on the put side as the SP rose through the early part of this month. This is mostly gut feel and also admittedly getting greedy on some of these premiums. If I were more concerned with getting close to $5k I could be playing much safer bets. The original call started at a $750 strike and it's been rolled twice in $10 increments and now at $770 for next Friday.

These are the trades so far and how it's tracking on a weekly income basis. For tomorrow I have a trading range of $750 - $950 so unless something big happens today/tomorrow I can let those expire worthless. This will be the first week since starting that I might not have to roll anything. Feb 5th has a trading range of $755 - $770 so I'll likely be rolling the call to Feb 19th.

I count the weeks as the expiration of the contract or the expiration that I roll into. Also have the SP low, high and close of the day I made the decision to see what environment I was working with at the time. For example on the 8th my $750 call was expiring with a trading range of $840-$885 but was still able to roll for a $6.50 net credit. On the 15th my $830 call was expiring and it closed at $826 but was too close for comfort so rolled to tomorrow's $950 for a $7.50 net credit.

Obviously not advice and I'm still learning (and profiting) from mistakes but this is working out pretty well for me so far. Though these things tend to work until they don't. I expect the gains will pull back some now that we're past earnings.

Also wanted to thank everybody in this thread for the "not advice". There is a wealth of knowledge, experience, successes and mistakes to learn from here.

Great stuff. I think you're at least a month or two ahead of me with very much this approach. The short time I've been doing it, I really like it.

One idea I have for you to help with that instinct/gut based approach to choosing strikes (that is also trivial to implement as I think every broker making an options market provides you direct access to the greeks in the option chain) - choose the strikes based on delta and/or Prob ITM. I've been aiming at .35 deltas so far, and experiencing the same dynamic you've been experiencing; works great on the put side, but not on the call side.

I'm also cognizant that if we enter an extended downturn in TSLA (a month, 6 months, ..), then it'll be the puts that are performing badly instead of the calls.

That being the case, there are notions I'll be exploring as the details of this approach evolve for me, and that might also be useful for you:
- To mitigate the risk, I might go down to something closer to a .25 or .20 delta on the sales. That'll spread out my strike prices and likely get me to something closer to where you're at.
- I might also choose different starting delta on each side. One idea I've previously had was to aim for a .30 delta on the call side, and a .35 delta on the put side. Could do that with any split, in effect shading myself to either side based on my view/read of the larger macro economic / business / stock market / TSLA dynamics..
- Rather than weeklies, I've begun doing every other week. Using delta to choose my positions will naturally widen them relative to the 1 week options, while providing me with the desirable result that I don't need to follow closely on a weekly basis.

Oh - and I don't use margin to cover the puts (or at least, trivial levels - so far the margin has been used to round up 1 lot; if the cash I'm willing to use for this is good for 10.3 lots, then I might use enough margin to roll up to 11 lots).

And if we ever see a situation even vaguely similar to GameStop developing, I'll go to all shares / fully cash secured.

 

[dl003]

This week has truly been a nerve wrecking week for me. The way the stock started the week out, it looked like it could break 1,100 with a brilliant ER. On Wednesday, I rolled my 650 puts to 755 in anticipation, only to have it crash majorly AH and PM. I'm relieved it all worked out today.

My friend gave me an idea for a trade: sell 100 shares to buy 5x 800/1700 call spreads expiring Jan 2023.
The breakeven point is around 1020. I start losing money if TSLA breaks above $4500 by Jan 2023. What do y'all think about this?

 

[juanmedina]

It is most probable that IV will go down over the coming days/weeks, though magnitude and duration is always a bit uncertain. FTR, save for the early 2020 post-earnings (pre-covid) rally which spiked IV, all earnings in the past few years have seen a post-report decrease in IV.



I've had weekly 725/700 put credit spreads open for a few weeks now and earlier today I rolled them to next week. I'd normally go for a slightly farther expiry, but I don't want the associated stress so I'm keeping it short. ~$720-725 is a decent (not super strong) price point. I'll wait and see what happens with IV next week to see if I just close or roll again.



From a perspective perspective, I made ~$550k in January (closed yesterday before the bell) buying TSLA calls. $208k capital, ~250% profit in 29 days, which (for better or worse) is actually where I was 10 days into the trade....

I could stop trading for 3 years and a parallel selling strategy still probably wouldn't catch up.

There is nothing impressive about selling options.



As noted upthread a few times, Thursday AM is the traditional/typical time to roll weekly options. You usually don't want to roll earlier than that because you miss out on a ton of time decay. You also usually don't want to wait until Friday because often the following week's contract will actually have more time decay.

I was wondering the same about the IV.... it didn't go down much after earnings on the covered calls that I sold.

Also, we didn't hit 100 IV before earning like what people were expecting.

 

[bxr140]

My friend gave me an idea for a trade: sell 100 shares to buy 5x 800/1700 call spreads expiring Jan 2023.
The breakeven point is around 1020. I start losing money if TSLA breaks above $4500 by Jan 2023. What do y'all think about this?

I'd ask yourself:
--what's the entry logic?
--what's the target logic?
--whats the exit logic?
--what is your outlook on TSLA?
--what's the overall goal of the trade relative to your portfolio?

In general, a debit spread with calls is is generally used to hedge against volatility dropping with an otherwise somewhat bullish outlook, strike choices better defining that outlook. A super long dated debit spread ends up with pretty low ∆, pretty low volatility sensitivity, and obviously low theta, especially on the front end of the trade. Here's the P/L, with the orange line being next Jan's numbers.

For me, that's not super thrilling, specifically because after a year the gains are pretty modest...but I'm also bullish on TSLA. Even the same position just a year shorter (so, Jan 22), for more or less the same price, pays out higher (and progressively) more at any underling above $1050, and that's not factoring in volatility which of course in Jan 22 doesn't make a difference on the '22 position but will make a difference on the '23 position (could be good or bad). Downside for the '22 position is obviously worse, but that goes back to your personal outlook on TSLA.

For me, being bullish, I'd probably buy far-ish expirations (12-18 months maybe?) at fairly OTM strikes (maybe 1200 or so?), in order to get better ∆/$ on the buy-in than something ~ATM. Then I'd strategically sell recurring ~1-4 week calls against the long calls in order to incrementally earn back initial capital and hedge/capitalize on volatility. But...I'd have to think about that more.

 

[bxr140]

I was wondering the same about the IV.... it didn't go down much after earnings on the covered calls that I sold.

What expiration? Remember that farther expiration IV moves much less than close expiration. IV30 had a pretty significant drop from ~80 to ~66. If you're playing earnings (= you're expecting to burn down sold option value via a post-earnings drop in volatility), you want to generally be closer in expiration. Weeks, generally, not months.

Also, we didn't hit 100 IV before earning like what people were expecting.

Certainly the run up to earnings was a bit of a dud considering other 2020 volatility spikes, but at the same time, IV30 = 100 was a bit of a hope-real-hard number as opposed to an "expecting" number.

Potentially good news is that IV may hit a post-covid ~bottom in a couple weeks.

Of course, if you believe 2020 to be an anomaly, your outlook on IV is much different.

 

[Jkaufm32]

Wow lots of strategy info from the last few pages. I'm very much so a noob at this, but I closed out my first ever options position with a nice premium under my belt from selling a covered call.

My question to everyone here is, usually what is the best day of the week to open a covered call?

 

[bxr140]

My question to everyone here is, usually what is the best day of the week to open a covered call?

If I could sum up the first rule of Fight Club, it is that It Depends.
But very generally, the more conservative the position (conservative = low probability of going ITM), the less it matters when you enter.

Proper entry analysis is a rack up of:
--Your personal outlook on the bear/bull spectrum vs timeframe (that's the primary driver for choosing strike and expiration)
--Volatility (current value on the low-high spectrum + directional probability)
--Technical indicators (strong price points, directional probability)
--Fundamental indicators ("TSLA is not just a car company", "TSLA is way overvalued for a car company"...this is typically less important with "normal" weekly/monthly covered calls)
--Upcoming events (earnings, battery day type one-offs, FED, etc.)
--Where you are on the set-and-forget vs maximize-through-management spectrum of position maintenance (this is probably more applicable to when you roll to the next cycle vs initial entry)

 

[adiggs]

It's day after earnings now and the shares are down around $837 as I write. The net result of the share drop plus the corresponding IV drop, when looking at the Feb 19 roll options, is that I can roll to the 840 strike for a $2 credit, with $17 of time value remaining as well. I am choosing to continue waiting.

When I looked earlier I thought I had seen a roll to 850 for a $2-3 credit - that was a big enough difference that I was going to take that (and I would right now as well if it were still on offer).

The continuing saga of what started as a 760c at the beginning of January.

When last we visited, the call had rolled up to 770, 775, and is now at 850 for Feb 5 expiration. The decision to not roll earlier in the week is looking particularly good today. Well - sort of.

The premium on it currently is about $30. I can roll that 805 up to 840 (.40 delta) and collect about $3 in credit. I replied to my previous post, partly to observe that despite the large drop in the share price today, the minimum credit roll option hasn't changed.

Since shares are at $802, this position is actually slightly OTM, meaning that it still carries $30 in time value. It turns out that is still too much to try and roll out and I have a choice. Roll now for approximately the same result that has been available, or wait and see where it goes.

Decision - I'm going to continue waiting. We're entering the really aggressive period of time decay and this time I've got a lot of time value to decay (where previously I mostly had intrinsic value that doesn't decay with time). I'm hoping for flat to down trading from here (for the sake of this 1 lonely call). Even somewhat upwards trading is fine - I'll be close enough ITM that when time runs low next week, there should be a large increase in the available time value when I roll this out to Feb 19.

This also reinforces for me, the importance of rolling when time value is low, rather than rolling when close to ATM.


In the other strangle I put on for taking this strategy for a test drive, the 865 leg of the 865/905 strangle is hanging out and hoping the shares don't go down too much more. But the 905 is looking delightful and has been rolled down to 850 still for Feb 5 expiration. That confirmed an 82% gain and opened a replacement leg with a $14 premium call. That is a $9 net credit, and puts more premium on the table as the aggressive final week of time decay is upon us. For those following along this turns the strangle into an 865/850 inverted strangle.

Finishing in the middle so both are ITM is actually an excellent outcome - both legs should be in range of their next desired strike from there with more than a minimal net credit to get there.

 

[corduroy]

I used today to finally close out some CCs that rolled multiple times after having gone negative during that big upswing. It feels good getting out with a profit and moving on to a fresh start.

Then I wrote a new put during the dip under $800. I'm waiting to see what happens before selling more calls.

On a side note, I am also now running the wheel strategy on ARK K/G. It's pretty low IV, but good practice for me to get more reps.

 

[juanmedina]

I used today to finally close out some CCs that rolled multiple times after having gone negative during that big upswing. It feels good getting out with a profit and moving on to a fresh start.

Then I wrote a new put during the dip under $800. I'm waiting to see what happens before selling more calls.

On a side note, I am also now running the wheel strategy on ARK K/G. It's pretty low IV, but good practice for me to get more reps.

I messed up with mine covered calls bad. Sold them at mid IV low SP and with a ton of time to expiration. I am wondering if I should take the 70k loss . My put spreads, nake puts for Tesla and AMC shares and options did well enough to break even lol.

 

[sjohnson]

I certainly don't have more experience than you , but I've been doing this for about a month so I'll comment. My goal was to get back in after selling at $595. Stock was dropping fast, I had LEAPS and a few core shares. Dumped everything. Around $500 I decided to get back in and read about this wheel thing.

My wheel hasn't spun much, but I did learn a bit:

• The sold put risk was fairly easy to accept. I wanted back in, so I sold a put for the price at that moment. If it dropped a lot lower, eh, I it's the price I would have happily bought in anyway so I'm no worse off.
• A corollary to that, as you noted, is if the stock went up much I could close my previous sold put and resell a new one at the new higher price. In that way, I wasn't missing out on much of the rise as the put premiums were covering much of it.
• The sold call risk, once assigned, was harder to accept. I could do the reverse on a price drop, keep reselling calls, but I didn't want to miss a big upswing
• So, adjustment to sold calls, take 50% of the premium and buy 2x those calls at whatever strike that could buy. If the stock is flat, I win. If the stock is up a little, I win or break even. If the stock goes WAY up, that 2x calls I bought more than makes up for it. Just leaving a window where I'd lose if it went up above my strike + 50% premium, but not enough to get offset by the higher strike 2x calls. Given how TSLA moves, that slow rise doesn't happen much now.

So far, I'm happy with it. There are gaps where it could be worse than buy and hold, but overall the sold call/put premiums seems to trim some of the volatility off my TSLA holdings. It does involve me being more active in trading. My trades this last month:

03/16/2020 Sold x TSLA Mar 20 2020 475.0 Put @ 30.5
03/23/2020 Bought x TSLA @ 475 (assigned due to the sold put, stock was ~435, with premium my basis was $445 so not bad)
03/24/2020 Sold x TSLA Mar 27 2020 535.0 Call @11 (expired worthless, yay!)
03/30/2020 Sold x TSLA Apr 3 2020 515.0 Call @ 24.92
04/01/2020 Bought x TSLA Apr 3 2020 515.0 Call @ 7.4 (bought back early due to the mid-week drop)
04/06/2020 Sold x TSLA Apr 9 2020 515.0 Call @15
04/13/2020 Sold x TSLA @ 515 (forced sell due to the call being exercised, stock was $575 )
_due to the above, here is where I adjusted by buying calls in addition to selling a put/call_
04/13/2020 Sold x TSLA Apr 17 2020 590.0 Put @ 22.5
04/13/2020 Bought 2x TSLA Apr 17 2020 640.0 Call @ 5.95
04/13/2020 Bought x TSLA Apr 17 2020 590.0 Put @ 11.73 (big stock rise, bought back my sold put on the cheap)
04/13/2020 Sold x TSLA Apr 17 2020 610.0 Put @ 19.75 (sell a new put closer to at-the-money)
04/14/2020 Bought x TSLA Apr 17 2020 610.0 Put @ 2.79 (again, big rise, bought back on the cheap)
04/14/2020 Sold x TSLA Apr 17 2020 710.0 Put @ 29.15
04/14/2020 Sold x TSLA Apr 17 2020 640.0 Call @ 80.21 (that 2x I bought in case of a big rise while selling puts? It paid off here)
04/14/2020 Bought x TSLA Apr 17 2020 710.0 Put @ 22.4 (again, buying back my put, probably premature and greedy on this one)
04/15/2020 Sold x TSLA Apr 17 2020 750.0 Put @ 29 (as of now, likely to expire worthless, yay!)
04/15/2020 Bought 2x TSLA Apr 17 2020 800.0 Call @ 10.3 (really curious to see what happens with this tomorrow...)

This last week has, obviously, been very active due to the stock move. Despite not owning any shares this week, I've done pretty well will the combination of sold x ATM puts and bought 2x OTM calls.

A covered call is equivalent to a short put so your strategy is like short one lower strike put while long two higher strike calls. That will cut down the profit from selling call by half. It is a quite bullish position that provides almost same amount upside as a long stock position however does not provide much buffer for downside. See attached screen.

 

[LN1_Casey]

Closing SP; 793.53, my put was left alone to expire at 850 (largely also because I didn't have internet access today until nearly close, and by then might as well ride it out).

MY ACCOUNT IS READY. Gimmy, gimmy, gimmy!

 

[gabeincal]

Closing SP; 793.53, my put was left alone to expire at 850 (largely also because I didn't have internet access today until nearly close, and by then might as well ride it out).

MY ACCOUNT IS READY. Gimmy, gimmy, gimmy!

What's your plan with the 850 cost basis shares? HODL and sell CC's against it?

 

[LN1_Casey]

What's your plan with the 850 cost basis shares? HODL and sell CC's against it?

Not HODL, as I'll be doing fairly aggressive CC's against it. Not loss-basis aggressive, but still well within realm to get called away. I like playing the put side more than the call side of the wheel.

 

[Yoona]

Great thread, guys. Does anyone have a spreadsheet formula (or a link to a site) that helps me calculate an exit to CC rolled multiple times? I have rolled up a CC maybe 4-5 times now and gained the credits. But the expiration dates moved up from Feb into Jul and I would like to bring it down earlier (Mar? Apr?) even if the final profit becomes smaller. The Asks have come down so I'd like to buy back as early as possible, even at breakeven or low gain.

Basically, enter my 4 trades, and it gives me the buyback ask/strike that will close a loop. Bonus if I can indicate I want premium $xxx final gain, for example.

I'm sure these are simple spreadsheet formulas. Any help is much appreciated. Thanks!

 

[corduroy]

I am liking the dynamic of this long call diagonal spread (poor man's covered call) that I have been running. I am selling short term calls against a Jan2023 $400 call that I bought in October. I was thinking of adding new LEAP, for the purpose of running this strategy.

Assumptions:
Very conservatively, SP will be over $1,200 at expiration and call will remain ITM the whole period.

Setup:
Buy a Mar2023 $600 call, priced around $41k right now. Delta .79, IV 79% (probably not the ideal time to buy LEAPs, I could wait for IV to decline for a better entry, which I expect is coming)

Sell a conservative (around 10% probability ITM) short call every 2 weeks. The premium amount will obviously vary through the holding period, but let's estimate $800 every 2 weeks. Rolling as needed. The 2 week expirations keep me in a good profit zone and allow me to be nimble with the changing conditions.

776 days, 55 cycles x $800 = $44k

So near expiration, I could end up with a DITM call with a $0 or even negative cost basis. Of course, I wouldn't have to hold until expiration and could exit if needed.

Does this sound like a reasonable idea, and an efficient use of capital for someone who doesn't have a huge amount of cash/margin available?

 

[Towly420]

I am liking the dynamic of this long call diagonal spread (poor man's covered call) that I have been running. I am selling short term calls against a Jan2023 $400 call that I bought in October. I was thinking of adding new LEAP, for the purpose of running this strategy.

Assumptions:
Very conservatively, SP will be over $1,200 at expiration and call will remain ITM the whole period.

Setup:
Buy a Mar2023 $600 call, priced around $41k right now. Delta .79, IV 79% (probably not the ideal time to buy LEAPs, I could wait for IV to decline for a better entry, which I expect is coming)

Sell a conservative (around 10% probability ITM) short call every 2 weeks. The premium amount will obviously vary through the holding period, but let's estimate $800 every 2 weeks. Rolling as needed. The 2 week expirations keep me in a good profit zone and allow me to be nimble with the changing conditions.

776 days, 55 cycles x $800 = $44k

So near expiration, I could end up with a DITM call with a $0 or even negative cost basis. Of course, I wouldn't have to hold until expiration and could exit if needed.

Does this sound like a reasonable idea, and an efficient use of capital for someone who doesn't have a huge amount of cash/margin available?

Hey corduroy,

I would like to see your outcome on this! I tried the PMCC and made similar calculations at the beginning. It worked pretty fine, but then the SP500 joined the game. The result: huge losses on the short calls and huge gains on the LEAPS. I know it’s the same problem with writing normal CC, but it’s more difficult to just exercise, because you give away a lot of time value. I just closed everything, the LEAPS and the short calls to switch to long calls for the inclusion.

Maybe I made some false decisions, so I’m happy if you try it and give some insights, I’d like to learn more about the PMCC, especially how to work with them, especially when TSLA doubles in a short time.

 

[adiggs]

especially how to work with them, especially when TSLA doubles in a short time.

Good starting point - all kinds of covered calls perform poorly when the underlying doubles in a short time . The short call goes ITM and maybe deep ITM, leaving one exit to let the call get assigned (or if there's enough time value in the long call, buy-to-close both legs so you can recapture the time value).

You might be able to roll the short call up and out to both buy time and to get the short call strike closer to the share price. Probably need to do this several times, and it'll be worth assessing what you'd be doing instead -- the economics might work out in favor of taking assignment and then starting a new position.