Wiki Selling TSLA Options - Be the House

[adiggs]

My bigger picture view of TSLA today is that I expect roughly sideways trading until we get significant news. That could be economy level news. Mostly I expect it will need something significant around TSLA.

The big share moving news I can forecast right now:
- big FSD patch with significant improvement for beta testers
- big FSD patch with distribution to a broad audience of Tesla car drivers
- Q1 p/d report (early April)
- Q1 earnings report (late April)

There will be lots of other news along the way - it's the nature of Tesla / TSLA. Something may be significant as well, but these are what I see as reasonably likely and possibly significant.

Therefore my guess-of-the-moment is we will continue with the sideways trading for another 1-2 month, where sideways (in my mind), is something like $750 - $850. Selling strangles as I am, I like sideways I've got no change in my 2030 timeframe view - 5 to 10x from here, so owning and holding with some risk of an early sale sounds great to me.


Another way of thinking about my view on the current share price is that we've been at this level long enough that everybody that wants to own shares, now owns about as many as they want to own. For the shares to move up significantly from here, we need something to happen that causes significant new buyers to show up. And that's where the significant news will come in.


Not advice or anything - just how I see things right now. An important component of why I write stuff like this down is to crystallize these thoughts for my own benefit as well as to provide me with something to look back at, compare to, and learn from.

 

[SN_8]

The big share moving news I can forecast right now:
- big FSD patch with significant improvement for beta testers
- big FSD patch with distribution to a broad audience of Tesla car drivers
- Q1 p/d report (early April)
- Q1 earnings report (late April)

Good list. I'd add 1) a new crazy high ARK price target, and 2) a Biden clean energy plan that benefits Tesla even more than expected.

 

[wnorris]

My bigger picture view of TSLA today is that I expect roughly sideways trading until we get significant news. That could be economy level news. Mostly I expect it will need something significant around TSLA.

The big share moving news I can forecast right now:
- big FSD patch with significant improvement for beta testers
- big FSD patch with distribution to a broad audience of Tesla car drivers
- Q1 p/d report (early April)
- Q1 earnings report (late April)

There will be lots of other news along the way - it's the nature of Tesla / TSLA. Something may be significant as well, but these are what I see as reasonably likely and possibly significant.

Therefore my guess-of-the-moment is we will continue with the sideways trading for another 1-2 month, where sideways (in my mind), is something like $750 - $850. Selling strangles as I am, I like sideways I've got no change in my 2030 timeframe view - 5 to 10x from here, so owning and holding with some risk of an early sale sounds great to me.


Another way of thinking about my view on the current share price is that we've been at this level long enough that everybody that wants to own shares, now owns about as many as they want to own. For the shares to move up significantly from here, we need something to happen that causes significant new buyers to show up. And that's where the significant news will come in.


Not advice or anything - just how I see things right now. An important component of why I write stuff like this down is to crystallize these thoughts for my own benefit as well as to provide me with something to look back at, compare to, and learn from.

I hope you are right on the long term appreciation of 5x.

@adiggs - have you thought about trading under an LLC as a way to reduce your tax burden now that you are retired? It would be a nice way of offsetting some of your expenses as well.

I am planning to move back to the US (Raleigh) either this or next summer and possibly retire. This will be a good deal earlier than I originally planned and it feels a little strange to think about it. To give myself a little more purpose and structure I have started to consider transferring shares into an LLC account and pay myself a salary or portion of the profits as a way to fund retirement. This would be a way for me to pay for my families health care while also giving me a better way to contribute to retirement accounts. Note I have real estate and will be putting some funds into high yield plays for lower risk/consistent returns as well so I would not be entirely reliant upon selling options.

Curious if anyone here is selling options as a core trading strategy in an LLC? @bxr140 - you seem to be doing this professionally. Before I go to a lawyer and tax professional I thought I would ask the group.

 

[adiggs]

@adiggs - have you thought about trading under an LLC as a way to reduce your tax burden now that you are retired? It would be a nice way of offsetting some of your expenses as well.

heh - not even once have i thought about that

A brief search got me here:
Setting Up An LLC For Investing: Why And Where To Start

My summary being - an LLC is a good way to pool your money with others (family members being a common instance) with a written agreement about how the investing happens, how contributions are made, sharing in the results - that sort of thing.

I didn't see much in the way of a tax savings angle - maybe if proceeds are retained inside of the LLC, they don't get taxed until stuff gets withdrawn? I don't think that is right thought.


One thing I've read a little bit about is a Charitable Trust. In my case, I think the charitable remainder unitrust will work best, but I've got a lot to learn before I pursue this.
https://www.policygenius.com/trusts/how-to-start-a-charitable-trust/

The primary thing that I want to learn, beyond the mechanics of setting one up (I'll hire somebody with expertise) is whether I can make the decisions about what and how the trust invests, preferably with an option to hire a trustee later on to replace me as the decision maker. I'm kind of a control freak about our investments

I don't know a lot, but I do know that these won't work for assets that you want to leave to the next generation. This will be for assets that you want to leave to a non-profit when you pass. That's easy for my wife and I - we're leaving it all to non-profits when we pass.


There are some other thread(s) here in the investor forum about these sorts of topics. I'll continue further discussion (if any) over to one of those.

 

[wnorris]

heh - not even once have i thought about that

A brief search got me here:
Setting Up An LLC For Investing: Why And Where To Start

My summary being - an LLC is a good way to pool your money with others (family members being a common instance) with a written agreement about how the investing happens, how contributions are made, sharing in the results - that sort of thing.

I didn't see much in the way of a tax savings angle - maybe if proceeds are retained inside of the LLC, they don't get taxed until stuff gets withdrawn? I don't think that is right thought.


One thing I've read a little bit about is a Charitable Trust. In my case, I think the charitable remainder unitrust will work best, but I've got a lot to learn before I pursue this.
https://www.policygenius.com/trusts/how-to-start-a-charitable-trust/

The primary thing that I want to learn, beyond the mechanics of setting one up (I'll hire somebody with expertise) is whether I can make the decisions about what and how the trust invests, preferably with an option to hire a trustee later on to replace me as the decision maker. I'm kind of a control freak about our investments

I don't know a lot, but I do know that these won't work for assets that you want to leave to the next generation. This will be for assets that you want to leave to a non-profit when you pass. That's easy for my wife and I - we're leaving it all to non-profits when we pass.


There are some other thread(s) here in the investor forum about these sorts of topics. I'll continue further discussion (if any) over to one of those.

Yes, a Charitable Trust looks very enticing and may be an avenue I pursue in the future as well.

If anyone is interested in learning more about setting up a trading business the below links are where I got the idea.

Investopedia: Benefits for traders who incorporate - A nice high level overview of options and benefits

Home Based Trader - Accounting resource for traders with a lot of the information in the Investopedia link.

Webinar Download from IBKR - "How to setup a trading business" **Warning** this is a download link to a PPT for a 2017 webinar hosted by Interactive Brokers.

Overall, a number of options exist for those looking to shift into options on a full time basis. There is definitely a lot more review that I need to do at this point, but the long term benefits are appealing. Hopefully this is helpful to anyone who may be interested in learning more.

 

[bxr140]

Curious if anyone here is selling options as a core trading strategy in an LLC? @bxr140 - you seem to be doing this professionally.

Not full time trading, though ultimately that's the plan. Most of my big money trades are in my IRA--my individual brokerage accounts just get racked into my 1040 and like all the other schmucks here, I just pay The Stupid Tax.

There are for sure benefits to incorporating as an individual trader, and if/when I stop ‘real work’ I will incorporate, but they’re really not there for a casual/retail trader who is just trying to beat The Man at the tax game.

 

[EVCollies]

Not full time trading, though ultimately that's the plan. Most of my big money trades are in my IRA--my individual brokerage accounts just get racked into my 1040 and like all the other schmucks here, I just pay The Stupid Tax.

There are for sure benefits to incorporating as an individual trader, and if/when I stop ‘real work’ I will incorporate, but they’re really not there for a casual/retail trader who is just trying to beat The Man at the tax game.

Full time trading is my retirement plan. Although I hope to retire in 6 1/2 y, after reading about half of this thread and watching most of Option Alpha's videos, I might need to work a bit longer to learn options...

 

[JustMe]

Full time trading is my retirement plan. Although I hope to retire in 6 1/2 y, after reading about half of this thread and watching most of Option Alpha's videos, I might need to work a bit longer to learn options...

Try some real world practice on much cheaper stocks. Nothing like having real money on the line to help you appreciate how options prices can change day to day.

Silly me - I started with Tesla options and immediately lost a few thousand dollars. But I’m making regular income nowadays.

Good luck

 

[adiggs]

My big position for Feb 19 expiration comes into today as an 855/900 strangle. I rolled the 900 call leg down to 840 for a net $6 credit ($8 instead of $2 left to decay for Feb 19), leaving me in an 855/840 strangle. I'd love for the shares to come up so that both legs are in line for an ITM finish; I'd roll them when time value is minimal and expect to get into my target leg on both sides, for a large net credit if that were to happen.

With the share drop this morning, I decided to close out the 840 leg of this strangle. That leaves me with only the 855 put expiring this Friday.

I would ordinarily be replacing this with a March 5th covered call leg but am also sitting out for another day or 2 while we wait to find out about the mystery Berkshire investment. My feeling is that whether it's likely or not, the risk that it happens and pushes the shares up significantly is too high and worth waiting a day or 3 to find out. If the shares do go up significantly, then I can open a new covered call later in the week with that higher price as my starting point.

 

[Discoducky]

I went on another STO put spree today as the stonk fell. Grabbed several strikes from 790 to 770 with expiry this Friday and next. Going to do more tomorrow if this continues.

Also, my outs from last week were assigned at 840 and 830 but can't wait to see the stonk surpass that soon enough.

I'm thinking I'll be back to calls in March.

 

[LN1_Casey]

I went on another STO put spree today as the stonk fell. Grabbed several strikes from 790 to 770 with expiry this Friday and next. Going to do more tomorrow if this continues.

Also, my outs from last week were assigned at 840 and 830 but can't wait to see the stonk surpass that soon enough.

I'm thinking I'll be back to calls in March.

Yeah, with the fall this morning I was le sad that my margin is used up by a monthly put. Weeklies are just so much more engaging.

 

[adiggs]

With the share drop this morning, I decided to close out the 840 leg of this strangle. That leaves me with only the 855 put expiring this Friday.

The drop in the share price this morning pushed the time value on that 855 put to ~0 and I decided to roll. I'm pretty sure I caught the worst / lowest price of the day for the roll. In this case, I also elected to use some of the premium from the calls I wrote to fund a small net debit, to be able to roll to a lower strike. The net debit lowers my results for the Mar 5 window while still keeping the cash flow in a range that is better than I need it to be. Therefore spending some of the extra cash on a better put leg appeals to me.

I rolled from this Friday 855 put to March 5 830 puts and paid just under $10 debit. I think I'd have rolled to 850 for a small net credit had I decided to stick to the net credit rule, but I feel a lot better being $20/25 closer to the share price.


I would have probably had a better roll choice available if I'd waited for the end of the day and maybe tomorrow / next day, but I also didn't want to watch the shares keep going down. My earlier comment (yesterday or the day before?) about having a good roll option has, again, proven to be the right time to roll .

On the plus side, though the roll timing didn't provide all that great of a choice, by rolling when I did the position is already ahead on day 1 by 20%. It seems like this duality is arising constantly with these strangles - one leg is doing well while the other is doing poorly; poor timing on a roll is good timing for the initial direction on the option premium. And vice versa. I like this duality - it doesn't eliminate timing in my decisions, but it does simplify the role of timing in my decisions.

After this roll, my big position for March 5th is an 830/845 strangle.


I've got a couple of lingering small positions that I continue to use to explore these strangles that evolve each week. The 820 call that I've been tracking is still OTM and I'm continuing to let it age. That's the option that's been rolled repeatedly to keep it alive, and it sorta kinda looks like this week will be its resolution.

Given that it finishes OTM, then I'll be creating a new .20 to .30 delta call to replace it with. And if it is inline to finish ITM, then I might let this one go. I feel like I've learned most of what I was hoping to learn, and I'd like to shift the share value / cash balance in that account towards cash a bit more.

 

[adiggs]

Hinted at in my previous post - something I'm starting to spend more time thinking about is the balance between share value and cash in my accounts. How do I get my calls and puts close to balanced week to week to make my decisions as non-directional as possible?

For risk mitigation and income purposes, my current thinking is that I'd like my accounts to be roughly 50/50 share value / cash. I think that'll evolve to be closer to 40/60, with the 40/40 used to sell options, and the remaining 20% cash ready to spend on stuff.

The main account is more like 70/30 though, so I'll be holding any new cash that arrives as cash (and using that to sell puts). I'm considering doing some selling (in the form of assignment on high delta covered calls) to lower the share count / value and build up the cash.


The first reason for the 50/50 balance is that it provides strong mitigation to TSLA share price moves. At 50/50 any move up in the shares is a 1/2 move up in the account value. And a move down is a 1/2 move down. I.e. - a 5% share price move will see a 2.5% account move. This is the risk mitigation component and is my priority - I'll be well able to handle a 50% drop in the share price as the shares will be 1/2 as valuable, but not the cash.

The second reason is that at a 50/50 value split, the number of calls and puts in the strangle will be nearly or exactly balanced. That will enable me to make decisions that are reasonably insensitive to what direction the shares will go in after the decision is executed. I like being insensitive to direction (because as I've proven again, I'm pretty good at picking the worst peaks and valleys for trading decisions).

 

[bxr140]

It seems like this duality is arising constantly with these strangles - one leg is doing well while the other is doing poorly; poor timing on a roll is good timing for the initial direction on the option premium. And vice versa. I like this duality - it doesn't eliminate timing in my decisions, but it does simplify the role of timing in my decisions.

Its worth noting that a short strangle/straddle gets progressively worse as price moves away from the balance point--the negative impact of the leg closer to the money will accelerate and the positive impact from the leg farther from the money will decelerate. (The opposite, of course, is true for long straddles/strangles). So, when doing maintenance on an ideally ∆ natural position, its better/safer to roll sooner rather than later, sacrificing profit (by rolling out/away) for protection. If price reverses you just roll back in and eat the B/A spreads.

I like being insensitive to direction (because as I've proven again, I'm pretty good at picking the worst peaks and valleys for trading decisions).

You can trade long straddles/strangles and be price insensitive, with the benefit of opening up more upside while limiting downside (relative to a short strangle). That's a much more logical play at low volatility than selling a straddle/strangle, as inevitably increasing IV will limit loss on the "bad" leg. It also makes the price breakout maintenance pretty straightforward--just pull the rip cord on the bad leg and let the good leg run. For mid-volatility realms, you can layer on shorter term, conservative straddles/strangles to offset cost/Vega/theta of the long legs, including non 1:1 ratios.

Here's a random example of a long 800 straddle + 2x short strangles (or, if you like, a long double diagonal + 1 short strangle). That's a monthly on the shorts and 3 months on the long (the shorts can be weeklies or whatever and of course the longs can be LEAPs or whatever). The general idea is to bide time on the long legs by paying them down with the short legs; maintenance is basically the same as what you're doing. Ideally you're closing out the "bad" legs on price breakouts, giving your long call or put freedom to run.

 

[adiggs]

an update on that 760 covered call who's saga I've been documenting. That original 760 call rolled up to 770, then 775, then 805, and then 820 (the current strike). All of the initial positions were 1 week expirations - the last one was a 2 week roll with a Feb 19 expiration.

Between being OTM and time value nearing $2 I decided to proceed today with moving out to Mar 5. I also decided to go to a .45 delta - now that I've done all this work to 'save' this position, I would actually like to have it assigned, thus the very high delta on the roll from Feb 19 820 strike to Mar 5 805 strike.

The sequence of realized results now looks like this:
760c = ($36)
770c = ($34)
775c = $12
805c = $2
820c = $76

The original call was opened on Jan 4 and the 820c was closed on Feb 18. About $20 / share in realized results over 6 weeks. If my math is right that is around 2.5% on what has been the badly performing leg over this period.

805c current position - open at $30.

 

[LN1_Casey]

Closed out the monthly I had for March, mostly because my margin requirement was creeping up as the SP was creeping downward. Still closed at a profit, but less than if I had closed earlier in the week.

I am happy I closed out my margin shares, though, even if the SP (of course) went up after I had sold them, lol.

 

[bkp_duke]

My 780 CC expiring today is making me sweat. Do I wait till the end of the day, or just roll it now.

Decisions, decisions . . .

 

[Oil4AsphaultOnly]

My 780 CC expiring today is making me sweat. Do I wait till the end of the day, or just roll it now.

Decisions, decisions . . .

What did you decide, since it seems to be closing right around that point?

 

[bkp_duke]

What did you decide, since it seems to be closing right around that point?

I rolled when the call expiring today dropped below $0.60. Too much heartburn, but picked up enough premium to buy 10 more shares, which rounded my position out to an even 700 in that retirement account, so I can sell another CC now.

 

[MXWing]

Well, this didnt age that well. :-O

I rolled down to $780 - really didnt enjoy it when my naked puts were ITM. :-/ Had to spend the premium I gained rolling up, and sell an extra naked put, so margin usage is back up and I am down in cash.. just about where I was last week. Bummer.

At this rate of decline, we'll be rolling our naked puts to 2023 at 300 strike price and hope we are not assigned at expiration.

It's about time for Musk to go dancing in China again.