Wiki Selling TSLA Options - Be the House

[Stretch2727]

"I sold a bunch of 2023 $1300 covered calls and as of now I'm planning to let them execute. Maybe I'll roll them up to $1500, we'll see."

I found that on the main thread. For the benefit of newbies here (me!), can someone please provide insight on what is the thinking behind selling 24 months out. Prem is $170, so that's only $708/month income ($17k/24 months). Isn't that too little? What am i missing?

Thanks in advance!

The premium decay accelerates the options approach expiration. It's more work with shorter term options, but in theory there is more premium you can earn by selling shorter term. Also, better to sell these when the stock is at it's peak hoping they will never go ITM.

The advantages of selling a long term call that it is easy and you don't need to look at it all the time. If the stock declines you maybe able to buy back cheaper. It's easy and you earn a lot of premium on even high strike prices.

The downside...the stock could run to $2K next year and these contracts will cost $700+ to buy back. You could roll, but your gains will be capped, so your stuck in the position. You'll need to wait for a big drop to get out of the trade unless you have funds to buy back the contract at a big loss. So you can get stuck in a situation where you got the gain but it will not be realized until 2023.

 

[sub]

The premium decay accelerates the options approach expiration. It's more work with shorter term options, but in theory there is more premium you can earn by selling shorter term. Also, better to sell these when the stock is at it's peak hoping they will never go ITM.

The advantages of selling a long term call that it is easy and you don't need to look at it all the time. If the stock declines you maybe able to buy back cheaper. It's easy and you earn a lot of premium on even high strike prices.

The downside...the stock could run to $2K next year and these contracts will cost $700+ to buy back. You could roll, but your gains will be capped, so your stuck in the position. You'll need to wait for a big drop to get out of the trade unless you have funds to buy back the contract at a big loss. So you can get stuck in a situation where you got the gain but it will not be realized until 2023.

One advantage to selling Leaps, assuming youre bullish and want more shares, is you can take all the premium and buy a lot of shares immediately. You can then sell additional calls on those added shares. If the share price then starts to rise quickly, you can adjust away until you can't, but you have all the increase in those additional shares as added profit. I think it's probable this is a more lucrative strategy if bullish and stock moves accordingly.

If however you're actually using the cash for something else, probably not. You can run into the same problem with weekly/monthly CC's as well though, stock moves up so fast that you can't adjust away fast enough, or you have to adjust so far into the future you're waiting weeks or months for the position to be profitable again so you can adjust. I'm fine with that situation however, I look at the covered call income as icing on the cake, I'll take whatever I can get while keeping risk of losing shares as low as possible.

 

[adiggs]

@adiggs have you look historically out the 52 weeks with weekly Strangles set at .3 delta how many times would the strangle expire worthless?

I haven't and this sounds like a good idea for something for me to do (given that I'm reasonably committed now ). And heck - I have the time, so some back testing sounds like a second good vector for me to be exploring and expanding my knowledge. In case there is any doubt I consider myself a newbie as well - so many ways for me to get better at this.

"I sold a bunch of 2023 $1300 covered calls and as of now I'm planning to let them execute. Maybe I'll roll them up to $1500, we'll see."

I found that on the main thread. For the benefit of newbies here (me!), can someone please provide insight on what is the thinking behind selling 24 months out. Prem is $170, so that's only $708/month income ($17k/24 months). Isn't that too little? What am i missing?

Thanks in advance!

I've done something similar (and now wish I hadn't, but I did). The thinking is that you can generate a fair bit of immediate cash flow. In that case if it's 10 contracts worth then you've got $170k in hand right away. That's $85k/year income with no taxes due until the expiration year. $85k / year is actually a good living even if many of our standards are higher than that. And should the shares be up at say $2000 by that point then yes, you'll miss out on the extra $700 gain when your shares are called away.

Then again you just sold your shares at >50% over today's price, and I know I've got no complaint with 50% over two years. Or at least I shouldn't - 25% / year plus the $170/share up front (another 15 or 20%?) is awfully good.

In my case, when I sold some 840 calls for Sep 2022 last August that was a better than 2x from the share price at the time. Looking at that overall account between the up front cash plus selling the shares at $840 the account would be up about 2.5x from what it was worth at the time. For my purposes selling those covered calls made my overall position less risky. I didn't (and don't) need full exposure to moves up and the big up front cash was immediately usable.

I wish I hadn't sold those covered calls because now I can't do anything with those shares, and I'm confident that I can improve on the month to month income with these 2-4 week options (over the 24 month options). Going that far out on an option sale makes for a static position, and I'm finding a lot better stress (lower) and income (higher) with these 2 week options. That comes with more effort on a weekly basis - but still an acceptable level for me.

I personally don't like any position where I have to be correct on both direction and time, it's not my game. Occasionally I might buy a lottery ticket but that is very rare. I'm currently just selling OTM calls in the ~15% OTM range and buying more shares with the cash. I've got a large enough account that this is all I need to do along with my wife working a well paying job, I plan to have her retired as well in the next few years with a combination of real estate and stock income.

reading Adiggs recent posts, I'm making about the same % of income with much less stress and dancing around the stock movement. I think I'm also going to start using margin to sell some far OTM puts for a little extra income with really low risk. I could adjust those down to basically zero and never get assigned, or get assigned Tesla shares extremely cheap. I like selling my calls in the 3 weeks out range and rolling in 1-2 weeks, better consistent theta return this way imo. Theta might be faster in the final week but overall $ decay is better keeping them 1-2 weeks further out.

I also don't like positions where I need to be correct on direction and time. I've come to hate it in fact

My experience selling covered calls over the last year has (not surprisingly) been bad. With shares going up 6x or something in a year, it's reasonable for covered calls to have been run over many times. More specifically all of the particularly bad situations (there have been 2-4 of them) have been covered calls. The worst was a 20% move in one day - expiration day. Part of what made it the worst situation is that I didn't have anything offsetting.

It was those really bad covered call moves that has helped lead me to this perma-strangle.

That being said, I particularly like that you've got an approach that is working well for you. In the final analysis what more can any of us ask for?


The insight into the slightly further expiration dates is helpful. I'm still gathering experience and feedback and like the 2 week options for the more frequent feedback. I can readily imagine increasing my own trading window in the future - I enjoy doing this, but I also like the idea of lowering my effort and monitoring by 50% and earning 80% (numbers made up to illustrate the idea). Sounds like a good tradeoff to me!

 

[st_lopes]

Or if the shares go back up, then yes - the calls can end up ITM. Which means you'll be rolling both sides. Presumably the absolute worst situation would be to end up at 775 - exactly in the middle of the 2 positions (of the 850/700 inverted strangle). That will mean that both are $75 ITM. That'll still be a reasonably good roll on both sides that will also have the effect of shrinking the strangle window, making the next position even better, etc.. Actually I think that is the single best outcome, but anything between the strikes in the inverted strangle look good to me (at least within my 830/680 strangle)

After ruminating on this one, I decided to evolve my perma-strangle as follows:

• Where a leg is now ITM and going against me, roll to net credit 2-3 weeks out;
  • Aiming for slight improvements on strike price as well;
  • I often find rolling one week out is fine when still relatively close to ATM, but need to go further out if you're looking to improve your strike price at all;
  • Where severely ITM (arbitrarily, >$100) may be looking 4-6 weeks out and looking for opportunities to roll down and closer in the future, much like I did with my 12/31 covered calls that originally had been rolled out to April, but then back to Feb on a pull back;
    
• Where the leg is set to expire worthless, re-enter the position at 0.2 to 0.3 delta;
  
  
• I will be aiming for closer parity on number of contracts per leg. Whereas I started 2:1 puts to calls, with the learning from a major pullback taking back significant portions of gains and not having any powder to deploy to either credit spread either leg or enter additional positions to take advantage of the volatility, I am going to start using a smaller portion of my portfolio margin;

With that in mind, I did roll down my 787.50c and 830c. Both are now 750c 03/05, which at time of entering were sitting at 0.25 delta. This generated a net credit of $5 per contract. Interesting enough, $5/contract on covered calls is what I used to aim for when I started selling covered calls. Moved away from that when that leg went against me and I started rolling that leg. This effectively would be me coming full circle to my original strategy.

Appreciate the sounding board! Definitely helps me to hone in on the right mix of risk/reward profile that I am looking to achieve.

 

[bxr140]

@adiggs have you look historically out the 52 weeks with weekly Strangles set at .3 delta how many times would the strangle expire worthless?

Using ∆ is really hard to backtest. But, a quick 5 min spreadsheet on % OTM shows that if you sold 7.5% OTM strangles on Friday close (which is a little more conservative than .3 ∆ (agin its hard to gauge), since the beginning of 2016 you'd close ITM the following Friday ~26% of the time. For a cumulative of -133% ITM on the bottom side (normalized to the price when selling the call) and 309% ITM on the top side.

 

[sub]

I haven't and this sounds like a good idea for something for me to do (given that I'm reasonably committed now ). And heck - I have the time, so some back testing sounds like a second good vector for me to be exploring and expanding my knowledge. In case there is any doubt I consider myself a newbie as well - so many ways for me to get better at this.




I've done something similar (and now wish I hadn't, but I did). The thinking is that you can generate a fair bit of immediate cash flow. In that case if it's 10 contracts worth then you've got $170k in hand right away. That's $85k/year income with no taxes due until the expiration year. $85k / year is actually a good living even if many of our standards are higher than that. And should the shares be up at say $2000 by that point then yes, you'll miss out on the extra $700 gain when your shares are called away.

Then again you just sold your shares at >50% over today's price, and I know I've got no complaint with 50% over two years. Or at least I shouldn't - 25% / year plus the $170/share up front (another 15 or 20%?) is awfully good.

In my case, when I sold some 840 calls for Sep 2022 last August that was a better than 2x from the share price at the time. Looking at that overall account between the up front cash plus selling the shares at $840 the account would be up about 2.5x from what it was worth at the time. For my purposes selling those covered calls made my overall position less risky. I didn't (and don't) need full exposure to moves up and the big up front cash was immediately usable.

I wish I hadn't sold those covered calls because now I can't do anything with those shares, and I'm confident that I can improve on the month to month income with these 2-4 week options (over the 24 month options). Going that far out on an option sale makes for a static position, and I'm finding a lot better stress (lower) and income (higher) with these 2 week options. That comes with more effort on a weekly basis - but still an acceptable level for me.




I also don't like positions where I need to be correct on direction and time. I've come to hate it in fact

My experience selling covered calls over the last year has (not surprisingly) been bad. With shares going up 6x or something in a year, it's reasonable for covered calls to have been run over many times. More specifically all of the particularly bad situations (there have been 2-4 of them) have been covered calls. The worst was a 20% move in one day - expiration day. Part of what made it the worst situation is that I didn't have anything offsetting.

It was those really bad covered call moves that has helped lead me to this perma-strangle.

That being said, I particularly like that you've got an approach that is working well for you. In the final analysis what more can any of us ask for?


The insight into the slightly further expiration dates is helpful. I'm still gathering experience and feedback and like the 2 week options for the more frequent feedback. I can readily imagine increasing my own trading window in the future - I enjoy doing this, but I also like the idea of lowering my effort and monitoring by 50% and earning 80% (numbers made up to illustrate the idea). Sounds like a good tradeoff to me!

I just decided to start selling the CC's after i felt the S&P inclusion runup was over, started first week of January. I settled on the 15% OTM based on TSLA historical weekly movements. TSLA has only moved greater than 15% about 20x in it's history, and greater than 20% only 6-8x ( I don't remember the exact numbers, but these are close). I adjust pretty early, leaving myself plenty of options. I would take another 2020 run in TSLA for me to lose some shares, and at that point I wouldn't really care because I'd have F U money and wouldn't have a problem trimming my position in TSLA, though I would still probably prefer not to.

I've done the math conservatively with my strategy, should be able to double my Tesla position in 3.5 to 5 years, I'm ahead of that schedule so far.

 

[adiggs]

With the reasonably large move up today, my first thought this morning when I saw the move was that an early roll might be in the cards. So I went looking.

For the 830/680 strangle, the 830 put for this week expiration is down to roughly $0 time value. Using the 830 call to estimate the time value over doing the math I get $0.60.

Unfortunately the net credit roll that is available is no different from what its been for a week or more. Namely - roll from Mar 5 to Mar 19, the 825 strike, and a $0.35 net credit. The .35 is the default suggestion and as best I can tell comes from taking the worst of the bid/ask spread on both legs. I can probably get that closer to the midpoint of $1.47 but that doesn't meaningfully change the result. For 2 weeks of more time I can move the strike by $5.

And the $40 net debit roll is also still the same: 830p down to 775p on Mar 19.

The benefit of rolling sooner is I get that many more trading days and therefore that much more time value to decay. The downside is that I'll miss out on a continued big move up to make this a better roll. I don't like being dependent on direction and magnitude though, so I've talked myself into moving this position out today and rolled to the 795 strike for a $25 net debit. I decided to split the difference between the 2 positions being considered, and I still get the extra strike from the debit ($25 extra gets me a $30 strike move).


The 680 call though has mid $9 range time value. If I were to roll today I can get to the 710 call for a $2 net credit. I don't like having so much time value remaining, and in the final week of trading, to roll right now. I'm going to wait on this one.

However were I to proceed with a roll that is straight out in time (680 Mar 5 to 680 Mar 19) that would be for a $19 net credit. Because I've got more calls than puts (roughly 2:1) I'd be generating a roughly $2 net credit today. Cash flow would be positive for this 2 week window (as in 1 month of target income positive) despite paying a fair bit to improve the put strike.

I also like the risk profile (where risk = chance of permanent loss of capital) better - the 680 call continues to provide some downside protection and I think the bias is downwards for now.

Still going to wait though due to the fairly large amount of time premium remaining.


This leaves me in a 795 / 680 inverted strangle with different expiration dates. Or is strangle still the correct term to describe this position? (I'm curious if anybody knows if this has a different name).

 

[ZeApelido]

"I sold a bunch of 2023 $1300 covered calls and as of now I'm planning to let them execute. Maybe I'll roll them up to $1500, we'll see."

I found that on the main thread. For the benefit of newbies here (me!), can someone please provide insight on what is the thinking behind selling 24 months out. Prem is $170, so that's only $708/month income ($17k/24 months). Isn't that too little? What am i missing?

Thanks in advance!

You could probably say something similar for my 2022 CC's, why do that when I could possibly generate more income doing it weekly or monthly?

#1 The amount of work involved is much less!
#2 I don't have to stress about selling CC's at levels I'm not comfortable with letting them get assigned.
#3 Contrary to 2018/2019, I'm just kinda bullish now, not super bullish. If the stock appreciated an additional 50-100%, I would be okay letting my shares go. If the stock dips (like it did last week but I didn't act yet), I could buy back the calls, then sell them again later if the stock price rises back up and IV goes up. This could generate even more cash and I still wouldn't be stressed out.

I am also a noob but after playing a bit with weeklies (and my current situation of already making millions on the stock), this seems a decent approach for me. Heck my wife wants me to sell all the stock in the 800s lol

 

[juanmedina]

Using ∆ is really hard to backtest. But, a quick 5 min spreadsheet on % OTM shows that if you sold 7.5% OTM strangles on Friday close (which is a little more conservative than .3 ∆ (agin its hard to gauge), since the beginning of 2016 you'd close ITM the following Friday ~26% of the time. For a cumulative of -133% ITM on the bottom side (normalized to the price when selling the call) and 309% ITM on the top side.

how about for the last two years?

I am essentially doing strangles in my brokerage account but I am trying to be careful because I am doing naked puts and I don't want my shares to get call away because I don't want to pay taxes. I think @dl003 posted that historically Tesla goes at most +25% and -20% in a given week. Setting the strangles that far OTM probably would leave a lot of money on the table but I also don't want to find myself in a perpetual roll. I wonder what the sweet spot is for TSLA?

 

[bxr140]

how about for the last two years?

Cumulatively 34% ITM. For a grand total of $740 ITM (that factors in the 7.5% already). But that's also mad skewed by the bananas growth in 2020.

Setting the strangles that far OTM probably would leave a lot of money on the table but I also don't want to find myself in a perpetual roll. I wonder what the sweet spot is for TSLA?

There is no sweet spot with out 1) some kind of price analysis and 2) a dynamic strategy.

1) Basic analysis is so ridiculously simple that it boggles my mind how not just afraid of it people are, but how they actively oppose the concept. Don't be one of those people. Seriously, you just need a rudimentary understanding of technical, fundamental, and market indicators.
2) A dynamic strategy of choosing strikes and expirations leverages the above analysis to statistically enhance your gains. It doesn't have to be honed to the gnat's ass and obviously its never going to be a perfect string of W's, but all but a complete dolt will improve their cycle over cycle gains with literally like hours of study.

For instance, below is the week-to-week moves during the covid times. The kind of analysis I'm talking about says, on 2/24, "hey, this covid thing is obviously a thing that's not going to go away, maybe I better not sell puts until this blows over". Maybe you wait for the big 3/23 week to get back in it, or maybe you eve wait for price to return back to the $133 close before selling puts again. Who knows, its not an exact science.

Then, as your analysis grows, you might have been drawing trendlines and following 200ma (like everyone does). You might have been hesitant to enter when 200ma provided support, especially with the little pullback after the low. But then when price broke the trend line starting from the pre-covid high, all the above analysis would have given you high confidence on price reversal and then you started selling puts again.

At that point, had you decided to also buy a LEAP on your analysis--say, a Jan 2021 $120 call (adjusted for split of course) for $27.50 , that call would have peaked at over $700. There's no black magic here, no slight of hand. Just a basic willingness to pay barely a thought to analysis.

 

[juanmedina]

Cumulatively 34% ITM. For a grand total of $740 ITM (that factors in the 7.5% already). But that's also mad skewed by the bananas growth in 2020.



There is no sweet spot with out 1) some kind of price analysis and 2) a dynamic strategy.

1) Basic analysis is so ridiculously simple that it boggles my mind how not just afraid of it people are, but how they actively oppose the concept. Don't be one of those people. Seriously, you just need a rudimentary understanding of technical, fundamental, and market indicators.
2) A dynamic strategy of choosing strikes and expirations leverages the above analysis to statistically enhance your gains. It doesn't have to be honed to the gnat's ass and obviously its never going to be a perfect string of W's, but all but a complete dolt will improve their cycle over cycle gains with literally like hours of study.

For instance, below is the week-to-week moves during the covid times. The kind of analysis I'm talking about says, on 2/24, "hey, this covid thing is obviously a thing that's not going to go away, maybe I better not sell puts until this blows over". Maybe you wait for the big 3/23 week to get back in it, or maybe you eve wait for price to return back to the $133 close before selling puts again. Who knows, its not an exact science.

View attachment 641041

Then, as your analysis grows, you might have been drawing trendlines and following 200ma (like everyone does). You might have been hesitant to enter when 200ma provided support, especially with the little pullback after the low. But then when price broke the trend line starting from the pre-covid high, all the above analysis would have given you high confidence on price reversal and then you started selling puts again.

View attachment 641048

At that point, had you decided to also buy a LEAP on your analysis--say, a Jan 2021 $120 call (adjusted for split of course) for $27.50 , that call would have peaked at over $700. There's no black magic here, no slight of hand. Just a basic willingness to pay barely a thought to analysis.
View attachment 641051

I think I have a good feel for the stock since I haven't lost any shares last year and this years selling calls but I do not do any technical analysis. Do you have any literature you recommend? I do understand RSI, bollinger bands, MACD indicators but again is rare that I look at chart. You are right I need to be more proactive.

 

[hershey101]

Anyone here have experience with selling ATM, or slightly OTM LEAPS on $TSLA and using the credits for buying commons... And on a bounce selling calls against that pos?
I realized I can collect about $200 for $600p expiring in 2023 (so ~50% return on $400 risk). I can just buy commons, or take 25%/yr return and chill...

I'm going to be very happy if $TSLA continues to be below $600 in 2023 as it will be super undervalued by that time.

 

[bxr140]

I think I have a good feel for the stock since I haven't lost any shares last year and this years selling calls...

One might suggest you're being a little too conservative and thus leaving some on the table, but if your goal is to not lose any shares, then you've done well!

I do not do any technical analysis. Do you have any literature you recommend?

Nothing specifically, but that's because everyone learns differently. I hate videos, for instance, but your trading platform (Fidelity, e-trade, whatever) is going to have a pretty stocked library of video content. There's always YouTube but--as with anything--you need to figure out how to grain-of-salt that kind of content, especially if they're ultimately trying to sell you a service. For instance Options Alpha, at least at some point in time, (not sure if they still do?) basically advised that 95% of contract trading should be selling. That's objectively terrible broad brush advice and doubly so to someone who's making an honest effort to learn new material.

Same story goes for all the text based content out there. There's the more foundational stuff like investopedia, and then there's a litany of perspective/opinion/strategy based stuff. I think it really comes down to what method of learning resonates with you, and what authors/content creators speak to you. If I were to recommend a place to start, it would be to dive into a small number of classic technical indicators, aggregating a personal strategy from a number of sources. Maybe check out support/resistance, [basic] trendlines, and maybe 200/50 moving average. I'd also recommend understanding at least the big macro influencers, like interest rates and jobs reports. The general logic is to stick with just a few of the very common things, with the idea being that they effectively become self-fulfilling because everyone is using them in the same way. There's of course a ton of tools out there and all have some degree of merit, but they're all more specialized and even confusing (looking at you, Ichimoku Cloud) and I think that's what scares a lot of people off. Set those things aside for later...or never.

Somewhat related, I always track ES (you can use SPY too) with the same fervor as TSLA and some of my other tickers, as it often does a better job at technical signaling than the stocks themselves. In other words, especially if the stock you're tracking correlates to SPY, the stock is at least just as likely to turn on SPY indicators as its own indicators.

Finally, its also a good idea to rack up some really fundamental inspirational meme type concepts like "stairs up, elevator down", "pennies in front of the steamroller", etc. A bit of forest-through-the-trees type stuff to keep you grounded.

That all gets you a pretty solid foundation. Then its really exploring from there what resonates with you. You might really take to candlestick formations. You might be all over the stochastics or MACD or any of the other below-the-chart averages (I was super into CCI for a while). Price volume is something I've really been working on for the past year or so and I'd recommend it. You'll also become a better buyer of analysis services and may even decided to sign up with one of the more popular/trusted ones. (I had and generally liked Earnings Whispers for a while, but wasn't really using it fully so dropped it)

Ultimately its a constantly evolving balance between understanding what's out there and figuring out how to comfortably fold some of what's out there into your constantly evolving personal strategy. For instance, I've really scaled back the breadth of my analyses and the number of tickers I'm watching over the past year or two and have really tried to focus on quality over quantity. Its almost like the more I know, the less I use![/QUOTE]

 

[MXWing]

Sorry if this is not really "wheel" material but figured this is the closets place to ask this question.

I'm thinking of selling a put on TSLA for March 2023 at a $1200 strike. When you factor in premium it's like $600-ish, and by March 2023 we'll have Berlin and Austin ramped already with Cybertruck sales (and hopefully meaningful FSD progress).

Thinking of using my margin power for this, which is normally otherwise untouched. Other than a clear disaster scenario, as Tesla bulls this is a pretty sound strategy right?

My opinion is completely different than the other responses, so with high probability I am proposing an idiot trade.

I like March 2022 at 1200. ~615 premium when I last checked
-Only pays 50 less premium for 1 year less time value.
-If held to expiration is taxed at capital gains rate (if this applies)
-High premium gives you awesome breakeven levels, hard to imagine losing here.
-You will WISH you get assigned early. Pocket all that premium, sell the shares and re-sell the same thing.

TSLA also being relatively low, gives you great upside potential.

Not really. As noted upthread, a sold option is not an ideal directional position. ∆ becomes progressively less favorable the higher underlying goes, and volatility spikes will work against you, which can especially be an issue early on before the value of the sold put has time to mature. And...if price spikes up in like a year you're going to feel like a fool when you've only realized a fraction of your premium.

If price spikes up in a year, that means the short put has gained in value. There is the option to let it ride out to expiration, buy back the put at a profit or roll it to higher strikes if tsla has really gone gangbusters.

The only real risk I see when it comes to giving up premium is selling when IV is low.

As a rule however, you want to sell puts when prices are low, not when prices are high. That 1200 put would be paying much less if we were at 900 vs 725.

Being a long dated short put, it doesn't really matter much if the trade is instantly negative or goes negative for awhile. It still has until March 22 to work itself out. Early assignment means free premium to redeploy the short put.

 

[ZeApelido]

-If held to expiration is taxed at capital gains rate (if this applies)

Have you done that before and know it to be true? I've read conflicting statements on this on the interwebs (and here).

 

[MXWing]

Have you done that before and know it to be true? I've read conflicting statements on this on the interwebs (and here).

Yes. There’s zero ambiguity here. When an options position is exercised, rolled, sell to close, buy to close, or expired you immediately lock in the loss or profit.

Let’s say you sold a 900 put this Feb 2021, and are down 20,000.

If you roll the feb 900 by buying it back sell the March 1000 2022 for 40,000 the follow happens:

You lock in 20,000 short term losses for the 2021 tax year.

Your March 2022 position has a basis of 40,000. If you let it expire and you don’t get assigned in March 2020, you are taxed on 40,000 at long term rates.

If you close in Feb, the gains will offset against your 20,000 loss when you did the roll originally.

Hope this helps and makes sense.

 

[ZeApelido]

Yes. There’s zero ambiguity here. When an options position is exercised, rolled, sell to close, buy to close, or expired you immediately lock in the loss or profit.

Let’s say you sold a 900 put this Feb 2021, and are down 20,000.

If you roll the feb 900 by buying it back sell the March 1000 2022 for 40,000 the follow happens:

You lock in 20,000 short term losses for the 2021 tax year.

Your March 2022 position has a basis of 40,000. If you let it expire and you don’t get assigned in March 2020, you are taxed on 40,000 at long term rates.

If you close in Feb, the gains will offset against your 20,000 loss when you did the roll originally.

Hope this helps and makes sense.

I have a toddler crawling all over me so too many numbers

If I sell to open a covered call in Feb 2021 for a March 2022 expiration and I let it expire or buy to close it > 1 year from when it was initially sold, is that a long term or short term capital gain?

I think it's clear when you buy then sell over one year later, that can be taxed long term. But the selling then buying isn't clear from what I've read, because you never really held a position for a year.

 

[bxr140]

-You will WISH you get assigned early. Pocket all that premium, sell the shares and re-sell the same thing.

To make sure folks don't misinterpret this:

1) There is 0% chance of early assignment on the timelines we're talking about. Early assignment is exclusively a near-expiration thing, where kooks who don't know any better think its a great idea to exercise a long option, or market makers are choosing to close out DITM contracts that have zero time value (and so, exactly the same P/L profile as shares).
2) Obviously, nobody would ever exercise an OTM put, as is generally the example we're talking about here.
3) Save for secondary factors like the B/A spread, the financial upside/downside to someone executing your short contract is the same as if you closed the contract. So, "all that premium" as quoted above is explicitly not the 100% of the premium for which you sold the contract.

If price spikes up in a year, that means the short put has gained in value.

Sure and, explicitly, a fraction of the value for which you sold the contract. The issue is that (more or less) time value actually works against a long dated short contract, acting as a sort of pressure opposing the upside to you. As time moves on that pressure starts to release, opening up more upside. That's one of the reasons long dated short contracts are pretty foolish--selling a shorter dated contract starts off with less time value 'pressure'.

And that's not even considering the negative impact volatility will have on the contract value in that spike...

Being a long dated short put, it doesn't really matter much if the trade is instantly negative or goes negative for awhile. It still has until March 22 to work itself out.

Another reason long dated short contacts are pretty foolish is that if value goes negative, one's strategy becomes hope real hard for a recovery. I can appreciate that some folks might be okay with the HRH trading strategy; personally if I wanted to hope real hard on earning money I'd go buy a powerball ticket.

 

[Oil4AsphaultOnly]

Yes. There’s zero ambiguity here. When an options position is exercised, rolled, sell to close, buy to close, or expired you immediately lock in the loss or profit.

Let’s say you sold a 900 put this Feb 2021, and are down 20,000.

If you roll the feb 900 by buying it back sell the March 1000 2022 for 40,000 the follow happens:

You lock in 20,000 short term losses for the 2021 tax year.

Your March 2022 position has a basis of 40,000. If you let it expire and you don’t get assigned in March 2020, you are taxed on 40,000 at long term rates.

If you close in Feb, the gains will offset against your 20,000 loss when you did the roll originally.

Hope this helps and makes sense.

I think this is the part that zeApelido was trying to point out. You're claiming that selling puts (aka shorting the put option) can be treated as long-term capital gains, but documentation about selling covered-calls (aka shorting the call option) does NOT get that treatment.

According to Tax Implications of Covered Calls - Fidelity:
"If a covered call is closed with a closing purchase transaction, the net capital gain or loss is considered short term regardless of the length of time that the short call position was open."

I've been unable to find a definitive declaration about the tax treatment of selling puts.

 

[st_lopes]

Update on my positions... with my 850p 03/05 effectively having 0 time value, I pulled the trigger and rolled these to 850p 04/16 (after P&D and potentially earnings) for a $15.5 credit per contract.

750c 03/05 are decaying away. Absent some major rebound, I am likely to roll those on Thursday to a 0.30 delta 03/12 position.

Also sold a couple 670p 03/05 on the pull-back today. We'll see how those play out rest of this week.