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Wiki Selling TSLA Options - Be the House

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FYI here is Gary Black on how he sells covered calls

gary on covered calls.PNG
 
Sold 15 x 722.5cc for 8.43 each then repurchased them a little later for 5.15. That was a decent ride for about an hour.
I remember you had ~$900p sold puts, and have been rolling them forward, how has that been going with the IV having dropped recently and obviously the share price being quite a bit lower? I've got some $730p I've been rolling but as they are near the current price the premiums have been relatively high, so I'm curious how it has been with the DITM puts.
 
I remember you had ~$900p sold puts, and have been rolling them forward, how has that been going with the IV having dropped recently and obviously the share price being quite a bit lower? I've got some $730p I've been rolling but as they are near the current price the premiums have been relatively high, so I'm curious how it has been with the DITM puts.

Good memory!! I still have them currently at apr 19 900. Hoping for a bump in SP and then roll ‘em. Got -8 currently.......
 
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Volatility is a very complex concept that has a bunch of layers, and so such a statement requires a bunch of supporting logic and has a number of permeations based on that logic. (I assume OA has that logic somewhere?) I'd strongly encourage anyone who's trading options and especially selling options to actually take the time to understand what's going on with volatility, as volatility is the specific thing that makes up [almost] all of the extrinsic value of a contract. The CV uncertainty due to implied volatility is literally the thing that's the seller is selling, so why wouldn't someone want to understand it, right? FTR Rho (interest rates) is the other thing that feeds the extrinsic value, but its way less of an impact and generally not all that important to consider over the life of a short term contract.

If selling options was house hunting for 4 bedrooms, 3 baths, a two car garage, and a bit of land to spread out, selling options without at least a basic understanding of volatility is kinda like like setting the Zillow filter to studio apartment in high density housing and hoping for a result. Seriously, its THAT important of a concept.



It would be a good idea figure out how your broker computes margin requirements. It shouldn't be hard; they all have some kind of page that explains margin for different position types.

Typically for an Iron Condor margin requirement is equivalent to the downside/risk of the larger of the two spreads. That make sense, because you can explicitly only get into trouble on one spread or the other, but not both...so they just make you set aside enough money to cover the worst case scenario. In your case it margin typically be calculated at [40 spreads * $5 spread * 100 shares = $20k]. Maybe there's some unique equation with your broker that adds the margin requirements from both spreads of the IC? That's not like a terrible thing, but after all its your money, why wouldn't you want to know?



Not the way you've built it. ;)

Don't get me wrong, I'm a big fan of credit spreads and ICs...but there's a pretty steep downslide slope to them, and their time and a place isn't 'every week'.

Your 650/645 strike on the put side with underlying [then] at ~$650 is pretty ambitious, especially with just a $5 spread. That means if price lands under $645, you're ~$13k in the hole. So with your very ambitious target of $6k/week that requires at least two more weeks just to claw back to net zero. Given that agressive of a strike will likely land the spread ITM at least 30% of the time (and probably more), if you have to burn ~three weeks to return your balance to net zero 30% of the time (so, every ~3 weeks), your "best case of $300k/year" turns into a much more probable "closer to a goose egg on the year".

FWIW If you're looking to maximize return on margin, do some quick excel math on the width of the spreads. Intuitively $5 is a little too close. Last time I checked (this was probably a year or so ago) the sweet spot was more like $15-20 spread...but either way, excelifying a current options chain will give an exact answer.

If I were building short term ICs (and I'm not right now) I'd probably be looking at 550 and 800 as decent bookends and maybe a bit closer if literally just weeklies (so, selling on Thursday for next Friday). Spreads probably on the oder of $20.

by definition, if you do the same spread trade repeatedly without guessing direction right more often than not, you always end up with a goose egg due to probabilities. Actually, do to slippage and fees, you end up losing money. Agree?
 
by definition, if you do the same spread trade repeatedly without guessing direction right more often than not, you always end up with a goose egg due to probabilities. Actually, do to slippage and fees, you end up losing money. Agree?

Yes, absolutely! That's one of my main story arcs in this thread: Selling options on a fixed/static strategy without taking into consideration volatility and [some kind of] price analysis is very much playing casino odds. And like a lucky player at the blackjack table, some streaks beat the odds.

Anyone selling puts or CCs in 2020 found it 'easy money' (which is great), but that was also the short game taking bullish positions (OTM -P's and OTM covered calls are both bullish) that beat the odds in a once-in-a-decade rally. Anyone who's seen a drawdown in their account balance with those same bullish positions over the past few weeks is dealing with the long game of statistical inevitability.

Keeping the analogy going, selling options on a strategy that considers things like volatility and price analysis is like counting cards.
 
What strike price % away from position initiation do you pick for each week? Whatever would get you a 1% premium?

Did these simulations encounter cases you would end up ITM unless you rolled?

From the big picture, covered-calls are a great strategy when you are neutral-bullish but not super bullish. That plays out in your simulation because the weekly gains never go up more than 11%.

But what happens if there are several weeks of 15% gains and one of 20%?
past performance doesn't equal future performance, but I try to stay 15% OTM and I adjust early, meaning I don't wait until I'm right ATM and try to adjust because you can't adjust as far out the closer to the money you are. I try not to ever be closer than 5-8% above stock price. Why 15%? I looked at TSLA historical weekly movements and that is the number that TSLA has only moved equal to or more than in a week 15-20x since IPO. I don't want to lose any shares, so using this number while also knowing I can adjust out and up limits my risk to near zero. The only risk I see is TSLA moving up fast and consistently enough that I run out of option chains to adjust to. If that were to happen, I would have enough money that It wouldn't really matter and trimming my TSLA position would be ok. I also know I can establish synthetic stock positions that would take a fraction of the money that I currently have committed to TSLA shares, with basically the same return.
 
Yes, absolutely! That's one of my main story arcs in this thread: Selling options on a fixed/static strategy without taking into consideration volatility and [some kind of] price analysis is very much playing casino odds. And like a lucky player at the blackjack table, some streaks beat the odds.

Anyone selling puts or CCs in 2020 found it 'easy money' (which is great), but that was also the short game taking bullish positions (OTM -P's and OTM covered calls are both bullish) that beat the odds in a once-in-a-decade rally. Anyone who's seen a drawdown in their account balance with those same bullish positions over the past few weeks is dealing with the long game of statistical inevitability.

Keeping the analogy going, selling options on a strategy that considers things like volatility and price analysis is like counting cards.
are you including the underlying stock gains/losses in this calculation? Selling CC's like I am, and being super bullish long term on TSLA, I couldn't care less what the stock does on a short term basis. I don't consider the stock going down as "losses" since I would be holding the shares anyways. The CC premium is just icing on the cake and allows me to increase my position. I'd like to double what I currently have (2580) before I start pulling funds for living expenses/life style doing the same thing. With my current strategy, which could change, I think I can double my position in 3-4 years. With other investments this would easily allow my wife and I to retire at that point (we are both 47).
 
past performance doesn't equal future performance, but I try to stay 15% OTM and I adjust early, meaning I don't wait until I'm right ATM and try to adjust because you can't adjust as far out the closer to the money you are. I try not to ever be closer than 5-8% above stock price. Why 15%? I looked at TSLA historical weekly movements and that is the number that TSLA has only moved equal to or more than in a week 15-20x since IPO. I don't want to lose any shares, so using this number while also knowing I can adjust out and up limits my risk to near zero. The only risk I see is TSLA moving up fast and consistently enough that I run out of option chains to adjust to. If that were to happen, I would have enough money that It wouldn't really matter and trimming my TSLA position would be ok. I also know I can establish synthetic stock positions that would take a fraction of the money that I currently have committed to TSLA shares, with basically the same return.

So if the stock gets to 5-8%, you will roll. Do you roll out to the next week? Do you pick strike price to zero out the call-buy back or still try to net a premium?

In aggregate, what sort of average % return on premiums are you getting with this method?

BTW heading up 108 for a few days with the family next week, any good food options in Sonora?
 
So if the stock gets to 5-8%, you will roll. Do you roll out to the next week? Do you pick strike price to zero out the call-buy back or still try to net a premium?

In aggregate, what sort of average % return on premiums are you getting with this method?

BTW heading up 108 for a few days with the family next week, any good food options in Sonora?

I take into account what news/events are happening that is causing the stock to move, what day/time of day it is etc to determine If/when I'm going to roll. I found I like selling options 3 weeks out and holding them a week, then rolling a week out again. I haven't done the math on this but it seems to keep the Theta burn higher more consistently. Looks like some here are doing weeklies then adjusting down towards the money as they get closer to expiring, I'll have to look at that idea to see if I want to do it, would allow for more premium.

I don't know what I'm getting on a % basis, I'm typically selling them for around $4 each give or take. If I'm rolling by choice, and not because I have to, 15% OTM gets me about $4 per week. When TSLA had that big $100 day last week I was forced to roll twice, but each time I took a small premium and bought more shares. I'm now waiting that out, I'm at 805 April 16's right now. I'll most likely adjust next week and take in 10-15k in premium. TSLA never hit my 750's I was holding when the stock bottomed out, but like I said I don't let the stock get anywhere close to my strikes, allows me to sleep well at night not worrying about news/events when market is closed and makes for easier adjustments.

Everyone has to go by their own risk/reward and financial goals. I do not want to lose potential millions in future TSLA gains by trying to make a couple extra grand today, so holding my shares is most important.

As far as food up here in Sonora, options are limited for sure. There is the "Service Station" in Jamestown, "Diamondback" in downtown Sonora, "The Peppery" and "The Standard Pour" just east of Sonora. Lots of Mexican places, all are pretty similar. Not much culture up here in redneckville. If you like burgers, the best burgers in the county can be found in Mi Wuk at Andy's Mountain Grill. I highly recommend, arguably the best burger I've ever had. They are only open 11-5pm 5-6 days a week however.
 
Just checking in, it's been a while.

I'm setting up my trading account for regular trading of 2 positions (selling calls and puts).

I've set it up this morning and have plans to keep rolling the losing leg. Positions in the account:

800 x TSLA
-8 x Apr 16 900c
-8 x Apr 16 900p
+9 x Jan '21 1300c
$150k cash
(Margin maintenance excess is at $104k)

My plan is to keep selling equal number of calls and puts with the same expiry date (a short strangle?) and roll the leg(s) that's at risk. Have been holding about -6 puts so far through this major TSLA dip and had no effect on my account, so I think so far it proved to be somewhat safe. Rolling these will likely generate 5 digit $ income every month for my family.

Looking for any feedback or warnings about this.
What platform are you trading on?
I'm in the setup phase of a new and roughly half sized account. For me this is a rollover IRA as I bring former work retirement accounts under my direct control.

The initial entry is 400 shares at $676 and
-4 x Mar 19 705 calls
-5 x Mar 19 650 puts

The 650 puts reached ~75% profit today and have been rolled to
-5 x Mar 19 700 puts

I chose to keep the expiration the same, mostly because I'd like to roll the calls and puts together and the calls aren't ready. But this situation is closer to a coin flip (the Mar 19 vs. the Apr 2 expiration) for me - 1 full week to expiration could also get rolled out by 2 weeks. If I were rolling that position tomorrow then it would almost certainly be the 2 week roll. As it is I picked up a $14 net credit and turned $6 worth of premium left to earn this week into $20 worth of premium to earn over the balance of the week.

This also leaves me in a 700/705 strangle expiring this week.


I don't have the margin available (IRA) but this is otherwise what I'm doing - I hope it works as well for me :)

I think that the primary observation I have for others is that in an IRA that doesn't have withdrawals going (my situation) then this 50/50 cash/shares balance is almost certainly a lower return choice than just holding shares. I've got 8 years to go until I have full access to this money and managing it as if its an income source today, and given my own investment thesis, just owning shares will almost certainly outperform. I am primarily managing this resource in this fashion as I think this will do well enough and mostly I want to be generating feedback today with the balanced puts and calls; the other accounts are share heavy and the feedback isn't as good because of that.


My target is slightly more cash value to share value, and to be selling slightly more puts than calls. When there are enough more puts than calls then I'll be looking for assignment on 1 or more put contracts to get back close to even numbers.

As this is new money going to work I have started the account out with my target ratios and get direct and immediate feedback from an account with a balance between shares and cash.
@adiggs- who is the custodian for your IRA accts?
 
Anyone selling puts or CCs in 2020 found it 'easy money' (which is great), but that was also the short game taking bullish positions (OTM -P's and OTM covered calls are both bullish) that beat the odds in a once-in-a-decade rally. Anyone who's seen a drawdown in their account balance with those same bullish positions over the past few weeks is dealing with the long game of statistical inevitability.

Keeping the analogy going, selling options on a strategy that considers things like volatility and price analysis is like counting cards.

E-trade has an option income back tester if anyone wants to play around with it.

income back tester.PNG


I closed most of my 765cc
 
I agree on another big pop not being likely. I couldn't do what I'm doing without the ability to roll, I probably wouldn't do it actually. selling PUTS to get back in will probably work pretty well in most cases.
Is a roll not just a buy/sell combo order? There is no reason you can't just do them separately, you just risk some price movement between fills.
 
Depends on your options level and cash. You need to have enough cash or margin to buy back the first leg without the premium from the second. Or be able to sell an additional option while holding the original in your account.

My IRA doesn't allow margin but I'm able to roll options that I otherwise wouldn't be able to if done in two separate orders.
 
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Depends on your options level and cash. You need to have enough cash or margin to buy back the first leg without the premium from the second. Or be able to sell an additional option while holding the original in your account.

My IRA doesn't allow margin but I'm able to roll options that I otherwise wouldn't be able to if done in two separate orders.
Ah, very true, makes sense!
 
are you including the underlying stock gains/losses in this calculation?

Yes, of course. I realize this thread has become a bit of a catch-all, but in general its main purpose is discussion around selling options against TSLA shares that are not meant as B&H. As such, account balance is the really the only thing that matters in context of that methodology.

B&H is a different scenario for sure, but the general point is still the same: If one is selling covered calls on B&H TSLA shares with a fixed/static strategy, one is going to be disappointed long term. Sure, with downward TSLA movement its a non-issue as the loss on the underlying is just part of long term ownership and the gain on the -C's simply softens the blow. On the upside however, maintaining a fixed strategy is going to result in materially significant gains left on the table and--as was the case for CC sellers in 2020--unavoidable dumping of otherwise B&H shares because their CC's were so underwater.

Its important for us to all accept that the above two concepts*** can exist at the same time for a trader; one does not necessarily preclude the other. Some amount of capital can be dedicated to B&H shares and some amount of capital can be dedicated to selling options. Someone who's in growth mode would want to be more conservative with CC's on their B&H shares, in an effort to realize inevitable gains from big moves. Someone who's met their financial goals might be more agressive with CC's on their B&H shares, accepting the possibility of having them called away (with or without an immediate re-buy).

***For those who wish to trade smartly and safely, one would also have capital dedicated to buying options.
 
Yes, of course. I realize this thread has become a bit of a catch-all, but in general its main purpose is discussion around selling options against TSLA shares that are not meant as B&H. As such, account balance is the really the only thing that matters in context of that methodology.

B&H is a different scenario for sure, but the general point is still the same: If one is selling covered calls on B&H TSLA shares with a fixed/static strategy, one is going to be disappointed long term. Sure, with downward TSLA movement its a non-issue as the loss on the underlying is just part of long term ownership and the gain on the -C's simply softens the blow. On the upside however, maintaining a fixed strategy is going to result in materially significant gains left on the table and--as was the case for CC sellers in 2020--unavoidable dumping of otherwise B&H shares because their CC's were so underwater.

Its important for us to all accept that the above two concepts*** can exist at the same time for a trader; one does not necessarily preclude the other. Some amount of capital can be dedicated to B&H shares and some amount of capital can be dedicated to selling options. Someone who's in growth mode would want to be more conservative with CC's on their B&H shares, in an effort to realize inevitable gains from big moves. Someone who's met their financial goals might be more agressive with CC's on their B&H shares, accepting the possibility of having them called away (with or without an immediate re-buy).

***For those who wish to trade smartly and safely, one would also have capital dedicated to buying options.

Right, it is good to remember. Options are priced based on Black-Scholes model, which basically sets prices based on volatility a.k.a the likelihood for those prices being reached.

Over many many iterations, the distribution of price swings should generally match this model, and thus you would not be "beating the system".

This is where having any semblance of model of the system (in this case, TSLA price movements) that is more accurate than random can put in your a better than position where the ideal options model for that system can extract higher returns than buy and hold.

For me, it is easier to view this model at a longer time frame, where 1) I am totally willing to have my shares called away at those prices and 2) I "think" I have a model for when TSLA has had a significant run-up and will have a pause or dip and a good position to sell CC's with longer expiry.

Since I only want to engage in selling longer expiry CC's at the right moment, that may only happen a few times a year. Patience is virtue, lol.

It would be great to supplement that strategy with selling weeklies OTM while paying attention to the TSLA and macro news.
 
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Is a roll not just a buy/sell combo order? There is no reason you can't just do them separately, you just risk some price movement between fills.
No, there isn't, except you have to keep cash in your account just to roll the calls. I don't keep any cash in my account, I immediately use the premium from the sold calls to buy shares. I would have to hold back 50-100k if I couldn't roll, possibly more. As the stock moves against you the option values can increase significantly. For example, had I needed to roll one more time last week I would have needed around 100k. I trade in an IRA so no margin.
 
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