Wiki Selling TSLA Options - Be the House

[ReddyLeaf]

seriously. is there a downside to selling put DITM for Friday expriation? Seems like it would average to 710 price per share average if I'm wrong... and good premium if I'm right and stock ends week higher.... just wondering about this strategy if I wanted to make a portion of my position for selling puts today

The downside, as has been explained weeks ago by @bxr140 is that the SP runs away from your put, effectively giving you 100% profit on the trade ($30/sh in your case), but you then miss out on the SP appreciation above the put strike. You’ve effectively sold your shares, now have cash at $740/sh, but the SP rockets to 900+. Now, selling future puts at 740 will only net you lower and lower premiums. If this SP rise continues, you get farther behind, especially if you are selling cash-secured puts. If selling naked on margin, well then it keeps nipping at your margin until you’re out.

Edit: I don’t always understand what bxr140 says, but he’s a great learning resource. When he says NO, and I don’t understand the mechanics of the reason, that’s a clear sign to back down and learn or stay in my simple OTM -CC / -CSP corner and collect smaller premiums at less risk. Even so, I still make poor trades at least 10% of the time.

 

[Yoona]

FWIW, its pretty tight for day trading today. I drew a couple quick TL's on 5 min and there's not a ton of meat on those bones. Given the calm before the storm element of today I wouldn't advise day trading unless you have a solid strategy.

Also FWIW, I'm a big fan of Floor Trader Pivots for day trading, which are the red blue and yellow lines on the chart below. Its easy to after-the-fact them, like hitting R2 (The top red line) off the bell and then quickly dropping to S1 (the lower blue line), but (IMHO) its also no coincidence that price is settling around the central pivot (the yellow line).

View attachment 657122


Looking at it another way, we're fixin on a symmetrical triangle. Look for a big break in either direction as an entry signal, though beware of that entry being a fake-out.
View attachment 657125

OHHHHHHHHH, i gotta research that, thanks!

i managed to get 5 rides... but too much work and tension; i wish there's a way to automate it

 

[bxr140]

i managed to get 5 rides... but too much work and tension; i wish there's a way to automate it

The more trader focused platforms all have automated strategy builders in them. I've built a few automated strategies in my primary platform (Tradestation), mostly for futures...the ultimate goal is to just be able to run the strategy all day and night. Unfortunately, from the "if it was easy everyone would do it" perspective I've found it crazy hard to build something that can consistently return profit over a wide range of market conditions. Its a little easier if you totally ignore downside...but I'm not about to let my balance drawdown indefinitely for anything, let alone on a couple of ES contracts.

 

[buttershrimp]

DITM puts are a terrible idea. You get *sugar* for extrinsic value (which is the point of selling the put in the first place), you need underlying to move up to realize gains off ∆, and as underlying moves up you progressively realize smaller and smaller returns because of decreasing ∆ and gamma and increasing Vega.

Thank you guys for the feedback.... @bxr140 and @ReddyLeaf .... I should describe the reasoning behind my idea.... I have 1200 buy and hold sell cover call shares... and I'm trying to keep 400 shares worth in reserves.... so today I said YOLO and bought in this morning @730 with the intention of selling the gains at end of day before the earnings report. In other words, I'm using cash and margin today to buy these shares.... and if stock would have dipped below 730 at all, I would have exited position...

Before I sell these shares, I was looking at the prices of the DITM puts (basically selling put for $39.75 755 strike expiring at end of week).... idea here being, there is a good chance shares go up above 755, and I keep premium. But also if they don't I still have a cost basis of $715 on those 400 shares! That's why I'm wondering what I'm missing.... If I have oppo for 16 contracts, shouldn't 4 or so be reserved for selling puts each week? I'm sorry for being so nooby.

 

[buttershrimp]

Thank you guys for the feedback.... @bxr140 and @ReddyLeaf .... I should describe the reasoning behind my idea.... I have 1200 buy and hold sell cover call shares... and I'm trying to keep 400 shares worth in reserves.... so today I said YOLO and bought in this morning @730 with the intention of selling the gains at end of day before the earnings report. In other words, I'm using cash and margin today to buy these shares.... and if stock would have dipped below 730 at all, I would have exited position...

Before I sell these shares, I was looking at the prices of the DITM puts (basically selling put for $39.75 755 strike expiring at end of week).... idea here being, there is a good chance shares go up above 755, and I keep premium. But also if they don't I still have a cost basis of $715 on those 400 shares! That's why I'm wondering what I'm missing.... If I have oppo for 16 contracts, shouldn't 4 or so be reserved for selling puts each week? I'm sorry for being so nooby.

I should clarify, I YOLO'd the last 400 shares this morning with the intention of picking up quick gain today before possibly getting back out before earnings.

 

[buttershrimp]

sorry to blow up this thread with thoughts... but wondering if better position would be to hold the shares into earnings and if it goes south, sell it off after hours and if it starts running up after hours, let it ride.

 

[Tslynk67]

This is the key. When applied properly The Wheel--and selling options in general--is a [small] part of a bigger strategy. Folks here generally are heavy on B&H TSLA, and they don't want to let those shares go. They're also not selling calls against those shares, at least not all of them and certainly not aggressively, as the potential for small, incremental revenue is far outweighed by the possibility of a mad TSLA rally.

I'm selling fairly aggressive weekly calls against my whole portfolio and to date I have been exercised. I did have to close out my positions on 4/16 to avoid that, but that's only because I rolled the cc755's down to cc735 in an opportunistic move

I believe the risk of selling calls, even aggressively, is low as you always have the possibility to roll out and up, and could keep doing this indefinitely gathering premiums each week until the SP hits $10k, then you might be happy to sell

Of course the risk of early exercise is always there, granted, but other than that it seems an endless source of free money, or in my case, shares as I've added 335 since December

When the SP goes above $800 I will be even more aggressive with my strikes as I'm OK to sell at that price if it happens, then play the put side, at least on half my portfolio

 

[bxr140]

Before I sell these shares, I was looking at the prices of the DITM puts (basically selling put for $39.75 755 strike expiring at end of week).... idea here being, there is a good chance shares go up above 755, and I keep premium. But also if they don't I still have a cost basis of $715 on those 400 shares! That's why I'm wondering what I'm missing.... If I have oppo for 16 contracts, shouldn't 4 or so be reserved for selling puts each week? I'm sorry for being so nooby.

One should not at all be agressive with selling anything against B&H shares, unless they're not actually B&H shares. Its imperative to separate capital allocated to investments from capital allocated to trades.

One thing that is a bit unfortunate with this thread is the misrepresentation (not nefariously, mind) of folk's intentions with their trades/strategies relative to the bigger picture context of the thread. Unless you really try to figure out what someone is talking about its easy to miss the fact that their intentions and risk profile may be completely different than your own.

For instance, I prefer to avoid account balance drawdowns, so I actually have zero investments. I'll drop shares of anything at the first sign of an Imperial Cruiser. Some folks are very happy to take profit on covered calls even though their core share values have drawn down multiple times what they made on the -C's.

I believe the risk of selling calls, even aggressively, is low as you always have the possibility to roll out and up, and could keep doing this indefinitely gathering premiums each week until the SP hits $10k, then you might be happy to sell

If one goes get deep enough ITM one is barely clawing up the option chain every cycle, and one has tied up a massive amount of capital for the pleasure. At that point the options are 1) hope real hard that underlying comes back down so the rolling game becomes easier or 2) bail out of the position at a fraction of the profit had the shares not been covered. In both cases, big upside from big underlying movement was thrown away from the off, in favor of small gains.

 

[buttershrimp]

One should not at all be agressive with selling anything against B&H shares, unless they're not actually B&H shares. Its imperative to separate capital allocated to investments from capital allocated to trades.

One thing that is a bit unfortunate with this thread is the misrepresentation (not nefariously, mind) of folk's intentions with their trades/strategies relative to the bigger picture context of the thread. Unless you really try to figure out what someone is talking about its easy to miss the fact that their intentions and risk profile may be completely different than your own.

For instance, I prefer to avoid account balance drawdowns, so I actually have zero investments. I'll drop shares of anything at the first sign of an Imperial Cruiser. Some folks are very happy to take profit on covered calls even though their core share values have drawn down multiple times what they made on the -C's.



If one goes get deep enough ITM one is barely clawing up the option chain every cycle, and one has tied up a massive amount of capital for the pleasure. At that point the options are 1) hope real hard that underlying comes back down so the rolling game becomes easier or 2) bail out of the position at a fraction of the profit had the shares not been covered. In both cases, big upside from big underlying movement was thrown away from the off, in favor of small gains.

Thank you for the feedback. If those 400 shares were not intended to be buy and hold, does my logic make more sense? And to your point, it sounds like you are saying, you are on the trading side of the investment/trading continuum? account balance drawdown avoidance means, you don't want to lose any money ever, so you aren't afraid to jump off the wheel if a serious downturn is going to occur.

Perhaps then you are the perfect person to ask about the strategy of trading going into the earnings call. I'm fearful of tying up my "safety shares" if there is big selloff as elon is talking.... but I'm all ears for the idea that selling ITM puts on those shares is also unwise. I certainly don't want to have sold puts as Elon announces model 2 in the conference call.... even if these 400 shares were intended to be my safety cushion. I'll take that cushion at 800 tomorrow if it's trending that way...

 

[ZeApelido]

Just remember in theory there is no free lunch with options, folks. If you take a stock or many stocks whose price movements are randomly generated, and you do a lot of options trading, the net result will converge to 0 gain (well negative given transaction / commissions).

The only reason results aren't random for you is that TSLA movements over a few years have definitely not been "random" and you probably have a better internal model of TSLA and Tesla the company than random. Of course that advantage may continue for years for you (and me), but I would advise to at least think about what happens if you are wrong.

 

[sub]

I'm selling fairly aggressive weekly calls against my whole portfolio and to date I have been exercised. I did have to close out my positions on 4/16 to avoid that, but that's only because I rolled the cc755's down to cc735 in an opportunistic move

I believe the risk of selling calls, even aggressively, is low as you always have the possibility to roll out and up, and could keep doing this indefinitely gathering premiums each week until the SP hits $10k, then you might be happy to sell

Of course the risk of early exercise is always there, granted, but other than that it seems an endless source of free money, or in my case, shares as I've added 335 since December

When the SP goes above $800 I will be even more aggressive with my strikes as I'm OK to sell at that price if it happens, then play the put side, at least on half my portfolio

similar to what I do, I don't analyze much I just sell calls at a comfortable distance knowing I can always adjust out and up. Does sitting and waiting for the perfect time to sell calls beat just always being short calls and having that theta burn 24/7 365? I don't know, but I prefer to not sit around hoping I guess the timing right. One thing I'll disagree with here, If TSLA were to move up long and steady enough, we would eventually not have another option chain to adjust to. So, I look at how far out and up I can move within the current available option chains (can only estimate, but close enough) and ask myself if I'd be ok letting my shares go for 2-3k a share inside of 2 years? My answer to that question is yes, so I don't worry about what TSLA does. I would prefer to not ever have shares called away, but I'm ok with the worst case scenario and the chances of that happening are extremely small. I take all option premium and immediately buy more shares, so the potential gain is way bigger than the worst case scenario risk. I'm currently sitting short May 7 840's, had to adjust into this position 2 weeks ago when TSLA had a big pop (I adjust early and stay very conservative). I was hoping to sell options right before market closed today but that didn't work out.

I might adjust back 1-2 weeks depending on how TSLA moves in the next 20 minutes, but I feel ok where I'm at. I've added nearly 10% to my TSLA position so far this year with this low risk strategy, works for me.

 

[sub]

I decided to roll out and up one week to 870's, decided better safe than sorry and it's only a week in the big picture of things which is nothing when playing with 7 figures.

 

[ReddyLeaf]

Thank you guys for the feedback.... @bxr140 and @ReddyLeaf .... I should describe the reasoning behind my idea.... I have 1200 buy and hold sell cover call shares... and I'm trying to keep 400 shares worth in reserves.... so today I said YOLO and bought in this morning @730 with the intention of selling the gains at end of day before the earnings report. In other words, I'm using cash and margin today to buy these shares.... and if stock would have dipped below 730 at all, I would have exited position...

Before I sell these shares, I was looking at the prices of the DITM puts (basically selling put for $39.75 755 strike expiring at end of week).... idea here being, there is a good chance shares go up above 755, and I keep premium. But also if they don't I still have a cost basis of $715 on those 400 shares! That's why I'm wondering what I'm missing.... If I have oppo for 16 contracts, shouldn't 4 or so be reserved for selling puts each week? I'm sorry for being so nooby.

Ok, understood. If you keep the 1200 HODL shares (or maybe sell far OTM calls) and trade the 400 shares as near ATM CCs or CSPs, then that makes more sense. Buying before open today was certainly better than buying right after open. I usually target selling puts later in the week, for the following week. The MMD low is a good time, but lately Thurs/Fri near closing seems pretty good too.

To paraphrase bxr140, everyone’s goals, tolerance, competency, financial situation, account types, and age are different so we shouldn’t expect everyone to trade the same. I skim the stuff about margin, multi-leg trades, fancy ladders/calendars, and Greeks without really fully learning it, but it’s still interesting reading. My trading is all in IRAs with no margin or multiple-legs allowed. Every trade is an individual leg which must be covered with cash or shares before initiating. Rolling requires two trades and cash before hand. I won’t even consider iron condors due to the complexity and backing required. Furthermore, I cannot sell a CC against a LEAP. In short: it’s fun watching and learning from others, but I’m on the 10-yr plan hoping to add 1000-2000 shares by then.

Edit: I’m trying to emulate @Lycanthrope and have probably added 100-150 shares in 6 mo, maybe more. I started after battery day and didn’t start options until November, mostly buying calls on the S&P run up. Got more serious on the Wheel after January.

 

[bxr140]

Thank you for the feedback. If those 400 shares were not intended to be buy and hold, does my logic make more sense?

It never makes sense to me to sell ITM (let alone DITM) puts, if that's what you're asking. I just don't like high risk, low reward trades. Bigger picture, it doesn't make sense to me to sell puts for the purpose of share allocation either, as I don't like the lack of control over my money in that scenario. There's just too much downside for me to say "I'm ok being put shares at 715" if there's room for underlying to run down to 650 (for instance).

I guess more meta here is that prices shouldn't just be random. Prices should be analyzed. If you're ok being put shares at 715, why are you ok with that? If your logic passes some pre-determined set of criteria you've set for yourself (and not just a "that sounds like a good price" real time YOLO) then you're good to go. Otherwise, keep studying.

(There's a time and place for YOLOs too...but that's another conversation.)

And to your point, it sounds like you are saying, you are on the trading side of the investment/trading continuum? account balance drawdown avoidance means, you don't want to lose any money ever, so you aren't afraid to jump off the wheel if a serious downturn is going to occur.

To be clear, I don't do The Wheel, period. For me it is too high risk, too high maintenance, and too low reward. It really steers a trader into thinking that steady recurring revenue is A Good Thing, when in reality a trader should be focused on proper analysis.

I do sell options at opportunistic moments, but the sole goal is to profit off volatility, and my position structure is a spread, almost always either vertical or IC. (I don't do naked). If I want to profit off of underlying movement I buy options, often as part of a spread, usually horizontal and then (ideally) transitioning into diagonal.

Perhaps then you are the perfect person to ask about the strategy of trading going into the earnings call.

I typically play earnings very cautiously, often very conservatively, capitalizing on volatility burn off in earnings week. My favorite play is opening ITM CCs a ~few days out. This time around I was a bit more bullish, and unfortunately it looks like its not going to go my way. I'm holding a number of ~4-6 month calls, a number of closer dated calendars, and a number of ATM covered calls. Tomorrow open is going to be a bad deal for my account balances.

 

[Criscmt]

Again, during SP drop in Feb, March, I traded my shares for Sep-2021 490C, I did that too soon. And, my options will get me back the same level of shares if SP reaches ~$860. I plan to hedge by selling CC against these long options, considering 05/28 900C, or 09/17 900C, ideally when SP reaches $777 (a couple of dollars below the $780 resistance).

Similarly, considering selling CC, 05/28 900C, against my core shares too if price action during market hours tomorrow is really good, gets close to $800. If these CC continue to be at loss till expiry, and become ITM, will roll few days before expiry.

Before close sold 05/28 900CC against the Sep-2021 calls, sold 04/30 900C against core.

 

[buttershrimp]

It never makes sense to me to sell ITM (let alone DITM) puts, if that's what you're asking. I just don't like high risk, low reward trades. Bigger picture, it doesn't make sense to me to sell puts for the purpose of share allocation either, as I don't like the lack of control over my money in that scenario. There's just too much downside for me to say "I'm ok being put shares at 715" if there's room for underlying to run down to 650 (for instance).

I guess more meta here is that prices shouldn't just be random. Prices should be analyzed. If you're ok being put shares at 715, why are you ok with that? If your logic passes some pre-determined set of criteria you've set for yourself (and not just a "that sounds like a good price" real time YOLO) then you're good to go. Otherwise, keep studying.

(There's a time and place for YOLOs too...but that's another conversation.)



To be clear, I don't do The Wheel, period. For me it is too high risk, too high maintenance, and too low reward. It really steers a trader into thinking that steady recurring revenue is A Good Thing, when in reality a trader should be focused on proper analysis.

I do sell options at opportunistic moments, but the sole goal is to profit off volatility, and my position structure is a spread, almost always either vertical or IC. (I don't do naked). If I want to profit off of underlying movement I buy options, often as part of a spread, usually horizontal and then (ideally) transitioning into diagonal.



I typically play earnings very cautiously, often very conservatively, capitalizing on volatility burn off in earnings week. My favorite play is opening ITM CCs a ~few days out. This time around I was a bit more bullish, and unfortunately it looks like its not going to go my way. I'm holding a number of ~4-6 month calls, a number of closer dated calendars, and a number of ATM covered calls. Tomorrow open is going to be a bad deal for my account balances.

Thank you @bxr140, I want Neuralink to hurry up so I can upload that info into my head.... but your advice is really helpful.

one quick note, I guess I don't know what deep in the money is for a weekly. I assumed 5-10 dollars above strike is DITM... but probably not.

I’m kind of surprised there isn’t a situation where selling ITM put doesnt make sense, but I trust you on that... so I’ll explain my logic and would like to understand where I went wrong with the logic.

So, why do I think 715 is a “good cost basis”? For selling an ITM 750-755 put?

-My bear estimate is SP of 1000-1500 in 4 years.
- I had planned to buy premarket and exit before earnings call )maybe let it ride if price really soared today).
- when it didn’t soar, I thought selling a put with my “safety share” money would be ok
- 715 also seemed good because I could afford to buy and hold if it price dropped further
- I predict that the sp is going to end above 750 this week even with a potential sell-off post earnings)
- I thought selling the ITM put might be sort of “not dumb”.... because I would have a fair chance to keep the whole premium with my safety share money if price surged later in week
- there is other info I use (Gary black, papafox, others on this thread) to inform me on what is fair among other Tesla fans understanding tremendous amount of confirmation bias among us... I still respect Gary black for selling and jumping back on (honestly he sounds the most similar to how you describe using options, as a tool he knows how to use at certain Times).
still, I wouldn’t yet dare try my hand at what you are doing yet, because you seem like someone who knows what you are doing.... that requires real studying patience and time beyond my noobness...

i like the strategy of using weeklies that @Lycanthrope does because I’m more afraid of stock running far beyond strike price of my covered calls and it seems like it’s possible to learn about options on very limited time duration

so for me, I currently see “the wheel” as sort of like growing my own weed.... while waiting for Elon to launch the hydroponics that will blow minds (although I don’t really smoke the weed.... I like the analogy

with time, I hope I might learn how to grow my own advanced strains of weed.... and one day, I’ll be trading in the fun edibles you mentioned .... “the Vega diagonal hydroponic“ as it were

anyway long Story short, because I’m an idiot... I abandoned my strategy at the beginning the day, and didnt account for my “real career” distracting me at the end of trading session. So I watched helplessly as my “backup share money“ profit melted away from 3K gain had I stuck to the plan and exited at 738, and sold my crappy ITM puts... and now am sitting on 400 shares purchased premarket @ 730 now down below the price... i wondered What I was missing and failed to act... and that for the moment has pinned me in the spot I am currently in...

not to worry, I hope by sharing my mistakes, someone in this wonderful might take pity on me and share their thoughts on how they might react in this situation (sell aggressive calls with these 4 weekly contracts if it goes a little green tomorrow)... or perhaps something I haven’t considered like a monthly...

situation is I have
1200 buy and hold shares to do some
“safe” weekly covered calls... perhaps staggering the strike Prices upward to give me a cushion to learn)
And also these now underwater 400 backup shares i purchased today before I squandered my quick trading gain just prior to getting distracted at work and then paralyzed at how fast stock price dropped AH... too Late to exit those shares without a loss... I was also too greedy to use stop loss...

being greedy and too fancy cost me today. because I wanted to make that backup share money earn a premium without too much risk.... and the ITM put seemed like a good way to do that .... but I’ve failed to act decisively so I lost an opportunity to be right with a “wrong” ITM put strategy

 

[adiggs]

If I have oppo for 16 contracts, shouldn't 4 or so be reserved for selling puts each week? I'm sorry for being so nooby.

I didn't see if this was mentioned, but 400 shares can back 4 covered calls. To cover puts you would need the cash that the 400 shares costs. At $700 / share the 400 shares are $280k. That $280k is the backing for the puts

I believe the risk of selling calls, even aggressively, is low as you always have the possibility to roll out and up, and could keep doing this indefinitely gathering premiums each week until the SP hits $10k, then you might be happy to sell

one quick note, I guess I don't know what deep in the money is for a weekly. I assumed 5-10 dollars above strike is DITM... but probably not.

My (new - last couple months) experience with DITM is that it's the level where a 1 week or even a 2 week roll is unable to move the strike very far and/or generate a net credit. That's the flexible definition that adjusts dynamically each time you consider one of these. It also emphasizes that DITM is on a continuum with ATM / close ITM.


Anyway - some experiences this year (Feb to now):
I've had short puts go $150 ITM. That position is still alive, rolling for a small strike improvement and credit, even when $150 ITM. It's also about 2-3 months old and hasn't generated meaningful income for most of that time. And it got there first by generating income on the share run up to $900 (when it generated a lot of income; it's worked out). It's down to a $770 strike (from $820 or so) and has been generating small credits each time I roll it. At $150 ITM I had to roll 2 weeks at a time to get movement. I've also rolled 4 weeks at a time as I view the purpose of a DITM roll being to buy time. The strike improvement and minor credit are secondary consideration with strike improvement being most important (these are my 'rules' - you might develop different 'rules').

I'd say that DITM starts around $50 to 70 ITM these days. Pretty sure that as IV goes down, the ITM number will get closer and closer to the share price.

And it looks like I'm going to have some ~$30 ITM positions to roll this week - I haven't had experience that far ITM to see strike improvement / credit. I'll have a better idea later in the week at this closer level and I'll post those position rolls when I do them.

 

[Tslynk67]

Time to change it up, folks...

 

[jeewee3000]

Time to change it up, folks...

View attachment 657390

True.

I am kind of reluctant to jump in immediately on open. IMO chances of a quickly defeated MMD are high, since around 700 there will most likely be buyers (could be wrong of course).

I'd hate to sell CC's right in the MMD. I think I'll stay out of amateur hour and only start looking for entries after midday (US time).

 

[FS_FRA]

Totally agree, but I'm going to start writing more aggressive strikes. Week on week my cc's expire, as long as this malaise continues I might as well maximise the premiums

The week when it pops, I'll roll out and up - what's the risk? Zero. Just need to pay attention, but I do that anyway...

Same here - going back to work until midday NY time. Then look at a decent CC for Friday expiration. Rinse. Repeat. Been working well for months.