Wiki Selling TSLA Options - Be the House

[adiggs]

I found another way to escape my -p760 May 28 problem, and the headache is fixed 2 days from now. No need to wait 3 weeks.

Wait for Thur/Fri and:
BTC -p760x1 May 28 $17k debit
STO 100 Iron Condors +p575/-p580/-c640/+c645 May 14 $19k credit

Profit=$2k and Houdini escape is complete. Needs 5x100x100=$50k margin for 2 days.

Not advice!

I like this idea as well for managing the deep ITM headache.

You've been posting frequently about your IC escapades and they seem to be working really well for you.

So I'm curious - what is your decision making process for deciding on the IC? How far out do you make the plan? Do you use delta or Prob ITM or something else when deciding the short strikes (the long strikes are clearly $5 further out)?

 

[Yoona]

I like this idea as well for managing the deep ITM headache.

You've been posting frequently about your IC escapades and they seem to be working really well for you.

So I'm curious - what is your decision making process for deciding on the IC? How far out do you make the plan? Do you use delta or Prob ITM or something else when deciding the short strikes (the long strikes are clearly $5 further out)?

Actually, i am a dummy and still learning (with zero progress) about the greeks. You guys are the experts!

To keep it simple, I "guess" by Wed/Thu what is the Fri closing price and I base it from forum sentiment, SP movement, max pain, gut feel, how close everyone else is moving their CC's, etc. Then, just add 50 range on each side, or to wherever there is a lot of open interest (so i can BTC quick). $5 protection keeps margin usage low so I can sell more contracts.

So this Friday's +p575/-p580/-c640/+c645 range is only 60 instead of 100. 580 was influenced by repeated failed attempts to breach the 200 SMA. I might try -p575 just to be safe. As for 640, it's the call wall that wasn't even being threatened the whole week. That's my "educated" guess of the range.

The downside of using IC to fix deep -$17k ITM is that i am using the $19k credit for the BTC (netting only $2k), instead of keeping the whole $19k for myself. I am thinking that is ok - it's not my $ anyway. "The market makers are giving me $19k so i can pay them $17k."

Warning on opening IC: Twice already (due to recklessness) i made the mistake of BUYING IC, instead of SELLING IC. Good thing i caught them within minutes and closed quick for minor loss.

My 2 cents!

 

[ReddyLeaf]

Actually, i am a dummy and still learning (with zero progress) about the greeks. You guys are the experts!

To keep it simple, I "guess" by Wed/Thu what is the Fri closing price and I base it from forum sentiment, SP movement, max pain, gut feel, how close everyone else is moving their CC's, etc. Then, just add 50 range on each side, or to wherever there is a lot of open interest (so i can BTC quick). $5 protection keeps margin usage low so I can sell more contracts.

So this Friday's +p575/-p580/-c640/+c645 range is only 60 instead of 100. 580 was influenced by repeated failed attempts to breach the 200 SMA. I might try -p575 just to be safe. As for 640, it's the call wall that wasn't even being threatened the whole week. That's my "educated" guess of the range.

The downside of using IC to fix deep -$17k ITM is that i am using the $19k credit for the BTC (netting only $2k), instead of keeping the whole $19k for myself. I am thinking that is ok - it's not my $ anyway. "The market makers are giving me $19k so i can pay them $17k."

Warning on opening IC: Twice already (due to recklessness) i made the mistake of BUYING IC, instead of SELLING IC. Good thing i caught them within minutes and closed quick for minor loss.

My 2 cents!

I think that your more of an expert than you think. Remember, that the market is just a bunch of people and algorithms programmed by people, all guessing when to buy/sell. It all boils down to sentiment. The Greeks and math, is just a way to quantity that sentiment. FWIW, I really like your methods.

 

[Yoona]

I think that your more of an expert than you think. Remember, that the market is just a bunch of people and algorithms programmed by people, all guessing when to buy/sell. It all boils down to sentiment. The Greeks and math, is just a way to quantity that sentiment. FWIW, I really like your methods.

wow, thanks... credit really goes to this forum thread... just read from page 1 to the last page and you will feel like you just got a Bachelor's Degree!

 

[adiggs]

Edit: I also realised that I'm stupid taking "safe" premiums against these covered calls, target 1% of SP and roll, why not? Can anyone give me a good reason not to do that? Early assign, I guess, right? For which the best mitigating strategy it to keep on top of things and roll early, preferably while still OTM

I can give you the reason that had me backing off from aggressive (.35ish delta aggressive). When we were sailing up towards $900 share price back in Feb I had puts I was rolling along, making money with. The calls were at that 900 strike and eventually went ~worthless (though there was more intrigue than I wanted with them).

Then the shares reversed, hard, and those 820ish strike puts were suddenly $50 ITM and just kept getting worse. Today they've been rolled down to a 760 strike and are as far ITM as they've ever been.

The significant problem arose with that sharp reversal as I was rolling the call side down. It was making money like crazy when I got that strike down to something like 600 and the shares reversed again. I landed in something like a 780/600 inverted strangle with a share price around 680. Both sides were then deeply ITM with bad roll options available. The good news there was that rolling for time would inevitable get one of the two sides back OTM and earning again. The bad news is that I stopped earning income for about a month while I was rolling along waiting for one side to go OTM.


For only selling calls, the 'problem' isn't so much early assignment as it is a $200 move over 3 weeks (as we saw with this move down). In that case you can find yourself deeply ITM quickly. So if you had $600 cc's that were suddenly $100 ITM, are you good with taking assignment? Or are you good with the shares never returning to $600 while the roll choices are bad and you keep watching the shares take off and leave you?

I guess the short version - when the shares are moving fast against the CC, you won't be able to roll the options fast enough without the expiration date getting really long (every roll will require at least 1 week of incremental time). Once you're up around a 4 week expiration the incremental time value starts slowing down a lot and you might be making monthly rolls as you approach the ATM strike. That is the black swan / bad move that I plan for on both sides.

The good news is that the aggressive rolls when ATM can stop anytime - just take assignment at that strike. The bad news is that you get to await whatever expiration date you've sold at that point to actually take assignment. If you had to roll for an extra week 3 or 4 times that might mean you're waiting for a month for that assignment to finally happen.

Which isn't exactly the worst thing that can happen in the world, as long as you're ok with selling shares at say $700 that took off on some news and are now trading at $1200 and looking to go higher.

 

[adiggs]

After thinking about the three different strategies that have been identified the last couple of days for dealing with these 5/21 -760p contracts, I decided to implement two of them this morning, each implementation designed to take care of 1 of the contracts. While I was at it the rest of the nearly valueless 5/14 call contracts got rolled to 5/21.

First up I'm trying out the flip roll, turning a -760p on 5/21 into a -400c on 5/28. I goofed on this ticket as I intended to also included a c to p flip and use this premium to improve the call strike. I forgot about that at the time though and implemented these two changes in separate tickets. So I also turned a nearly valueless -c655c into a 5/28 -565p for around a $25 credit (that has gone into my cash flow rather than a better call strike). I chose the target put strike as the .35 delta for aggression and high premium. I don't see another fast $200 move down on the share price from here so aggressive puts appeal to me more than aggressive calls.

Given that my short term stance is that we're more down than up from here and that has been what is happening today, that -400c is working nicely so far, even its only 5% or so.

I had consider the split roll as well but decided that an increase in close ATM puts wouldn't create the dynamic I was looking for right now. I am strongly considering a split roll on that -400c though. Heck - I might even be able to do that at the same expiration for an excellent result.


I also opened a 545/600 condor for tomorrow at a $1.40 credit. I chose the lower strike as the first strike past 550 where I expect significant resistance to arise. I choose the 600 strike over the 605 as my thinking continues to be downward and the 600 strike was slightly better premium over the 605. I expect significant resistance at 600 but was much more willing to risk being right ATM tomorrow around 600 than ATM on the put side.

My intention is to use the condor proceeds after it settles tomorrow (make sure I earn the money before I spend it) to clear out one of those puts. Or maybe the flipped call - either choice is available.




The winning 655 calls from this week have been rolled to -635c for next week and are promptly winning.

And lastly the remaining -760p with 1 week to go have been rolled out 1 week at the same strike. The roll options going all the way out to 4 weeks sucked - none of them moved the strike price, but they did generate a progressively larger credit (dimes or a $ kind of incremental credits). I went for the 1 week roll under the more-frequent-adjustment view of things. It's this dynamic - that a 2-4 week roll still won't move the strike that has me taking more aggressive measures to improve / cure this position.

That and I want to develop experience to go with knowledge of these techniques in anticipation that I'll have a more important position in the future that I am REALLY worried about. I don't want to be in that situation and trying to figure some of these out on the fly. I've done that before (bad position - react into a position I don't like and will be living with for another >1 year).

 

[UltradoomY]

For some reason, I am addicted to burning cash.
1:50 pm ('Merica time) BTO $600 Calls for $1.50 each x 10 expiring tomorrow.....

 

[adiggs]

I also opened a 545/600 condor for tomorrow at a $1.40 credit. I chose the lower strike as the first strike past 550 where I expect significant resistance to arise. I choose the 600 strike over the 605 as my thinking continues to be downward and the 600 strike was slightly better premium over the 605. I expect significant resistance at 600 but was much more willing to risk being right ATM tomorrow around 600 than ATM on the put side.

So a question where I think the answer will be valuable to others as well. On these condors, do you positively close the position as you near expiration, or do you let stuff that is further OTM go to expiration?

Thinking about my particular situation I was thinking about offering up the most winning leg for a .01 debit so somebody will take it off my hands near the end of the day, and any risk of a late or after hours move happening, that leads to a late or after hours assignment is positively eliminated.

Similar idea on the side that is closer OTM, realizing I might need to offer up a .05 debit or something along those lines and that it will still go down to the wire to find somebody to take it. I figure on whichever leg is OTM there will be a broker that will cheerfully take my penny and take on the risk of those options going to expiration and then turning into a problem.


Or another thought I had - close the short legs at a really low price while keeping the long protection, for the opportunity to generate a late / close to expiration profit should something significant happen right at the end of the day. This is probably too much management energy though and I'll just close the spread for cheap.


So how do you put a wrap on OTM call / put credit spreads? Particularly inspired by @setipoo but feedback from anybody is appreciated.

 

[Yoona]

So a question where I think the answer will be valuable to others as well. On these condors, do you positively close the position as you near expiration, or do you let stuff that is further OTM go to expiration?

Thinking about my particular situation I was thinking about offering up the most winning leg for a .01 debit so somebody will take it off my hands near the end of the day, and any risk of a late or after hours move happening, that leads to a late or after hours assignment is positively eliminated.

Similar idea on the side that is closer OTM, realizing I might need to offer up a .05 debit or something along those lines and that it will still go down to the wire to find somebody to take it. I figure on whichever leg is OTM there will be a broker that will cheerfully take my penny and take on the risk of those options going to expiration and then turning into a problem.


Or another thought I had - close the short legs at a really low price while keeping the long protection, for the opportunity to generate a late / close to expiration profit should something significant happen right at the end of the day. This is probably too much management energy though and I'll just close the spread for cheap.


So how do you put a wrap on OTM call / put credit spreads? Particularly inspired by @setipoo but feedback from anybody is appreciated.

Sometimes i BTC the entire IC if the SP is moving "fast" towards the -.

Wrapping put credit spreads - I am also extremely interested in the answer!

Thanks in advance...

 

[asburgers]

For some reason, I am addicted to burning cash.
1:50 pm ('Merica time) BTO $600 Calls for $1.50 each x 10 expiring tomorrow.....

You are probably on to something.

 

[Oil4AsphaultOnly]

I don't know about y'all, but I've actually closed all my covered calls today and will watch how the SP progresses over the weekend. The spring feels too tightly sprung, and any covered calls I sell will net too low of a premium to be worth the risk. I'm reminded of the "collecting pennies in front of a steam roller" analogy, since selling calls is generally a bearish direction. Although rolling out any calls that end up ITM is an option, it just seems like tempting fate this time around.

 

[buttershrimp]

Well this is fantastic inspiration. Much appreciated. This week has been helpful to go back and learn from the flight data recorder. Two Important Items:

1). Looking Back to failed attempt on Monday, the terminology is "a Bullish Split-Strike Synthetic" AKA "Risk Reversal". Looking back to 9 am Monday, I think it was the right move at the right time. If I simply would have entered on one ticket it would have been amazing.

2). WHY ISN'T EVERYONE CONSTANTLY TALKING ABOUT THIS STRATEGY AS A MASSIVELY GOOD IDEA? If you can keep rolling the put leg down if you don't want to depart with your cash each week, what am I missing? Keep cash on hand while earning a premium and still have ability to buy stock if SP goes massively upward? Isn't this what @adiggs is describing as a dream strategy? @bxr140 ? @setipoo ?

Bullish Split-Strike Synthetic - Fidelityhttps://www.fidelity.com › options-strategy-guide › bull...

Risk Reversals for Stocks Using Calls and Puts

Risk reversal strategies can be a very useful “option” for experienced investors who are familiar with basic puts and calls.

www.investopedia.com

Good article on bullish “risk reversal” surely I’m missing something … like perhaps it’s harder to roll than I think? Or it’s not as lucrative? Or has tax implications for making so much money and experiencing too much joy? Ultimately seems to be a way to play the FUN side of the wheel every week (assuming you can roll down the big drop weeks)

my enthusiasm for this idea makes me KNOW I must be wrong.

 

[adiggs]

If you can keep rolling the put leg down if you don't want to depart with your cash each week, what am I missing?

When the share price and the put strike differ by enough, you can only roll for time. This is the state I'm in with a 760 and 750p. Being $200 ITM - even if I go out 4 weeks I still can't budge the strike on a net credit. You don't need the doodoo to be this deep to have that dynamic.

AND you need the positions to be semi-permanent. I.e. you can't have another purpose for the cash than backing puts and it needs to be open ended. If I had any of the money I need to pay taxes backing those puts .. that'd be bad.


But if you can stay close-ish, then yeah - that's certainly my plan!

 

[jeewee3000]

I get it now. Huge thank you!

 

[juanmedina]

Forgive me my stupidity, but I read and reread this post and the posts that came after trying to understand how this works. It seems very interesting though, so I'm asking about it.

I'll just give a simple example for the sake of learning:

Say I have in my portfolio:
100 TSLA shares
1 TSLA LEAP (eg Jan 2023, $1000 strike price)
$0 (zero cash)

I then sell a covered call against my TSLA shares. I can sell exactly one covered call. I sell a weekly for example.

@Lycanthrope 's explanation seems to imply that I can sell a second covered call, against that LEAP.

I understand that the CC I sell against the LEAP must have a strike equal to or higher than the LEAP strike price. (in this example $1000 or more) But I don't understand where you state that the expiry of the CC must be prior to the LEAP.

In my mind it should be an expiration AFTER the LEAP expiry. That way with the passage of time the LEAP will convert to shares and then those 100 shares are covering the covered call.

But this would mean that we're selling LEAPS, which I don't want to do right now (more possible upside than downside IMO).

Could anyone point out where I'm wrong? Thanks for you patience.

The long call has to be ITM other wise you will have a naked call and I don't think you would be able to place that trade in a IRA account.

 

[wnorris]

First up I'm trying out the flip roll, turning a -760p on 5/21 into a -400c on 5/28. I goofed on this ticket as I intended to also included a c to p flip and use this premium to improve the call strike. I forgot about that at the time though and implemented these two changes in separate tickets. So I also turned a nearly valueless -c655c into a 5/28 -565p for around a $25 credit (that has gone into my cash flow rather than a better call strike). I chose the target put strike as the .35 delta for aggression and high premium. I don't see another fast $200 move down on the share price from here so aggressive puts appeal to me more than aggressive calls.

I am trying to understand this flip roll as it would get me out of my -720p 5/21 hole much quicker than rolling if I am understanding it correctly.

Is the idea to establish the -400c to create a situation where you would have both go to assignment where the -p requirement to buy shares is negated by the -c requirement to sell shares at expiration? The premium gained from the -c should be near equal to the amount you are in the red from the DITM -p.

Basically, write the new ITM call to negate the ITM -p.

I feel like this is too simple...am I missing something here?

 

[jeewee3000]

For some reason, I am addicted to burning cash.
1:50 pm ('Merica time) BTO $600 Calls for $1.50 each x 10 expiring tomorrow.....

Sold these yet?


Just BTO $900c 17SEP2021 @10.60. Now we're gonna fly! (next week of course)

 

[UltradoomY]

Sold these yet?


Just BTO $900c 17SEP2021 @10.60. Now we're gonna fly! (next week of course)

No, just watching and see if they let it run later in the day.
If not, no big deal, was strictly a YOLO play - have some YOLO $650's for next week too.

 

[Oil4AsphaultOnly]

I am trying to understand this flip roll as it would get me out of my -720p 5/21 hole much quicker than rolling if I am understanding it correctly.

Is the idea to establish the -400c to create a situation where you would have both go to assignment where the -p requirement to buy shares is negated by the -c requirement to sell shares at expiration? The premium gained from the -c should be near equal to the amount you are in the red from the DITM -p.

Basically, write the new ITM call to negate the ITM -p.

I feel like this is too simple...am I missing something here?

You have the concept right. The risk is that if the SP moves higher after your flip. THEN you'll be further ITM and worse off!

As bxr140 said, getting the direction right is key.

 

[bxr140]

"a Bullish Split-Strike Synthetic"...WHY ISN'T EVERYONE CONSTANTLY TALKING ABOUT THIS STRATEGY AS A MASSIVELY GOOD IDEA?

Because there's no such thing as a silver bullet strategy. Options trading is about aligning a strategy to a trade opportunity. Certainly effective options traders will gravitate toward a few types of strategies as opposed to the whole catalog of possibilities (linked again for convenience, here's the basics) but it really, again, all comes back to understanding how an options position actually returns profit.

We talked about synthetics/combos a bit upthread, but the short story is they're a fine way to increase exposure through leverage. A basic synthetic P/L's pretty much just like 100 shares, except you don't need 100 shares worth of cash to hold the position (you need whatever margin your broker requires for a naked put). In the event you're trading in a non-marginable account, there's zero upside to a synthetic over shares.

Changing up strikes and/or expirations gives you a little more flexibility to tailor the P/L based on your underlying and volatility analysis, but its not like there's a massive upside over shares or a regular synthetic, and the split builds in a flat spot in the P/L that needs to be accounted for in your analysis. And...you still need to cover the naked put.

In the synthetics are really just a play on using a sold contract to offset the price of a bought contract, which is exactly what folks are doing with covered calls (where the bought contract is just shares) and calendar spreads (which, among other configurations, is what the stupidly named 'poor mans covered call' is).