Wiki Selling TSLA Options - Be the House

[buttershrimp]

I am glad I checked the forum today... lot's of good useful advice on here. @alterac000 I enjoyed listening to how you have had to modify your strategy to accommodate work and learning how to handle emotions etc... this is something I'm still working on... finding the right fit for me from a time management, risk reward standpoint. So far I've discovered I really like selling puts. I'm really bad at day trading TSLA, like staggeringly bad at it. And I really like allocating a certain portion of winnings towards stupid long shots. like buying last minute calls or puts when there is a lot of movement that somehow benefited me.

 

[ReddyLeaf]

Shout out to @MABMAB for an excellent post over in TSLA Technical Analysis, especially this article: Wide and Loose vs. Tight and Right
A great reminder that sometimes the best trade is none.

 

[tradenewbie]

Hi, I haven't checked in for a while due to work but I'm back now.
Knowing others are much more knowledgeable than me, here is what I would share.

The best thing about cc's is that you can always roll to either give yourself more time, a higher strike, or both for a neutral cost or preferably credit. You can also do debit rolls but as many have suggested this is probably not a great recurring strategy over many trades.

I was in a similar spot as you with much lower strikes a couple weeks ago when I posted my May 28 cc's, most of which were under water. At the time I ended up rolling 2 weeks out to 6/11 out of necessity due to work, and given the recent price action will probably close several out over the next 24 hours. Like you, I could have at the time closed the underwater cc's for a debit, but instead rolled for small credits which bought some time and slightly better (higher) strikes, giving some flexibility to see if a better exit presented itself. Fortunately it has and I've avoided losing significant cash with debit buy backs. The hazard of this naturally is the sp could have had a massive run up, and I may have landed in 'roll forever' mode. Like some have stated however, I'm personally of the belief we are not going to have a repeat 2020 with TSLA, at least not soon, so my fear of the forever rolling problem is not really significant now. I would be *glad* to be wrong on this even as soon as 6/10

I think it's safe to say we should not try to time the market, and instead find the best opportunities we can along the way to trade, accepting that sometimes we will be wrong. I believe part of what you are learning is how you personally react to the fluctuations in sp and option prices. I've been through this too and have finally learned to use a combination of short term directional conviction, option greeks especially delta - still learning the others, and lot sizes to better handle my emotional responses and hedge against my mistakes...in hopes of making better decisions along the way.

Thanks alterac, I should have kept rolling for small credit as you said.

 

[ZeApelido]

Just some insight about really how can you get away with rolling up and out:

A month ago or so I put together some code to do simulation runs of different CC rolling strategies.

Basically I modeled the Black Scholes equation for options pricing and simulated randomized "TSLA-like" price action with Brownian motion. The variance / noise properties I tried to model to be similar enough to what we see in TSLA historical price action.

I had different varying parameters like how close to strike price do you get before you decide to roll, what % strike price do you go up and how much further time wise do you roll out. I then vary the drift (e.g. underlying stock price movement).

The simulation goes out for 2 years. It will stop trading options if it rolls out and then can't find a new position with enough premium to cover the previous position, otherwise it will keep going.

I have to review the specific results, but basically, with a stock as volatile as TSLA, usually your CC's rolling strategy will eventually fail when the stock goes up 2x. I was hoping for higher, but that was about average. Of course, if the stock has lower volatility on the way up, the CC rolling strategy will last longer. So there are many assumptions here.

And using some intelligence / intuition into your timing and selection could perform better ( I certainly plan on being better), but I just wanted to point out again from a numerical approach that on average there is no free lunch. If you expect TSLA to 4x over the next 2 years, statistically, rolling CC's will eventually run you out early.

 

[generalenthu]

IV is pretty low given the event tonight. Are folks going into Friday with less than normal gamma exposure?

I did peel off some 615 covered calls I had on for tomorrow. Risk / reward was meh at $5 a pop.

 

[CHGolferJim]

I'm letting the June 11th $610 covered calls ride until tomorrow. At closing prices, a rollover to $620 would cost about $3.80 of my $7.85 premium, but capture $10 in capital gains if SP closes >$620. Tomorrow, with appreciation, I'll rollover to a strike price that should assign. If I misestimate, I'll go again next week.

 

[buttershrimp]

Project bobcat going to increase IV? Let’s hope. I’m have 25x 602.5 calls expiring tomorrow on my synthetic, and they have a 5k profit right now, so I set up a stop loss if profit goes in half, otherwise I might exercise them if TSLA does something like announce a stock split, or new vehicle or atv or anything else that catches the world by surprise that’s good for stock. I really like the synthetic long stock (sold put and bought calls very close in strike) , there is more leverage because you can daytrade with all your money while selling naked puts, which is a recipe for trouble anyway you cut it…. Only downside are the bought calls… it takes serious timing and opportunity in dropping share prices to purchase calls component at a relative bargain. I probably could just invest more in longer dated calls each week and get two or three weeks out of them at a time and perhaps benefit from the higher weekly premium of a put, but I’m too inexperienced to do this right. So I’ll decide whether I want to get into stock otherwise.

I’d love for someone to take a crack at this problem with me… I’m doubtful anyone on the forum will comment, but if so thanks in advance.

By the way, going into plaid event, I like the fact that there was practically no buying of the news all week. Could be an interesting day tomorrow.

 

[dl003]

Think everyone will appreciate this fortune cookie when it comes to rolling a ditm option. Might frame it.

 

[buttershrimp]

You don’t see a 50 point surge today? I really need a 50 point surge to make me a real boy. That said, If we go past 620, I’ll set an exit on those calls .
I see a surge like you followed by walk down…. The head fake that seems to get me every time.
The volumes have been so low it’s atrocious .
Any other tips on cashing in those calls?

Bought calls are weird. @UltradoomY has a profitable system it seems. I adhere to the greed strategy, followed by settling for half the profit.

 

[Yoona]

Man you are going to do great on those options, great call. I am terrible at short term calls and that's why avoid them. I lost 50k recently .

Knowing that the Probability of Touch metric exists has helped me in the past from panicking too early.

Many times on my Iron Condor where the SP is swinging wildly near the edges, one leg will incur a paper loss at some point in time between the opening and expiration dates, so closing too early had a higher risk of real loss (than giving the positions more time and letting the numbers play out).

For example, this is my CC. It will probably expire worthless, but there is a 73% chance that it will give me a scare first. Closing the position during that "head fake" touch means the paper loss becomes real loss.

As per video on the link, "Probability of touch is the likelihood that the same stock trades down/up to your strike price at some point between now and expiration, but may not stay at that level."

not advice...

 

[adiggs]

I'm trying to decide where the pin will be today. Last night I was thinkiing $600. With max pain at $605 I'm starting to think that'll be the price, realizing that the actual overall $ amount is little different between the two. MP is an aggregate metric - not everybody will be equally motivated or hedged around any given price.

EDIT to add:
I'm trying out a $605 iron butterfly with a $20 spread (585/605/605/625) and a 600/605 iron butterfly (580/600/605/625).

The butterfly was nearly $7 in credit while the butterfly was $5 in credit. I still think 600 for the closing price but am also thinking 605 and between the two am biasing towards 600 over 610.

Now we follow along and see what happens.

 

[adiggs]

For those on Fidelity have you figured out how to get to the Custom trade ticket? It appears that the interface has been "improved" and among other things, has removed access to the Custom ticket.

The one place I see "Custom" listed takes me into the new option ticket interface that doesn't actually provide Custom functionality.


So I can't roll a Spread for instance. I use the Spread ticket to close a spread position, and then a new Spread ticket to open the new position. Ugh

 

[dc_h]

For those on Fidelity have you figured out how to get to the Custom trade ticket? It appears that the interface has been "improved" and among other things, has removed access to the Custom ticket.

The one place I see "Custom" listed takes me into the new option ticket interface that doesn't actually provide Custom functionality.


So I can't roll a Spread for instance. I use the Spread ticket to close a spread position, and then a new Spread ticket to open the new position. Ugh

See options summary at the top of your portfolio page. Roll is now an option in a drop down.

 

[tradenewbie]

Looking prescient so far. I sort of followed you - waited for the first pop to green around noon and sold 45x $615s for $.95. I figured the MMs would work hard to close us under $610.

Watching last week's action intently the last few hours gave me some confidence the premiums would drop quickly as we progressed towards market close. I'm liking the Friday trades more and more.

Always think @Lycanthrope has a crystal ball, but I don't have guts to follow. I also do 615s, but sold half @ $0.5 around 11:30am, another half @ $1 around noon

Honestly speaking, I feel tired of watching this game for the whole week. Yesterday can easily sold higher strike with much higher premium but thought it might be better idea to do it on friday morning after the event (thought SP may pop immediately for a few bucks then drop), turn out it drop right from the beginning, haha.

The more premium I wanna make, the less premium and higher risk (low strike price) I need to take at the end

 

[tradenewbie]

I would have preferred 612's to 610's, but the premiums weren't interesting and I couldn't resist the $2.20 over $0.90

I needed to be careful with the 610's though because they're sold against LEAPS, which in reality means if they were to exercise then I'd be forced to buy 2500 at market on Monday to sell for 610, a bit too risky for my liking

Anyway, looks like MM's will nail this just under $605 at the close

Edit: I spoke too soon! OK, closed out the 610's for 0.40, cannot risk on those...

The 612's, I have the usual 1c buy order in to clean things up before the bell

looks like MM keep trying to push <610

 

[adiggs]

I'm trying to decide where the pin will be today. Last night I was thinkiing $600. With max pain at $605 I'm starting to think that'll be the price, realizing that the actual overall $ amount is little different between the two. MP is an aggregate metric - not everybody will be equally motivated or hedged around any given price.

EDIT to add:
I'm trying out a $605 iron butterfly with a $20 spread (585/605/605/625) and a 600/605 iron butterfly (580/600/605/625).

The butterfly was nearly $7 in credit while the butterfly was $5 in credit. I still think 600 for the closing price but am also thinking 605 and between the two am biasing towards 600 over 610.

Now we follow along and see what happens.

I was early with these 2 positions. I think my takeaway is to wait until more like 9:30 my time (over 7:00am). That's about 12:30 trading time vs. 10:00 trading time. I'd have chosen 610 as my center point and that would have worked particularly well. An overall loss, but small and a good lesson.

 

[alterac000]

Today was interesting. My power went out 20 minutes before market close, mind you it's 90 degrees with full sunshine here today...when I had some cc's to deal with that I opened this morning, some of which were sold against leaps. I switched to my phone application but loading and getting orders through were taking 10-20 seconds each...couldn't even see if my orders had filled. Incurring what felt like a small stroke I was able to finally confirm that I was able to close some out and execute one roll by 1 minute before market close, but wow I hope that never happens again.
Where are my powerwalls again??? (side note: ordered in February and still no updates!)

 

[buttershrimp]

I made a quick 4K on some late day naked calls and I ended up letting them ride at close since it was well within breakeven. Since it finished at 609.8 and migrated upward after close, anyone know how these might get treated? Just curious. So they make me buy them and sell them back? How’s that work?

 

[adiggs]

Have you done an analytical exercise of the benefits to rolling covered calls earlier in the week vs. Friday? I have the feel that rolling on Wed/Thu can often result in more than enough extra premium for the following week to justify the higher cost of BTC (of course, it largely depends on the underlying SP movement). For example, I exited 061121$610 Friday morning (prior to a long lunch that I knew might extend past the end of trading) at $1.05, and put in a GTC limit order for 061821$610 at $13 which hit. In hindsight, the 0611 would not have struck, and I could have saved a buck on both ends (0618 closed at $14+), but I captured most of the benefit and couldn’t have done the trades on my phone after that lunch!

Also, exited $645 and $650 for 2 and 1 cents at the same time in order to post GTC limit orders at $9 which did not hit (closed at $6.15, but Monday?).

I'm a fan of the early roll as well, though I haven't used the GTC limit order for the new position. I like that idea a lot and might incorporate that into next week's rolls. I assume that the way to create the dynamic is to separate the two orders - one for the BTC and a separate one for the STO. As I frequently find my new position to immediately go underwater even with eventual success, a delay between the two events seems like a good idea, and the GTC order sounds like a good way to do my thinking and decision about the roll all at once, even if the second half waits an hour or a day or three.

My pattern on the early rolls - if it's Wednesday of the week of expiration and I'm rolling early then I'll tend to go out a week as well. If it's Monday or Tuesday of the week of expiration and I really want to roll for extra premium then I'm more likely to roll closer to the share price with the same expiration. That has been my historical pattern and works well with a more sideways trading share price, and badly when the shares are moving aggressively in some direction.

For figuring out when to roll early I like to look at theta (time decay) on the current and intended new position. I don't necessarily wait all the way down to the new position having a higher theta but I do at least wait for them to be in the vicinity. One benefit of rolling a bit earlier than theta being higher in the new position is that the new position also tends to react better to favorable share price moves. And a $13 option moves a lot more on a favorable share price move than a $2 option (absolute terms - maybe not relative terms).

 

[CHGolferJim]

I'm a fan of the early roll as well, though I haven't used the GTC limit order for the new position. I like that idea a lot and might incorporate that into next week's rolls. I assume that the way to create the dynamic is to separate the two orders - one for the BTC and a separate one for the STO. As I frequently find my new position to immediately go underwater even with eventual success, a delay between the two events seems like a good idea, and the GTC order sounds like a good way to do my thinking and decision about the roll all at once, even if the second half waits an hour or a day or three.

My pattern on the early rolls - if it's Wednesday of the week of expiration and I'm rolling early then I'll tend to go out a week as well. If it's Monday or Tuesday of the week of expiration and I really want to roll for extra premium then I'm more likely to roll closer to the share price with the same expiration. That has been my historical pattern and works well with a more sideways trading share price, and badly when the shares are moving aggressively in some direction.

For figuring out when to roll early I like to look at theta (time decay) on the current and intended new position. I don't necessarily wait all the way down to the new position having a higher theta but I do at least wait for them to be in the vicinity. One benefit of rolling a bit earlier than theta being higher in the new position is that the new position also tends to react better to favorable share price moves. And a $13 option moves a lot more on a favorable share price move than a $2 option (absolute terms - maybe not relative terms).

Thanks for the comments, I have much to learn about the Greeks.........