Wiki Selling TSLA Options - Be the House

[stealthyc]

I've still got 10x -650p that i've been rolling for a month or two which I hope will come to roost next week. They started as 5 -685p that I rolled down 1:2. Meanwhile I sold 5x -622.5p for next week today for a couple k.

 

[ReddyLeaf]

I think you're very unlikely to be assigned early on those. I have only ever been assigned with options $50+ OTM with zero time value a few days before expiration.

I had June -p800s that never got exercised early, almost $200 OTM.

 

[stealthyc]

I had June -p800s that never got exercised early, almost $200 OTM.

I had some -685p that got exercised the day before their expiration a while back and they were around $100 ITM as I recall. Not a big deal though, I just sold the shares and the corresponding 685p again then next day to put myself back in the same position I was in before. I don't mind having the shares at a loss, but I don't like paying margin interest, so I'd rather have the margin covered puts.

 

[CHGolferJim]

With the SP move from $623 to ~$680, it was a week of truly expensive lessons on the options front that maybe some can benefit from:

• As many others foresaw, not the time to continue selling aggressive weekly covered calls --> should have abstained or been very conservative
• 10x0625$627.50 and 20x0625$640 yielded $20k in premiums (sucker pins in golf terms)
• Cash cost yesterday to roll to 0702$675 was $60k (since I was away on Wednesday and possibly Friday AM)
• Insufficient cash in Roth to roll out further (HODL!)
• Net cost vs. doing nothing $40k
• The rollovers preserved a higher amount of capital gains, so a justifiable outlay, but the capital gains would have been there if I'd abstained or been more cautious
• Long call gains just about covered it, and shares more so
• Bottom line: don't sell CC in a week that looks like a good move in SP is possible, or be extra cautious / content to take a break (why wasn't that obvious?)
• Learn how to actually do the dang wheel instead of selling CC alone!

 

[bxr140]

What is the right timing (time of the day, spot price) for acting on ITM covered calls, especially on the expiry date?

Covered upthread a few times, but the general rule of thumb is that its better to roll on Thursday instead of Friday regardless if you're ITM or OTM. It really only makes sense to hold until Friday if the strike is sufficiently close to the money (in either direction) such that you'll capitalize overnight on remaining extrinsic value. (And of course, that your price analysis doesn't indicate unfavorable price action...but that's a whole different conversation)

The probability that you'll be early assigned by some other trader is likely similar to getting struck by lightning. Anyone who's dumb enough to hold their options this late for the purpose of converting into shares (or shorts) is planning on letting them go to expiration anyway. So...Its simply not worth trying to work a roll strategy around that way-in-the-corner case.

What you're really concerned with is the MM's to whom you're actually selling contracts. In general, they will not assign early unless extrinsic value is close to zero, so the rule of thumb that supersedes Roll Thursday is "roll if your ITM's extrinsic value is low".

 

[adiggs]

Looking at the (lack of) messages on this thread, is it just me that's yet to roll the 06/25 calls?

I've rolled my 6/25s twice this week. They are now on 7/9. I roll whenever I'm ATM or slightly ITM. I think that I should have been rolling while $5 OTM and I'll be aiming for that - the quality of the roll while still a bit OTM seems to be a lot better (check for yourself, your mileage may vary, some restrictions apply).

I was going to say 726 next week.... but I think it will touch 740.... also my psychic powers dont' kick in till Monday next week

Your psychic powers for this week are looking pretty outstanding. 674 wasn't it? Yeah - you can get rich if you can regularly peg it like that

 

[adiggs]

Learn how to actually do the dang wheel instead of selling CC alone!

Something I did way back - I took a single covered call and took it through the wheel, just to see the mechanics and experience how it worked. It's a pretty cheap education, whether you make or lose money on the round trip, and can help you with confidence in the mechanics at least should it come up again in the future.

I'm a fan of taking small positions through the mechanics of something you're thinking about doing, just so you've seen how it all goes down.


I found that trying to turn the wheel 'fast' didn't work for me. The stress associated with getting a similar strike on the put side as the call assignment wasn't worth it (as an aggressive delta, 'fast' turn of the wheel strategy). But your mileage may vary and its a reason to take a single contract through the experience. In my case it took 2 or 3 weeks of selling that really aggressive call to finally get it to finish ITM

 

[dl003]

So the wheel is basically a gate way to hell. Got it.
Actually I lost about 30% of my trading account last year to the wheel. The early June spike got me as I was selling puts. It never came back down.
In retrospect, I was a complete newb, didn't know when to just take the loss and move on.

 

[ZeApelido]

Saw this initial spike so sold 19 x 6/25 $685 CC's for $1.5

RIP my sold CC's lol

BTC for $0.05.

In the end, I am a genius.

Remind me to never sell calls 4% OTM, I can't take the heat.

 

[redan]

I just STO 45x June 25 expiry for $1.22. Similarly hoping for some safe skimming!

Just BTC for $.01. So not without drama again, but "safely" skimmed a net $1.21 x 45 this week. Thankful for the MMs who once again made this possible.

Sitting tight for CCs for next week until I see the direction (which I expect to be up again), although did just dip my toes back into the put water with a few sold puts at $650 expiring July 2.

 

[CHGolferJim]

So, the fun and games are at $670.....

 

[Chenkers]

My original plan was to sit this week out and watch as some of my long rolled Puts and an ITM IC and BPS from last week would go OTM on a gentle rise. However come the open of trade on Wednesday, I got greedy thinking why pass up free money and sold some CC and IC's anyway. So my two accounts were a mess and I ended up with roughly the following Jun25 expiries coming into Friday:

15+ 655CC and 660CC
10+ 675CC and 680CC
15x 595/615 670/690 IC
30 x 590/620 660/690 IC
20 x 595/615 660/680 IC
30 x 665/695CS + 700/730CS
Plus 2Jul 35 x 600/645 BPS that was rolled too early

I'm not sure how I ended up with the pair of call spreads, I may have overlooked a messed up IC order. Also the IC's didn't stay neatly together and mostly broke up into their constituent options. At this point I also had around $20k cash in each account and around 15% maintenance margin.

So instead of just rolling I sat down for a few hours before market open and worked through various options and also the sequence that would be required so that I didn't blow up my margin along the way. Thankfully the MM's moved the share price where they wanted so I was able to end up with the following at close, all 2nd July expiry:

30 x 640/675 725/760 IC
20 x 640/680 730/760 IC
10 x 600/645 BPS
25 x 600/685 BPS
20 x 627.5/677.5 BPS
20 x 640/675 BPS

I ended up rolling the IC's up and out and converted all the covered calls into Bull Put Spreads. In between there were various rolls up and down to get some calls in a position where they could close out (eg 655CC to 675CC) and a lot of selling bull put spreads for next week to raise funds to close out options (essentially replacing some CC with BPS and closing others). I was also able to increase my cash position by about $10k and keep maintenance margin in a similar region. I'm not in the clear yet but I'm feeling more comfortable for next week than I would have been just rolling CC's for minimum credit. I'm expecting TSLA to rise next week and break through some resistance at 700 and will roIl the IC again if needed while the BPS's should expire. One thing (of many) I've learned in this thread is to look at CC's or any option by their $ value and flip them into a more preferable option at similar $, in this case multiple BPS's.

 

[buttershrimp]

Well, you nailed it his week. Please keep giving us your insights. If I’d listened to you, I’d be $20k richer today.

I have to say… broken clock is right twice a day.

Buuuut…. The last two weeks, I’ve been within two dollars of my Monday estimate!

I have a little form I fill out on every Monday where I make myself pick the high low and end point of the week after listing macro factors, FUD, treasury, papafox and Gary black. I do it Sunday night or Monday morning. 621 Last week and 674 this week… that’s some serious luck!

My current next Friday estimate is 726. I’ll update Monday. If I’m this close 3 weeks in a row I’m going to apply for a job a neuralink.

Also my price predictions are very much legally binding advice, everyone on this thread should definitely invest according to my predictions.

 

[deerfield]

For those that are selling CS or IC, how do you manage the roll? I find that once the short leg is ITM or ATM, there's just no good roll option. What do u do in this case? I had 13x 6/25 -C685/+C705, by Thursday I almost BTC taking a big lost, but decided to wait till Friday since I didn't think we would break 700. My plan was to buy back the short leg at the end of the day when extrinsic value is gone. Would this have been the right play?

 

[Chenkers]

For those that are selling CS or IC, how do you manage the roll? I find that once the short leg is ITM or ATM, there's just no good roll option. What do u do in this case? I had 13x 6/25 -C685/+C705, by Thursday I almost BTC taking a big lost, but decided to wait till Friday since I didn't think we would break 700. My plan was to buy back the short leg at the end of the day when extrinsic value is gone. Would this have been the right play?

Ideally you want to do a roll before a leg goes ITM but then you have to be confident that its going to keep trending that way. I tend to hold onto mine longer than may be prudent if expecting it to swing back by Friday, which it can do and did this week. You can roll the winning side of an IC closer to the share price if confident of direction and this will gain some more premium to cushion any paper loss. With your CS example the MM moves on Friday were perfect so having a bit of patience would have paid off allowing you to BTC at max profit. When deciding which leg to close you need to be mindful of margin impacts and how much cushion you have.

If a leg goes really ITM (like some of mine did this week) then I will deal with each leg of an IC as seperate CS/PS's. If the put side is way OTM then I roll it up closer to ATM, gain more premium and then BTC near expiry with it still OTM. That leaves the CS side that is ITM that I roll up and out to the next week to a more favourable spread range. This will cost money so first I fund this by selling a new BPS to effectively set up a new IC for the next week at a more favourable range. Done sequentially in steps like this allows you to manage cash and margin and end up with a favourable roll, often with extra premium.

If needed you can sell extra BPS's to gain more premium, although it does give more downside risk to margin. In this case be prepared to buy Puts for margin insurance if needed.

 

[Stretch2727]

Does anyone know what happens in the situation yesterday where the closing price $671.81 was in the money for a 670 cover call and the after hours price was below the strike. Would the stock get called away?


I had one 670 strike cover call expiring yesterday. I rolled it to next week late Friday as my week strategy depends on knowing if an option will get assigned each week. Because the closing price was so close to the strike late yesterday, I rolled to next week and took $17 in premium. It can assign next week if the stock is well above $670 and I will keep the premium.

 

[adiggs]

Also my price predictions are very much legally binding advice, everyone on this thread should definitely invest according to my predictions.

I do appreciate a good bit of sarcasm . I think it made my teachers crazy in school.

Does anyone know what happens in the situation yesterday where the closing price $671.81 was in the money for a 670 cover call and the after hours price was below the strike. Would the stock get called away?

Assigned / stock called away. When the option finishes .01 ITM the contract is automatically assigned. The brokerage won't matter either as this all flows downhill from the clearinghouse. Or at least that's my understanding.

The after hours price action is irrelevant, as is the premarket action on Monday. The after hours price action might turn that dynamic into an incremental profit for you as well, but I know I wouldn't count on that.

 

[adiggs]

Thanks, and believe me, I would have done a low-cost roll if I could have found them, perhaps I was too focused on bumping the strike too much (fell for the more you pay, the more cap gain you recapture). I’ll go back and look at my scratch pads. You’re basically saying the priority is to roll (since that can be done repeatedly), not focus so much on the new strike price. Seems to be a better approach.

NOT-ADVICE


Something I've learned this year about rolls is that while it might sound like free money / free time to be right, like everything else in life, it isn't.

Specifically on rolls, and assuming that we're working with short term options (such as weeklies), then you're making a tradeoff between incremental credit, better strike, and more time.

I personally like to only roll for a net credit, but its also not too hard to think of the roll within a larger transaction and make the entire transaction happen for a net credit. E.g. if you have both short puts and calls, and the calls are ITM, you might roll the combination for a net credit. In effect the larger credit from one side is being used to purchase a better strike on the other side, and still yield a net credit across the entire position.

So that's my own rule / strong guidance for myself - only roll for a net credit.


Then there is a question of whether to improve the strike, gain a big net credit, or split the difference in some way. If you roll straight out in time that'll get you the max credit (short of rolling into a worse strike of course). These credits can be VERY large as the strike you're working with will be ATM or slightly ITM/OTM. In effect you are selling a new position that is ATM, and we all have seen what large credits the ATM options carry.

My own heavy bias is to roll for the best strike improvement. So I go find the best strike that is 1 more week out and still yields a net credit. As near as I've been able to figure out so far, the best of these rolls happens ATM (say $5 on either side). When adding 1 week to a <1 week option these usually improve the strike by $20-30 or so. When adding 1 week to a 1-2 week expiration option then its more like $10-15.

And then you can split the difference some. Maybe take $5 less of a strike improvement in order to collect a $4ish credit instead of a $1ish credit. Or the other end - take $5-10 of the $25 improved strike as a better strike, and the rest as incremental credit.

When the option goes deeply enough ITM then you eventually reach a state where you can add 1-4 weeks at a time, and still not improve the strike. All you can do is get a small credit and more time. And by small, I do mean small. I've done a few $0.02 rolls, because $0.01 wasn't enough to cover the commision / fee. Or of course you can start buying back the loss by rolling for a net debit. And you can keep rolling until the shares finally come back, but that can take awhile.


The biggest risk I've learned about when rolling options for time and incremental credits / strike improvement is that you can get far enough behind that there are no longer strike improvements. And then you're waiting for the shares to come back. The -760p I ended up with sometime in March is still rolling along waiting for the shares to come back. I haven't had an improved strike available for 4 months, even when I rolled to add 4 weeks to the contract. In fact - adding 2-4 weeks instead of 1 week is one of the things I've learned to expand the range of good rolls; I've seen many instances where a 2 week roll was > 1 week roll repeated a second time. Frequently much better (like $5 strike improvement for 1 week vs $20 strike improvement for 2 weeks).

MOST of the time the shares do regress and come back to you. The problem is the other times I.e. - it works great until it doesn't.


My personal rules for rolling:
- Roll when ATM or within $5. My new bias is for $5 OTM, and I'll start looking at earlier.
- Look at both adding 1 and 2 weeks, even up to 4 weeks. Rolling ATM - usually 1 week will be better, but look at both, and then decide.
- Receive a net credit
- Best strike improvement possible
- And also consider strongly - am I really better off just letting the contract age out and take assignment, or pay the loss and start again? These losses can be large enough to take back weeks or months of earnings - that's not a reason not to take them but its something to be aware of. In effect rolling buys time and the possible expense of watching the loss keep growing.
-- My evolving thinking here is that turning a 1 week option into a 3 week option looks ok, but a 4 week option sure sounds like it'd be better to just take assignment. So 2 rolls close together but not a 3rd. And by using max strike improvement rolls then I'll have the best assignment experience, as well as a couple of weeks for the shares to turn around
(Yes - the number of weeks of rolling is not easy to decide - I've used 4 week rolls as well; just have to decide if the strike improvement, which should be large, is a preferable situation to be in or not).


I bias to best strike improvement as an intentional risk mitigation strategy. It has the side effect of minimizing the times when taking assignment but that isn't why. The real focus is to minimize the chance of going deeply ITM with the attendant losses and I'm willing to take a week or three off from earning credits / income to avoid going deeply ITM. The way I think about these rolls - I'm delaying when I earn the income from the original position to the new expiration date. A week delay is an easy price to pay. A 4 week price might be too high and it'll be time to take assignment.

The thing about being deeply ITM is that there is ~0 time value. So the options move nearly $ for $ and you're in a bad fake share environment, with roughly 100% dependency on the shares moving far enough in the right direction to recover the position.


As a consequence of my personal rules I rolled a -650c expiring on June 25 to a -670 July 2 and then (the next day!) to a -685c July 9. If I need to roll again on Monday then I might decide not to and instead assume I'm taking those 685s to assignment on July 9 (I don't want to roll too far out). If that happens then I'll be selling at $685 instead of $650, a far better result than selling at $650. Or as I near July 9 I might decide to add 4 weeks for a big strike improvement and more time. The strike improvements, when you then take the position to assignment, should always be larger than the option price change. Whether its enough to make it a good investment decision is a different question.


This is the balance being weighed each time we roll. Yes fully funded / backed options can be rolled forever as long as you've got no other external factors that will change that. Such as cash secured puts where you need the cash for something else. But you'll also want to ask yourself whether rolling forever is a good idea And thus my aggressive strike improvement bias over keeping the bigger premiums.

 

[CHGolferJim]

NOT-ADVICE


Something I've learned this year about rolls is that while it might sound like free money / free time to be right, like everything else in life, it isn't.

Specifically on rolls, and assuming that we're working with short term options (such as weeklies), then you're making a tradeoff between incremental credit, better strike, and more time.

I personally like to only roll for a net credit, but its also not too hard to think of the roll within a larger transaction and make the entire transaction happen for a net credit. E.g. if you have both short puts and calls, and the calls are ITM, you might roll the combination for a net credit. In effect the larger credit from one side is being used to purchase a better strike on the other side, and still yield a net credit across the entire position.

So that's my own rule / strong guidance for myself - only roll for a net credit.


Then there is a question of whether to improve the strike, gain a big net credit, or split the difference in some way. If you roll straight out in time that'll get you the max credit (short of rolling into a worse strike of course). These credits can be VERY large as the strike you're working with will be ATM or slightly ITM/OTM. In effect you are selling a new position that is ATM, and we all have seen what large credits the ATM options carry.

My own heavy bias is to roll for the best strike improvement. So I go find the best strike that is 1 more week out and still yields a net credit. As near as I've been able to figure out so far, the best of these rolls happens ATM (say $5 on either side). When adding 1 week to a <1 week option these usually improve the strike by $20-30 or so. When adding 1 week to a 1-2 week expiration option then its more like $10-15.

And then you can split the difference some. Maybe take $5 less of a strike improvement in order to collect a $4ish credit instead of a $1ish credit. Or the other end - take $5-10 of the $25 improved strike as a better strike, and the rest as incremental credit.

When the option goes deeply enough ITM then you eventually reach a state where you can add 1-4 weeks at a time, and still not improve the strike. All you can do is get a small credit and more time. And by small, I do mean small. I've done a few $0.02 rolls, because $0.01 wasn't enough to cover the commision / fee. Or of course you can start buying back the loss by rolling for a net debit. And you can keep rolling until the shares finally come back, but that can take awhile.


The biggest risk I've learned about when rolling options for time and incremental credits / strike improvement is that you can get far enough behind that there are no longer strike improvements. And then you're waiting for the shares to come back. The -760p I ended up with sometime in March is still rolling along waiting for the shares to come back. I haven't had an improved strike available for 4 months, even when I rolled to add 4 weeks to the contract. In fact - adding 2-4 weeks instead of 1 week is one of the things I've learned to expand the range of good rolls; I've seen many instances where a 2 week roll was > 1 week roll repeated a second time. Frequently much better (like $5 strike improvement for 1 week vs $20 strike improvement for 2 weeks).

MOST of the time the shares do regress and come back to you. The problem is the other times I.e. - it works great until it doesn't.


My personal rules for rolling:
- Roll when ATM or within $5. My new bias is for $5 OTM, and I'll start looking at earlier.
- Look at both adding 1 and 2 weeks, even up to 4 weeks. Rolling ATM - usually 1 week will be better, but look at both, and then decide.
- Receive a net credit
- Best strike improvement possible
- And also consider strongly - am I really better off just letting the contract age out and take assignment, or pay the loss and start again? These losses can be large enough to take back weeks or months of earnings - that's not a reason not to take them but its something to be aware of. In effect rolling buys time and the possible expense of watching the loss keep growing.
-- My evolving thinking here is that turning a 1 week option into a 3 week option looks ok, but a 4 week option sure sounds like it'd be better to just take assignment. So 2 rolls close together but not a 3rd. And by using max strike improvement rolls then I'll have the best assignment experience, as well as a couple of weeks for the shares to turn around
(Yes - the number of weeks of rolling is not easy to decide - I've used 4 week rolls as well; just have to decide if the strike improvement, which should be large, is a preferable situation to be in or not).


I bias to best strike improvement as an intentional risk mitigation strategy. It has the side effect of minimizing the times when taking assignment but that isn't why. The real focus is to minimize the chance of going deeply ITM with the attendant losses and I'm willing to take a week or three off from earning credits / income to avoid going deeply ITM. The way I think about these rolls - I'm delaying when I earn the income from the original position to the new expiration date. A week delay is an easy price to pay. A 4 week price might be too high and it'll be time to take assignment.

The thing about being deeply ITM is that there is ~0 time value. So the options move nearly $ for $ and you're in a bad fake share environment, with roughly 100% dependency on the shares moving far enough in the right direction to recover the position.


As a consequence of my personal rules I rolled a -650c expiring on June 25 to a -670 July 2 and then (the next day!) to a -685c July 9. If I need to roll again on Monday then I might decide not to and instead assume I'm taking those 685s to assignment on July 9 (I don't want to roll too far out). If that happens then I'll be selling at $685 instead of $650, a far better result than selling at $650. Or as I near July 9 I might decide to add 4 weeks for a big strike improvement and more time. The strike improvements, when you then take the position to assignment, should always be larger than the option price change. Whether its enough to make it a good investment decision is a different question.


This is the balance being weighed each time we roll. Yes fully funded / backed options can be rolled forever as long as you've got no other external factors that will change that. Such as cash secured puts where you need the cash for something else. But you'll also want to ask yourself whether rolling forever is a good idea And thus my aggressive strike improvement bias over keeping the bigger premiums.

Thank you for taking the time to write that masterpiece!!
I think I slightly panicked with the $50+ ITM CC and lost focus — think I’ll make a checklist based in part on your excellent post for future use.

 

[alterac000]

Thank you for taking the time to write that masterpiece!!
I think I slightly panicked with the $50+ ITM CC and lost focus — think I’ll make a checklist based in part on your excellent post for future use.

I was in the same boat and also had a panic moment. I had 620cc last week, and with the big mid-week moves rolled those out twice for tiny credits. Given the loss of time value, mine have now been pushed out to 9/17 700cc. It's not great but gives me some time to reset a bit and refocus on next steps. I am grappling with the possibility that these might turn into continuous rolling 12+ months if we are at the start of a big bull run, but then again at some point if the sp truly reaches some wonderfully high number I will be ok with parting with my shares temporarily and effecting the wheel again. I also wonder if better to start treating these options in more of a layering method to minimize the risk of picking profoundly bad strikes which I seem to have mastered despite looking at deltas etc. In this vein considering re-purchasing cc's on any down days in lots of 10-20%, and re-selling on up days. Flat days do nothing. I think some are already doing this and have posted to this effect, but my small brain is just getting around to this idea rather than the 'all or nothing' approach. Rehabbing my portfolio from this and other past mistakes has certainly taken energy.

*Edited after I used the term dollar cost average incorrectly