Wiki Selling TSLA Options - Be the House

[alterac000]

Good day
Several weeks ago I posted about my June 620cc's gone wrong when the sp made a large sustained move up. I had rolled out to 705cc expiring today. Happy to report after over 7 weeks of waiting I was able to btc for $1.5 today. Looks like I could have waited another couple hours and bought back for even less but I am satisfied considering along the way the position reached somewhere in the $60 range.
Like others I have also been selling bps and today rolled my 8/13 580/560 to 690/650 for $6.05.
To the recent post about $800 open calls expiring Jan 22, I have had a similar predicament for my $700 open Jan 22 calls. My cost basis was about $163 and as of this writing worth ~$98. I don't know we will reach $863 for breakeven despite recent week's positive direction. I do agree with responses about minimizing loss. I think my strategy will be to continue selling aggressive CCs against these calls. From now until January this won't be equal to just selling the open calls today, but it will allow me to "stay in the game" in case we do see large positive movement plus IV increase from now until then. In your case I don't know your brokerage will calculate the margin requirements to say, sell a $740 or so cc against your $800 open calls, but that needs to be taken into consideration in terms of what you can realistically aim to accomplish with CCs if you go that route over the next few months.

In retrospect the open call bet was clearly a bad move but forced me to learn how to use call debit spreads. I recommend looking at these unless you simply have gambling money that you are ok losing

 

[Tslynk67]

Good day
Several weeks ago I posted about my June 620cc's gone wrong when the sp made a large sustained move up. I had rolled out to 705cc expiring today. Happy to report after over 7 weeks of waiting I was able to btc for $1.5 today. Looks like I could have waited another couple hours and bought back for even less but I am satisfied considering along the way the position reached somewhere in the $60 range.
Like others I have also been selling bps and today rolled my 8/13 580/560 to 690/650 for $6.05.
To the recent post about $800 open calls expiring Jan 22, I have had a similar predicament for my $700 open Jan 22 calls. My cost basis was about $163 and as of this writing worth ~$98. I don't know we will reach $863 for breakeven despite recent week's positive direction. I do agree with responses about minimizing loss. I think my strategy will be to continue selling aggressive CCs against these calls. From now until January this won't be equal to just selling the open calls today, but it will allow me to "stay in the game" in case we do see large positive movement plus IV increase from now until then. In your case I don't know your brokerage will calculate the margin requirements to say, sell a $740 or so cc against your $800 open calls, but that needs to be taken into consideration in terms of what you can realistically aim to accomplish with CCs if you go that route over the next few months.

In retrospect the open call bet was clearly a bad move but forced me to learn how to use call debit spreads. I recommend looking at these unless you simply have gambling money that you are ok losing

Patience is one hell of an asset in this game, the other I find useful is decisiveness

 

[adiggs]

Good day
Several weeks ago I posted about my June 620cc's gone wrong when the sp made a large sustained move up. I had rolled out to 705cc expiring today. Happy to report after over 7 weeks of waiting I was able to btc for $1.5 today. Looks like I could have waited another couple hours and bought back for even less but I am satisfied considering along the way the position reached somewhere in the $60 range.
Like others I have also been selling bps and today rolled my 8/13 580/560 to 690/650 for $6.05.
To the recent post about $800 open calls expiring Jan 22, I have had a similar predicament for my $700 open Jan 22 calls. My cost basis was about $163 and as of this writing worth ~$98. I don't know we will reach $863 for breakeven despite recent week's positive direction. I do agree with responses about minimizing loss. I think my strategy will be to continue selling aggressive CCs against these calls. From now until January this won't be equal to just selling the open calls today, but it will allow me to "stay in the game" in case we do see large positive movement plus IV increase from now until then. In your case I don't know your brokerage will calculate the margin requirements to say, sell a $740 or so cc against your $800 open calls, but that needs to be taken into consideration in terms of what you can realistically aim to accomplish with CCs if you go that route over the next few months.

In retrospect the open call bet was clearly a bad move but forced me to learn how to use call debit spreads. I recommend looking at these unless you simply have gambling money that you are ok losing

For those Jan '22 calls you mention, something to look at in the options chain is just how much of the option value is going to melt over the next 5-6 months. One primitive technique I use to estimate is I look at the 3 month contract and the 6 month contract to get an idea of how much time value will disappear over the the next 3 months of that 6 month contract. Or 3 month vs 9 month, to get an idea of the time value remaining on the 9 month contract with 3 months to expiration, etc..

What I've seen in my own explorations is that somewhere around 3 months to expiration the time decay starts becoming increasingly noticeable. With some deep ITM calls I bought for June '23 (300 strike), I think that at the time of purchase I discovered that I was paying roughly 2x the time value for 24 month options vs 3 month options. Those were DITM and will undoubtedly influence that result.

I personally plan to be out of any of these longer calls by 2 months to go, with 3-4 months preferred. I will also typically be opening a replacement position at the same time - so it is definitely possible for me to end up losing on some of these individual positions (while selling aggressive CC along the way).

 

[juanmedina]

From the wayback machine (yesterday, Thursday) when I forgot to hit "Post Reply":

With the small move up today (which I expect to continue, but about to do a day trip, and this is my opportunity today):
-- Close the 550/650 BPS for about 60-70% profit (open 3.90, close 1.35).
-- Open Aug 13 740 cc at $8.80ish

So far it seems like if it's a good day to close one, then it's a good day to open the other. Or vice versa - if it's a good day to open one, then it's also a good day to close the other. I'm sure this won't generalize over years worth, and I still have a bias towards having both open, but this last week it's one or the other, flopping back and forth.



Jumping forward in time to today:
-- with the move down, I've closed those Aug 13 740cc at 3.60ish, leaving a 5.20 profit in 1 day.

And if it's a good day to close cc, then it's a good day to open put spreads!
-- For Aug 13th - one batch are 570/670s; the other account are 575/675s, for a 3.70 and 4.30 credit.

And while I was at it, I decided I was a bit light on the leap / long calls, so add:
-- June '22 600 strike calls.
(More CC in this account - but not today )


On these new calls, the account is taxable, so possibility of long term capital gains treatment is irrelevant.

I'm testing a hypothesis - I find that I like my Dec '21 calls because it's really easy for me to be aggressive with the cc against them. I dislike them because they are so near in time that I'll be needing to replace them in like a month to avoid the steep part of the time decay curve. I've only had about 1 or 2 months of selling CC against these - I wish I'd gone a little bit further out.

Meanwhile I like my June '23 calls because I know that I've minimized my month to month time value / cost to be in the position. But they are so far out in time that while I'm being aggressive with the CC against these, I don't want to be quite as aggressive and I can already tell that I'm going to work harder to avoid assignment.

All of this is in the context of an income strategy, and taking assignment on the covered calls is an important component (for me) that enables aggression. So I'm trying this roughly 11 month position and see how I do emotionally - am I really ok being aggressive with the CC against these? My guess is yes, and that the right mix of leaps for me will be roughly 50/50 1 and 2 year positions.

Wow that was a good call to open those 740cc today they went down all the way to $2.71. I have no CC's open for next week hoping for a good week. I end up buying a September 3rd 720 call just for fun and sold some 630/600 BPS for next week.

 

[adiggs]

If you insist! I also started out the week with 700s, but gradually rolled them down to 680 as each new put turns decently green. That's my way of taking some profit while staying in the game.

How's your conviction for a Monday run-up? The sentiment has become less bullish with put IVs creeping up a bit. They were very very low this time last week. Now they're higher while still lower than last month.

My own take:


My long term view has never wavered -- really, really bullish (10x share price by 2030 - say $4k-10k).


My medium term view has switched though from bearish (500s, maybe down to the 400s) to bullish (like >$1000 this year - maybe even $1500). This shift is a result of the EPS from the most recently completed quarter, and my (and many other's) view into what will happen in the coming quarters (higher and higher EPS) plus an expectation that Tesla will deliver due to having (apparently) the entire quarterly production already sold.

My rationale for making the change is that these EPS numbers are something that the financial metrics driven investor can grok and work with. These are investors that have largely stayed away from Tesla over the last 10 years as it has been a story investment, rather than a financials investment. If we get to $10 EPS over the next 3 quarters plus just completed quarter and a 200 PE sounds reasonable for a company growing >50% per year, then a $2000 share price in 9 months is rational. And if $2000 in 9 months is rational, then just how much will people pay for that today? (Hint - more than $700 )

To go up significantly, we need buyers that want to own at $700, and new buyers at $800, and new buyers at $900, etc.. The question I ask myself is where those buyers will come from, and I see these financial metrics driven investors as our next significant pool of buyers.


My short term view where I'm selling these options is more up than down. Maybe AI day and/or annual shareholder meeting will move the dial. I think that the financial metrics driven investors will need another great quarterly result for this quarter, to think that this just completed quarter isn't an aberration. I've talked myself into 'drifting, more up than down but not a great deal of either, for the remainder of the quarter'

For this Monday, a jump. Maybe even $30ish or so. This is my not-advice, though I am positioned today in accord with this view of things.

 

[adiggs]

Wow that was a good call to open those 740cc today they went down all the way to $2.71. I have no CC's open for next week hoping for a good week. I end up buying a September 3rd 720 call just for fun and sold some 630/600 BPS for next week.

In fairness those 740cc were opened yesterday. I just goofed when I wrote up the post, but never hit "Post reply"

Hard to complain about 2/3rds in 1 day.

 

[jaspa]

I'm not familiar with IRA's as a non US citizen so can't help on that front.

On the options part: holding through Q3/Q4 is risky since time decay is really killing you right now. You'd be better off closing the position and buying a LEAP (JAN2023's with $1500 strike price are priced at $50 right now with the stock at $710).

If you are correct on the predicted stock price movement in the next 6 months (up), the LEAP will be up by january 2022 normally. (And IV will have risen)

Therefore, you'll earn back some of your losses. If the stock stays relatively flat (let's say it goes to $800 by EOY) then the LEAP is also a losing proposition and you're better off putting the $6800 into stock.

If you expect possibility of huge SP rally, go with the LEAP. You can always convert it to stock at ATH or beyond.
If you only expect steady SP increase, go with stock.
If you're not sure of anything anymore, close the position and don't look back. Don't look at what you've already "lost", look at what you can prevent to lose in the coming months. That $68 position will reach $10 easily by EOY if nothing much happens.

GL

Thanks for the thought process @AquaY and @jeewee3000 . I'm bullish on Q3/Q4 like most, but whether SP will be close to 1k by YE could very well be a coin toss. I can accept the loss, but am interested in seeing if I can potentially dig myself out of this hole (no tax loss realization in an IRA either).

I'm thinking maybe converting this to a bull call spread, specifically 6/23 - 1,000/1,450. My upside will be capped, but also doesn't seem like a terrible tradeoff. Am I missing something?

 

[pz1975]

Thanks for the thought process @AquaY and @jeewee3000 . I'm bullish on Q3/Q4 like most, but whether SP will be close to 1k by YE could very well be a coin toss. I can accept the loss, but am interested in seeing if I can potentially dig myself out of this hole (no tax loss realization in an IRA either).

I'm thinking maybe converting this to a bull call spread, specifically 6/23 - 1,000/1,450. My upside will be capped, but also doesn't seem like a terrible tradeoff. Am I missing something?

I think a bull call spread is a good compromise. It buys you time (theta), which is very important of course. Maybe a Jun23 800/1,100 bull call spread would be better. It should cost around $68 (value of your current call) and gives a better chance of eventual profit than 1,000/1,450 while lowering the potential max profit (a worthwhile trade-off IMO).

 

[adiggs]

From my side, I need to figure out what it will take for me to be comfortable going really aggressive on the put side. The easy notion is to go back to short puts fully cash backed (the only kind ), selling ATM. And if the shares go badly enough against me then I pull out the put spread as a management technique to bring my strike price back to the share price in a quick and dramatic fashion.

Example - I cleared up those 760 puts by moving to a $200 wide put spread. 4 of those used the same margin as 1 short put (slightly more to be precise) but moved the short put strike from 760 down to 660 I think it was (maybe 640). Whatever it was, it was maybe $10 ITM and the shares went OTM that week letting me close for a 95% gain or something, and resolving those 760 strike / $140ish ITM puts in 1 week.

So put spreads enable adding leverage to a position that is going badly against, in judicial quantities and timing.


H'mm... so maybe one of the put spread management techniques is that, when needed (rare!), cut the spread size in half while doubling the number of positions (no change in margin) in order to change the short strike more dramatically. Options chain ho!

The downside with put spreads is that they're going to resolve as cash - they won't resolve into shares which is the other management technique that backs short puts in the wheel. I just discovered, much to my chagrin, that I wasn't willing to take assignment on those puts when I got so deeply ITM.


Well - whatever the answer will be, I will continue following along with what you're doing and be figuring out what if anything I'll change on my side. Working towards the best of both isn't something I need to find anytime soon - my current pattern is working well for me and is going way above what I need it to be.

An important reason to me for pursuing this optimization is what I think of as dynamic risk management. Dynamic in that I don't know where the bad stuff will come from, but if I'm collecting particularly large premiums all along the way then when the bad stuff does arrive, then I've got a bank of credits if you will, to help pay for the bad stuff. The big credits can be used on anything.

As opposed to more 'static' risk management such as selling .10 delta options. They're far OTM and safe, until they aren't. And collecting small premiums along the way, a single rare loss can wipe out months or more of earnings (ask me how I know ). There is a kind of safety in big premiums (with more frequent, and typically smaller, losses). The balance - must find the balance.


A request of any and all - if you find yourself rolling a put spread, please post about that and provide detail into your thinking - what did you choose, what alternatives did you consider, what do you think your next move will be given yet another move against. That sort of stuff.

I want to learn about put spread management in the real world as fast as I can

In exchange I'll be doing the same. So far my recent put spread management has been open today, close in 1 or 2 days for 40-80% gains. Not exactly rocket science.

 

[Tslynk67]

You got guts, That's an aggressive trade for a large amount. Nice. As long as you watch it I guess you can easily roll it a week or two if need be and if not cha ching!
If you get assigned what's your plan? Start covered call writing at your purchase price or the same strike?

Exactly that, give me the shares and I'll make money the other way...

But it never comes to assignment, I've been rolling ITM puts for weeks now, always some premium to be had - early assignment is so rare that it can be discountded

OK, closed out today's 22x p702.50's on a market order for $3.1 - was thinking the put-wall at $700 would bring a better close, but MM's are allergic to calls, so...

Anyway it's a net +$11.4 roll to next week

 

[Tempus]

Just as an aside - i've had ITM puts assigned twice now. This was generally with 3-4 days remaining. This was during the big drop down when we were writing 800ish puts and we dropped to the upper 5's. The bulk of mine I was able to roll until they were able to be resolved (or in one case split into double the puts at a much lower strike and then resolve), but early assignment CAN and does happen. So you need to be prepared for that.

I've also started rolling much earlier on ITM puts since that happened a second time. Trying to roll as soon as that time value is down to close to nothing. I also had to think hard about what to do with those assigned shares. I've been selling fairly aggressive (for me anyway) cc's against them, but I realized that if the share price ran up over my call price and they were called away, i'd be unhappy because I could almost always get a better price just selling them at market value. So i've continued selling the cc's (except this last week) and just watched the value of the shares go up a lot more than the margin interest i'm paying to have them. It's still more risk than I really want (being in margin), but at least for now it's an experiment i'm ok with running, and the money i'm getting from selling puts is paying that down fairly quickly (and i've got more shares than i would have otherwise).

 

[pz1975]

Interesting how this thread affects each of our strategies. I still mostly stay quite OTM with my sold puts and calls (more OTM w calls if I think the SP is going up and vice-versa). But the past 2 weeks I was encouraged by the posts here to get more aggressive with my sold puts. So far so good (still not as aggressive as @Lycanthrope but more than I usually do). My profits the last 2 weeks are the highest I have had in 4-5 months.

 

[AxlxA]

My $700CC was bought back early in the day. So I ended up getting a credit on my screw up from last week's $680CC. I wasn't sure if we'd end below $700 today but I exited profitable(albeit $90).

Next week's IV is puny! Lowest ever? Selling CC is really not worth it. I'm gonna aim for a bull put spread pretty far down. Like a 0.15-0.2 delta.

Options market looks like it doesn't care about AI day

 

[UltradoomY]

Funny - that's exactly what I've been thinking this morning


From my side, I need to figure out what it will take for me to be comfortable going really aggressive on the put side. The easy notion is to go back to short puts fully cash backed (the only kind ), selling ATM. And if the shares go badly enough against me then I pull out the put spread as a management technique to bring my strike price back to the share price in a quick and dramatic fashion.

Example - I cleared up those 760 puts by moving to a $200 wide put spread. 4 of those used the same margin as 1 short put (slightly more to be precise) but moved the short put strike from 760 down to 660 I think it was (maybe 640). Whatever it was, it was maybe $10 ITM and the shares went OTM that week letting me close for a 95% gain or something, and resolving those 760 strike / $140ish ITM puts in 1 week.

So put spreads enable adding leverage to a position that is going badly against, in judicial quantities and timing.


H'mm... so maybe one of the put spread management techniques is that, when needed (rare!), cut the spread size in half while doubling the number of positions (no change in margin) in order to change the short strike more dramatically. Options chain ho!

The downside with put spreads is that they're going to resolve as cash - they won't resolve into shares which is the other management technique that backs short puts in the wheel. I just discovered, much to my chagrin, that I wasn't willing to take assignment on those puts when I got so deeply ITM.


Well - whatever the answer will be, I will continue following along with what you're doing and be figuring out what if anything I'll change on my side. Working towards the best of both isn't something I need to find anytime soon - my current pattern is working well for me and is going way above what I need it to be.

An important reason to me for pursuing this optimization is what I think of as dynamic risk management. Dynamic in that I don't know where the bad stuff will come from, but if I'm collecting particularly large premiums all along the way then when the bad stuff does arrive, then I've got a bank of credits if you will, to help pay for the bad stuff. The big credits can be used on anything.

As opposed to more 'static' risk management such as selling .10 delta options. They're far OTM and safe, until they aren't. And collecting small premiums along the way, a single rare loss can wipe out months or more of earnings (ask me how I know ). There is a kind of safety in big premiums (with more frequent, and typically smaller, losses). The balance - must find the balance.


A request of any and all - if you find yourself rolling a put spread, please post about that and provide detail into your thinking - what did you choose, what alternatives did you consider, what do you think your next move will be given yet another move against. That sort of stuff.

I want to learn about put spread management in the real world as fast as I can

In exchange I'll be doing the same. So far my recent put spread management has been open today, close in 1 or 2 days for 40-80% gains. Not exactly rocket science.

I did this in late June when I was learning the mechanics of the BPS so I could see how to get my roll accomplished.
I did a .5 delta spread to start on a Tuesday- I believe it was $620 / $540 (no exact and was doing $80 spreads at the time)
Waited till Thursday and rolled to to the following week (so 3 weeks out instead of 2) and was able to gain the same credit as when I started while rolling down.
Seems like put premium has been higher lately than calls.
My desktop tool (Street Smart edge by Schwab) has a “roll spread “ function built in so it was easy on one ticket screen

 

[EVCollies]

Last week played out just fine.

Bit more aggressive for this week with Delta 0.4 for my adventurous puts that could become calls the following week. Not advice.

Date STO	Expires	Trade	Strike	SP	Delta	Proceeds	N	Total
Previous Month
8/3	8/6	P	680	710	0.2	$370	10	$3,700
8/3	8/6	P	690	710	0.3	$580	5	$2,900
7/30	8/6	C	750	695	0.13	$288	5	$1,440
						Total		$8,040
Current Month
8/6	8/13	P	695	720	0.4	$1,120	10	$11,200
8/6	8/13	P	670	720	0.2	$465	10	$4,650
						Total		$15,850

 

[JustMe]

…
Not that any ideas presented are bad, and not that folks here haven’t made out like bandits (it’s been a good year for me on the whole)… but it’s far from risk-free….

Now I feel like Debbie Downer… but a little sanity check, right?

 

[samppa]

Just as an aside - i've had ITM puts assigned twice now. This was generally with 3-4 days remaining. This was during the big drop down when we were writing 800ish puts and we dropped to the upper 5's. The bulk of mine I was able to roll until they were able to be resolved (or in one case split into double the puts at a much lower strike and then resolve), but early assignment CAN and does happen. So you need to be prepared for that.

I've also started rolling much earlier on ITM puts since that happened a second time. Trying to roll as soon as that time value is down to close to nothing. I also had to think hard about what to do with those assigned shares. I've been selling fairly aggressive (for me anyway) cc's against them, but I realized that if the share price ran up over my call price and they were called away, i'd be unhappy because I could almost always get a better price just selling them at market value. So i've continued selling the cc's (except this last week) and just watched the value of the shares go up a lot more than the margin interest i'm paying to have them. It's still more risk than I really want (being in margin), but at least for now it's an experiment i'm ok with running, and the money i'm getting from selling puts is paying that down fairly quickly (and i've got more shares than i would have otherwise).

What broker do you use?

 

[Tempus]

What broker do you use?

TD Ameritrade

 

[AxlxA]

With IV being 45% this week for options, what are people thinking still? AI day coming soon but again, the options market doesn't look like they're excited by it. No increased in IV.

Is it a good time to play both sides and do an IC or strangles?

 

[Yoona]

With IV being 45% this week for options, what are people thinking still? AI day coming soon but again, the options market doesn't look like they're excited by it. No increased in IV.

Is it a good time to play both sides and do an IC or strangles?

I had 8/6 IC 645/670/745/770 yesterday, BTC at 96%.