InTheShadows
Active Member
I was wrong. I was thinking $15k credit to open and max loss/risk of $4600, from the credit was worst case scenerio $10.400 gain.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Knightshade
Well-Known Member
FWIW, generally any time you think you found "0 risk free money" in the options market the answer is yes, there's something wrong with the math.
Unless you're an MM I suppose
InTheShadows
Active Member
Yea that’s why I was thinking I was wrong. Still a 1:3 risk:reward for theta is pretty goodFWIW, generally any time you think you found "0 risk free money" in the options market the answer is yes, there's something wrong with the math.
Unless you're an MM I suppose
Can you guys check something for me at your broker?
I just for fun clicked in a Dec 900/700 BPS. This thing will get me 15k for only 4k margin. Downside-risk: only 5k.
Or Dec 900/500 BPS. Even though the SP is under the midpoint (700) this thing has a delta of 0.665 and a positive(!) theta of 0.011. 14k margin, but still 17k to fall for max-loss while only bringing in 23k max-gain.
Do you get similar margin-impacts? Or is it just because my portfolio is already weird?
I would have expected more margin and a way worse theta..
Hello fellow TSLA bulls, I am learning a lot from this forum - thank you!
I am curious as to why one would set up an ITM BPS rather than the analogous OTM bull call spread +700c/-900c which would have similar max loss/gain. Any advantage/disadvantage of one over the other? Any risk of assignment holding an ITM put?
I saved one spread earlier by making it tighter abd doubling the positions.. not-advice..
If you are right, then Theta will play in your favor over time. On the calls it plays against you.
Rule of thumb:
Theta > 0 for BPS if over midpoint, <0 if under midpoint
Theta < 0 for BCS if under midpoint, >0 if over midpoint.
Details are a bit more nuanced as total # of Puts/Calls is taken into account by the statistics.
If the ITM-Put gets assigned, someone just donated all theta-value to you & you just have to exercise the other half yourself & can then reenter the same position to grab the theta again.
InTheShadows
Active Member
It’s because both are ITM. if the share price gets to 680 then you will be able to roll for 0. You will need 682 to start rolling for a credit.
my tightest spread is $40. And I only enter those with a delta of less than -15 for the short leg.
the tighter your spread the faster things go to
and the less time and breathing room you have to manage the spread.If I was in your situation I would enter an order now to roll it out to next week for a .05 debit. then if we get a slight pop today it will execute and give you a little breathing room to have another 5 days to manage it.
"someone just donated all theta-value to you & you just have to exercise the other half yourself & can then reenter the same position to grab the theta again."
i wish i understood what that means
my BPS are spread out over 5 different dates (nothing for this week) and you are right about "Theta > 0 for BPS if over midpoint, <0 if under midpoint"; thanks for that new insight!
If I have sufficient margin buffer I generally don't need to roll to the next week and instead try to restructure my IC or BPS's to expire on Friday. If I have straight BPS I will try to split into multiple BPS with better strikes at the cost of extra margin.
This week I have 150x 660/680 750/770 IC's in one account (originally sold for $76k). The BPS side of these were deep under water yesterday so I sat down with a spreadsheet and analysed my options. Based on the latest OI, the preferred close for MM currently seems to be between 675 and 700. My preferred approach then was to sell a lot of call spreads, say 700/750 spreads or higher. These generate additional credit and also have negative margin, so boost the margin buffer. Then I can progressively sell better IC's (lot size depends on initial margin) while buying to close the original IC's. The new IC's I was looking at were 620/640 700/740 that have a better chance of expiring worthless and can end up with extra credit and improved margin. It looked something like the table below. Note prices are based on yesterdays close so I recheck the analysis before placing orders.
However with the run up in pre-market I may now be able to do a straight roll this week for credit with the 660/680 750/770 IC's going to something like 640/670 705/735 IC's. We'll see how trading goes as to whether I can just roll or need to do something extra. Either way I will try to avoid carrying these over to next week or realising a loss.
This week I have 150x 660/680 750/770 IC's in one account (originally sold for $76k). The BPS side of these were deep under water yesterday so I sat down with a spreadsheet and analysed my options. Based on the latest OI, the preferred close for MM currently seems to be between 675 and 700. My preferred approach then was to sell a lot of call spreads, say 700/750 spreads or higher. These generate additional credit and also have negative margin, so boost the margin buffer. Then I can progressively sell better IC's (lot size depends on initial margin) while buying to close the original IC's. The new IC's I was looking at were 620/640 700/740 that have a better chance of expiring worthless and can end up with extra credit and improved margin. It looked something like the table below. Note prices are based on yesterdays close so I recheck the analysis before placing orders.
| Actions | No. | Premium | Maintenance Margin |
| Sell 700/750 BCS | 150 | $38,700.00 | -$259,367 |
| Sell 620/640 700/740 IC | 200 | $129,000.00 | $316,022 |
| BTC 660/680 750/770 IC (original position) | 150 | -$162,750.00 | -$456,490 |
| Totals | $4,950.00 | -$118,898.72 |
However with the run up in pre-market I may now be able to do a straight roll this week for credit with the 660/680 750/770 IC's going to something like 640/670 705/735 IC's. We'll see how trading goes as to whether I can just roll or need to do something extra. Either way I will try to avoid carrying these over to next week or realising a loss.
InTheShadows
Active Member
I’m starting to think the MM were reading this thread last week and agreed with us that IV was getting to low. Wish they would have informed us of their plans first. 
Things have 2 values: the real worth if exercise would be right now & the time-value that slowly fades away each day via theta."someone just donated all theta-value to you & you just have to exercise the other half yourself & can then reenter the same position to grab the theta again."
i wish i understood what that means
If someone exercises they give up all time-value for the right to exercise RIGHT NOW. So you can just close your position as if you would have sold for the current market-price (but keep the "time-value" on the short-leg) & open the exact same position again to collect that value once more.
That is why early exercise is SOOO unlikely. Is it often only done for i.e. tax purposes (at least here in germany .. as things are calculated .. well.. differently.) and only if not much time-value is left. This happens if things are WAY out of the money or WAY in the money.
Mathematically the "time value" ist the amount the final SP will differ from the strike if you take it as a probability-model. The total amount is dictated by the "implied volatility", the current theta is dictated by an (i think) exponential decay towards expiry.
How you know how much is time-value & how much is "real" value? Just take (strike-SP) or (SP - strike) depending if it is a call or put. This is the amount the person excerising is gifting to you.
Why people want to avoid that? Well.. on some brokerages you have to exercise the "other leg" manually. The time this takes can work against you. Also this can lead to a margin call until you exercise the other leg.
Someone has to automate such things ...
Anyone interested in Software doing this for Interactive Brokers? I thought about writing some things myself to get a bit into automatic risk-management...
Well I closed the set of 580/-630 BPS I opened yesterday for 80% profit. While I feel very confident I could have just waited until expiry, I don't like having as much exposure as I did, so might as well just take the easy money. I'm not in love with BPS at the moment, they feel harder to manage than straight sold puts, but we'll see.
AquaY
Member
Rolled out and down my 685 P to next week 665 for a $1.31 credit.
Also STO 8/21 CC 730. My timing sucked though. Either too early or too late as I only got .93 for them . Earlier they were $1.20 and currently $1.14. LOL
Also STO 8/21 CC 730. My timing sucked though. Either too early or too late as I only got .93 for them . Earlier they were $1.20 and currently $1.14. LOL
ChefBoyardee
Member
Yeah put spreads are hard to manage - I've found a few strategies that work for me:
Ground rules:
Sell beneath a strong support level (always beneath the lower end of the channel for me)
--
Safest Management:
Sell wider strikes to start. If short strike is tested, roll out and down, narrow the strikes, and increase the number of contracts (keep margin the same)
If you don't expect a quick rebound:
Roll to a higher strike, far enough out in time that that strike is beneath the rising trend line
If you expect a quick rebound:
Sell more if they go ITM. Often they go back OTM before expiration and rolling would have left money on the table
- ex: I'm holding Aug 20 680/670's. These were showing near max loss yesterday but it's looking like they'll expire worthless now
Which one I choose depends on the fundamentals, macro, where the SP is relative to the channel, etc. Not advice, just some things I've found that work so far
Ground rules:
Sell beneath a strong support level (always beneath the lower end of the channel for me)
--
Safest Management:
Sell wider strikes to start. If short strike is tested, roll out and down, narrow the strikes, and increase the number of contracts (keep margin the same)
If you don't expect a quick rebound:
Roll to a higher strike, far enough out in time that that strike is beneath the rising trend line
If you expect a quick rebound:
Sell more if they go ITM. Often they go back OTM before expiration and rolling would have left money on the table
- ex: I'm holding Aug 20 680/670's. These were showing near max loss yesterday but it's looking like they'll expire worthless now
Which one I choose depends on the fundamentals, macro, where the SP is relative to the channel, etc. Not advice, just some things I've found that work so far
All my rolls went through OK so everything's in a decent position. I've been selling a few more IC's and call spreads at safer strikes plus adding a few more LEAP call spreads and shares with the extra premiums. I do have a few $700C- as part of spreads so it will be an interesting Friday close after AI Day.
AquaY
Member
Good ground rules.
I had 685 puts ( obviously a little closer to ATM than 680s) for Friday I just rolled out and down to next week.
I've been bit in the butt before when Friday came and in the last hour of trading I got smacked.
I've had a great month so far and sometimes it's a good choice to leave a little on the table for safety. There's always next week and the week after.
As long as there's some volatility there are opportunities.
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