Oct 1 is safer. There could be explosive stock advance after third quarter deliveries number.Very interesting video. Basically, look for 45 DTE with nice IV (ie better than 50% of the 52-week range so anything 42%+ is ok):
Then, open IC with short=15 delta and long=4 strikes away. Close the position at 25% of credit since there is less advantage of holding it through expiration. Profit per day will be higher. If using BTC stop limits then this means one can open ICs sequentially one after another since there is no need of waiting for expirations or 80-99% profit.
To apply the lesson, this looks like Oct15 ICx1 605/625/840/860, credit 8400. BTC limit order at 2100. Margin 6400 for 42 days. I'm gonna open this on Tue as a test (using separate legging in to maximize credit) to see how long it takes to reach 25% profitability. Excellent opportunity to see how theta decay works.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
InTheShadows
Active Member
I think that this low IV would mean this strategy is more beneficial. If the stock starts to make a run and IV goes up then taking profits early to open new positions would end up being much better as far as ROI is concerned.
I was also thinking about how this would apply to weeklies. Are we already doing this because most of us are selling next weeks options.
I had set my early close rate at 80%, resulting in last week closing most of my spreads on Tuesday I think. Then I opened more during a slight pull back and those too ended up expiring or closing for pennies.
trade fees also come into play here. That video was 2013 and I think most trades still had like a $5 fee back then, which I think is one of the reasons they went for 45 DTE.
InTheShadows
Active Member
Here’s another video that is interesting along similar lines though much more recent. I only got half way through it before I had to run some errands but the big thing that stood out to me is their IC strategy.
Basicly they are saying to sell the put side on Monday /Tuesday and sell the call side on Wednesday Thursday once you have an idea of where the stock/etf is heading for that week.
What im not sure of was if they sell the call side for that same week or the following week.
Basicly they are saying to sell the put side on Monday /Tuesday and sell the call side on Wednesday Thursday once you have an idea of where the stock/etf is heading for that week.
What im not sure of was if they sell the call side for that same week or the following week.
I didn’t start making money trading options until I was dead inside toward underlying. Now I try to ask myself each morning, how many metaphorical baby seals need to be clubbed so I can sell pelts on the black market? My eye patch and Russian accent are just part of the winning mindset.
Comrade it is coincidence that “selling pelt” and “selling put” sound very similar with Russian accent no?
You can get amazing premiums if you're willing to trade a few weeks out. I try to keep a few longer term positions like this on.
The 10/1 I put on Thursday, and I think I may have actually put the 9/24 trade on last week (oops)? My thinking was that there's strong support at a trend line that's advancing upwards as well as technical support at 715 that I expect to hold, or at least for us to revisit in the event that there is a major pushdown around quad witching on 9/17.
Thanks for writing this out. Max gain to risk on that trade when I enter it is $418 to $1582. Which isn’t bad I suppose, but idea is maximum theta burnage…Very interesting video. Basically, look for 45 DTE with nice IV (ie better than 50% of the 52-week range so anything 42%+ is ok):
Then, open IC with short=15 delta and long=4 strikes away. Close the position at 25% of credit since there is less advantage of holding it through expiration. Profit per day will be higher. If using BTC stop limits then this means one can open ICs sequentially one after another since there is no need of waiting for expirations or 80-99% profit.
To apply the lesson, this looks like Oct15 ICx1 605/625/840/860, credit 8400. BTC limit order at 2100. Margin 6400 for 42 days. I'm gonna open this on Tue as a test (using separate legging in to maximize credit) to see how long it takes to reach 25% profitability. Excellent opportunity to see how theta decay works.
If it wasn’t overlapping the 2 months of production and earnings, I’d consider it. Still is good mental exercise to understand which weeks we are targeting to likely take that profit. What do you think?
Worst case for next week being 10 under max pain (715) seems fine to me? Selling at max pain also seems reasonable to me given the recent strength of the stock, manipulations downward needing to be unwound, and likelihood that max pain will rise sometime next week as traders put on call options. But I could certainly be wrong about that.
I sold 9/10 puts at 750 in an ITM spread, which has a much different risk/reward ratio. The position risks $3.35 on a $10 spread, so I'm not actually expecting the SP to be over 750. I'll close this on Tuesday during a pop unless the max pain chart dictates otherwise. It has very low capital risk for what could be a good sized reward.
Your point about quad witching (it's quad this month, not triple) is a good one. It makes sense that the MMs would want to start to bring the SP down next week, but would they try to bring it down past that week's max pain? Also, max pain tends to change as more options are opened, which we won't see until later next week for 9/17. I believe that 9/17 MP will rise significantly by the Monday of that week. If I had to guess maybe to 690ish. I definitely think that's likely to be a down week, but how far? I don't have any puts open for that week (other than ones I put on like 6 months ago) either. The trendline I mentioned (that we bounced off of like a rocketship a couple of days after the autopilot investigation was announced - also a monthly options expiration week I believe) should bring us back up the following weeks, hence my positions for 9/24 and 10/1.
Again, thanks for the feedback!
pz1975
Active Member
Interesting to think about what is optimal for time to expiry when selling options. 3 weeks out obviously gives higher premiums, but it ties up the margin (or shares for covered calls) longer. I personally think selling a weekly 3 weeks in a row will usually give a better return than an option 3 weeks out. It also allows you more flexibility to adjust strike prices each week depending on whether the SP is up or down.
alterac000
Member
@Theshadows thank you posting the video!Posting this here for some weekend discussion.
Selling big boy iron condors - TastyTrade
They are talking a lot about what we have been talking about the past month or so. Really interesting section on taking profits early too.
Very interesting video. Basically, look for 45 DTE with nice IV (ie better than 50% of the 52-week range so anything 42%+ is ok):
Then, open IC with short=15 delta and long=4 strikes away. Close the position at 25% of credit since there is less advantage of holding it through expiration. Profit per day will be higher. If using BTC stop limits then this means one can open ICs sequentially one after another since there is no need of waiting for expirations or 80-99% profit.
To apply the lesson, this looks like Oct15 ICx1 605/625/840/860, credit 8400. BTC limit order at 2100. Margin 6400 for 42 days. I'm gonna open this on Tue as a test (using separate legging in to maximize credit) to see how long it takes to reach 25% profitability. Excellent opportunity to see how theta decay works.
I watched the video as well, very interesting. Seeking your thoughts on --
- It sounds like this works consistently when IV is > 50%. So during times of relative low IV (we're trending ~8-10% TSLA 52-week IV now?), does this mean we shouldn't utilize the strategy, or is there a way to alter it to make it still work consistently? Maybe move the strikes out to 2 standard deviations rather than 1...though premiums will be tiny??
- I took the 25% max profit to mean, if selling IC for $4 credit, then set the BTC at 3$, rather than BTC at 1$
Keep in mind that you don't have to hold to expiration just because it's longer DTE. I closed a 9/10 BPS early this week for about 70% profits that I held for maybe 1.5 weeks. My 9/24 +660/-710 BPS position is already at 50% profit after a similar amount of time. I'll probably close it once it hits 70% or 80%. Mathematically, you're probably right, but this is an order of magnitude less stressful, and I like to diversify in my 100% TSLA options strategy
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You are right, thanks. That's something to consider that wasn't mentioned on the video (working around earnings, dividends, etc)
Also, i forgot i already have Oct15 BPS +630/-670 still open since 7/20.
pz1975
Active Member
Good points although the same can be said about weeklies as well - can close profitable positions early and reopen newer positions to get more profit/margin used. I actually find the weeklies less stressful for some reason as they are easier to keep a handle on for me and I can make decisions faster about whether to keep, roll or close since the expiration date is so soon. To each his own I guess!Keep in mind that you don't have to hold to expiration just because it's longer DTE. I closed a BPS last week for about 70% profits that I held for maybe 1.5 weeks. My 9/24 +660/-710 BPS position is already at 50% profit after a similar amount of time. I'll probably close it once it hits 70% or 80%. Mathematically, you're probably right, but this is an order of magnitude less stressful, and I like to diversify in my 100% TSLA options strategy
A few things:
- Not trying to call you out, trying to understand the thinking, to improve my own.
- What is the fourth in quad witching? After weekly, monthly, quarterly options.
- Trying to wrap my mind around the 740/750 call spread. I’d never though about that kind of small ITM spread. Looking at the closing prices, I might have picked 750/760, as it has closer to a $9 premium on $10 margin (very little max loss), but looks like it still returns $4-5 on a $10-$20 rise in stock price. Basically I think I’d try to pick the lowest available spread with a ~$9 premium — so a pop turns that into a $4-$6 premium. Not trying to criticize; the numbers may have been different when you ordered and I have the leisure on the weekend to poke around yet I’m also not seeing how things decay over a few days. Anyway, it looks like a bet on a $10-20 pop in stock price in the pretty short term. Might generally be a good Friday strategy. (No, autocorrect, not a once-a-year Good Friday strategy. Sigh.)
- Am I just burnt from those random $50 dips earlier in the year? I get that $715 should be safe. I can’t convince myself it will be safe. It may be that I haven't adjusted my thinking from single puts to spreads. I guess, ironically, I need some spreads to go bad on me to see how that goes. So maybe I should put in one aggressive one as a learning experience.
- I haven’t figured out my goal yet. It ranges from a monthly payment for our X on order (dear minivan don’t let the door hit you on the way out!) to pre-paying it, and is bounded by the unknown time until X deliveries actually start. That ends up being quite a bit of variation! I guess I’m trying to get a grasp on what’s realistic — and what keeps me up at night.
I didn't mean to sound like I was offended. Just having a glass of wine since it's my day offA few things:
- Not trying to call you out, trying to understand the thinking, to improve my own.
- What is the fourth in quad witching? After weekly, monthly, quarterly options.
- Trying to wrap my mind around the 740/750 call spread. I’d never though about that kind of small ITM spread. Looking at the closing prices, I might have picked 750/760, as it has closer to a $9 premium on $10 margin (very little max loss), but looks like it still returns $4-5 on a $10-$20 rise in stock price. Basically I think I’d try to pick the lowest available spread with a ~$9 premium — so a pop turns that into a $4-$6 premium. Not trying to criticize; the numbers may have been different when you ordered and I have the leisure on the weekend to poke around yet I’m also not seeing how things decay over a few days. Anyway, it looks like a bet on a $10-20 pop in stock price in the pretty short term. Might generally be a good Friday strategy. (No, autocorrect, not a once-a-year Good Friday strategy. Sigh.)
- Am I just burnt from those random $50 dips earlier in the year? I get that $715 should be safe. I can’t convince myself it will be safe. It may be that I haven't adjusted my thinking from single puts to spreads. I guess, ironically, I need some spreads to go bad on me to see how that goes. So maybe I should put in one aggressive one as a learning experience.
- I haven’t figured out my goal yet. It ranges from a monthly payment for our X on order (dear minivan don’t let the door hit you on the way out!) to pre-paying it, and is bounded by the unknown time until X deliveries actually start. That ends up being quite a bit of variation! I guess I’m trying to get a grasp on what’s realistic — and what keeps me up at night.
. Quad witching also includes futures, and is once per quarter:
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Quadruple (Quad) Witching: Definition and How It Impacts Stocks
Quadruple witching refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously.
You're probably right about the 750/760 spread. I chose 750 as the short strike because I think there's actually a chance that we could see a sustained move that high. SP seems to want to be in the 735-740 range to me, and 750 isn't so far away from that. And yes, it's basically a low risk high reward bet on a Monday or Tuesday pop. I could just buy call options, but I'd rather sell puts.
For feeling burned, I get that, I really do. I got caught in some short calls just after earnings because I wasn't giving the stock enough credit and realized I made a poor decision because I was emotional. I knew (and had planned for, but then ignored, lol) that there would likely be a "three day rule" pop in the price, but was so beat down I didn't want to run the risk of losing out on call premium again. However, we're now in a bull trend (all of the moving averages are positive sloping, higher highs, higher lows, etc.), so I decided to reset my expectations. Also, I feel a lot more confident now that I've had a few spreads go bad on me and got out just fine, had some calls go ITM, figured that out, etc.
For myself, my baseline goal, since I'm mostly holding LEAPS + cash, is to make at least enough money to pay for the theta on those leaps (which is substantial). So long as I can keep rolling those leaps out, the market will eventually figure out that Tesla is worth a lot more than its current value.
BTC at 1, not 4 (see video at 10:39 mark)
I think the video didn't say trade this if current IV>50%. It said the week they are choosing has an IV that was above the 50% avg of the last 52 wks. So, for TSLA, anything above (1.259-.431)/2=41.4% is good and try 45 DTE.
I will try 10/1 (ie 46.4% is higher than 41.4%) - someone said stay away from 10/15 earnings.
What fascinates me the most is early BTC in 13.8 days instead of waiting for the full 43.7 days. Therefore, i can sell 3 ICs instead of 1 and all 3 will be 100% (ie 22/22) chance of success. Even if the grand total credit is the same, the early BTC has a higher chance of profit and lower risk.
Of course, selling weekly IC also works, coz one can sell more qty overall. "Don't fix what isn't broken." The annoyance here is the constant guessing of range and timing the STO. The video removes all the guessing and timing using fixed rules (choose the DTE, select 16 delta, spread is 4 strikes, BTC at 25%, rinse/repeat). I suspect the margin room from IC to IC will be fixed value, as well.
I wonder if anyone can backtest this...
Let me ask a question, and I'm sorry if I've missed this:
What's the best way to roll a put spread that's going into the money? (I've heard you say do it before the midway point of the spread is ITM, FWIW.)
Do you roll both sides together? Or roll the sold side and leave or close the bought side? I guess I'm thinking you roll both sides together to avoid a sudden increase in margin requirement if it turns from a spread into a standalone sold put.
What's the best way to roll a put spread that's going into the money? (I've heard you say do it before the midway point of the spread is ITM, FWIW.)
Do you roll both sides together? Or roll the sold side and leave or close the bought side? I guess I'm thinking you roll both sides together to avoid a sudden increase in margin requirement if it turns from a spread into a standalone sold put.
Elon emailed employees about being bullish for an eventual $3000 stock value.
How do you think this affects / correlates with price movements in the next few months?
How do you think this affects / correlates with price movements in the next few months?
InTheShadows
Active Member
Me too. I usually Sell 3-10 DTE. Thinking about this past week. Particularly on Thursday and Friday. Had I closed at lower profit percentages, 25-30. I would have closed almost all of my spreads late Thursday early Friday and resold them mid day Friday. I know this is only one example, however I’m going to test it out in coming weeks with half of my positions.
InTheShadows
Active Member
I saw they were selling 45 DTE. The video was also made in 2013 when fees and commissions were enormous then.
with the low fees we now have we are mostly trading weeklies. I’m looking how this will effect weekly returns, even with our low fees now they will add up if we are putting on 3 trades per week for what normally would have been one or 1.5 frases per week.
it also requires more time to manage, which when you calculate it on $/hr you made, it might not be better. However at this stage I am doing so much learning about the mechanics of this stuff that I’m spending 4-5 hours per day regardless. I mean heck, here I am on a holiday weekend brainstorming with all of you and listening to YouTube videos about selling spreads while sanding the top of my new desk in my wood shop.
i have the same problem
Rather than risk early assignment (mp 725 and with call wall 735 too close), i am thinking BTC asap, and then open 9/24 +p660/-p700 BPS (ie flip-roll from call to put). Total is net credit and uses just a little more margin.
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