More premium with farther OTM positions.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
More premium with farther OTM positions.
bubb
Member
I applaud all of you doing so well with spreads, quite impressive results and generous information sharing, what a great thread! I am mostly just a boring old weekly cc/ccp seller. If you are a veteran of this thread feel free to ignore the rest of my post 
I feel obligated to advise beginners/lurkers who are eager to start selling spreads: I think it's critical before anyone starts to understand why it's possible to earn so much premium levering up these spreads. Using leverage is a different game and means you really must instill total discipline about entering trades and understand what exactly it means to manage one going against you to varying degrees. The posters in this thread IMO have wildly varying risk tolerances and account sizes, so don't take absolute dollar amounts posted as an indication of what is possible for you. Also, if you compound your leverage/margin and don't leave any wiggle room (e.g. using ~100% margin, narrow spreads, no non-TSLA source of liquidity on tap for a margin call, some crazy market event, or all of the above) you really could blow up your entire account if you aren't prepared or react poorly.
Good luck to all and thanks again to all the regular contributors here.
I feel obligated to advise beginners/lurkers who are eager to start selling spreads: I think it's critical before anyone starts to understand why it's possible to earn so much premium levering up these spreads. Using leverage is a different game and means you really must instill total discipline about entering trades and understand what exactly it means to manage one going against you to varying degrees. The posters in this thread IMO have wildly varying risk tolerances and account sizes, so don't take absolute dollar amounts posted as an indication of what is possible for you. Also, if you compound your leverage/margin and don't leave any wiggle room (e.g. using ~100% margin, narrow spreads, no non-TSLA source of liquidity on tap for a margin call, some crazy market event, or all of the above
) you really could blow up your entire account if you aren't prepared or react poorly.Good luck to all and thanks again to all the regular contributors here.
Ok, while I have been dealing with options for a while I had never enabled margin on my account, so that is all new to me, and doesn't seem to make sense. To make up an example say you have $1M worth of TSLA, they set a margin maintenance level of 40%, meaning that gives you the credit of $600k to buy things. But if you sell a BPS it appears to reduce your available margin by double the maximum loss of the BPS. Meaning that with $1M of TSLA stock you can sell a maximum of 30 $100 put spreads. (Which I assume would put you on the very edge of getting a margin call, so you really can't even sell 30 BPSs.)
Is that how it normally works?
Is that how it normally works?
InTheShadows
Active Member
I use calculations like that all the time. That is what my goals are set off of. There is nothing wrong with doing that if you are tracking every trade and recording your win loss and profit takes. I look at my historical performance, derate it and use it for my planning purposes.
Our trades are a living breathing concept. The more time we spend planning and running what if’s, the better we get. That is why many of us here enter small trades that force us to manage our positions so we can get actual experience managing when things don’t go as planned. It’s also good for learning how you will emotionally react.
I thought the spreadsheet that yoona shared was amazing and I would very much like a copy of it to run some concepts through it.
I have many tools built into my workbook to help me plan and strategize my trades. Even so much as to telling me which days of the week I do the best and worst on.
I knew we should have chosen a better name for the thread:
“Easy Money: How to 100x your account in 5 min or less selling spreads with no stress”
“Easy Money: How to 100x your account in 5 min or less selling spreads with no stress”
Because that it what it shows me. (And what it says I don't have sufficient funds/margin if I exceed it.)
While it only shows a $300k margin maintenance requirement, it reduces your available margin, i.e. "Marginable Securities", by $589,944. (I guess because BPSs are a non-marginable security?)
It appears, in this example, that I could withdraw the full $600k, put it in a different account and then sell 60 BPSs against it. Of course at that point you have to start paying interest on the full amount.
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So I may be reading that wrong, but it looks to me like your available margin goes down by 294,xxx , and your held shares value that you can use to back margin goes down by 590k. Perhaps since it's TSLA backing a TSLA put, so its value decreases as the put goes ITM? Which broker is this?
In your last sentence, what interest are you speaking of? 60 spreads of 100 would be covered by the 600k, so there shouldn't be any loan/margin in play. Or are you saying you'd use the margin to get the cash?
This is E*TRADE. And yes the last sentence was about withdrawing the cash so that I could write twice as many BPS contracts against the cash.
With $1M of TSLA you can either write 30 $100 spreads or withdraw $600k cash.
alterac000
Member
I applaud all of you doing so well with spreads, quite impressive results and generous information sharing, what a great thread! I am mostly just a boring old weekly cc/ccp seller. If you are a veteran of this thread feel free to ignore the rest of my post
I feel obligated to advise beginners/lurkers who are eager to start selling spreads: I think it's critical before anyone starts to understand why it's possible to earn so much premium levering up these spreads. Using leverage is a different game and means you really must instill total discipline about entering trades and understand what exactly it means to manage one going against you to varying degrees. The posters in this thread IMO have wildly varying risk tolerances and account sizes, so don't take absolute dollar amounts posted as an indication of what is possible for you. Also, if you compound your leverage/margin and don't leave any wiggle room (e.g. using ~100% margin, narrow spreads, no non-TSLA source of liquidity on tap for a margin call, some crazy market event, or all of the above
Good luck to all and thanks again to all the regular contributors here.
I haven't posted in a while but wanted to agree with your comments for newer or passerbys. While many have posted what I would consider wildly successful trades and more importantly strings of successful trades, I've personally been going through my share of failures in the journey to pick better strikes, spreads, and entry timings while managing margin...the major reason I haven't posted recently. Due to a series of mistakes made early this year before discovering how to "be the house" (love the new name btw!), I've spent the whole year digging out of a massive hole, exacerbated by paying interest on margin. This has led me to impatience, taking larger risks than I should = less percentage of success, and probably also less confidence/insight to either hang tight or transition positions when there are big swings against you. The discipline needed is real to deliver sustainable returns. I truly commend those that have mastered the art and offer my cautionary tale to those that are still learning the ways of the Force.
I’ll report back this time next year
Since adjusting my margin/cash covered puts since April I’ve batted 100% though some big screw ups on 3/5/2021. Last 4 weeks with BPS and some IC it’s been pretty wild.
One potential black swan out there right now is the NHTSA autopilot investigation. If for whatever reason they come down on Tesla, I expect we’ll see a significant drop (remember the drop on just the announcement?).
I find that unlikely, given their history of fairness in Tesla investigations and that Tesla has already released an improvement in the form of the emergency light recognition capability, but something to consider. I believe Tesla had until Oct. 22nd or so to deliver data to NHTSA.
I find that unlikely, given their history of fairness in Tesla investigations and that Tesla has already released an improvement in the form of the emergency light recognition capability, but something to consider. I believe Tesla had until Oct. 22nd or so to deliver data to NHTSA.
AquaY
Member
I've found that others trades influence me to think.
I look at the trades posted and sometimes think the strategy is good but not for me or think the strategy is bad and then really not for me.
Other times I go " I like that idea!"
Your advise "don't follow others trades blindly." is the big take away here.
Look at other people's trades but run the numbers. If you don't understand the strategy the trade is not for you.
If it doesn't fit your risk profile the trade is not for you.
I
corduroy
Active Member
Another related thing that has me worried is the wide release of FSD beta. In the long term, no doubt this will be huge for Tesla, but In the short term I can only see negative catalysts coming from FSD (mainly the inevitable first FSD accident and blowback).
I was concerned enough to only carry a small amount of margin risk over this weekend, compared to normal. Now this is pushed to Sunday/Monday so it could affect next week.
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I am also grappling with the E*Trade numbers.
When it says the "marginable securities" decreases by twice the "non-marginable securities" in the pic above, I take it to mean this: the proposed trade would consume 295K margin. With that same 295K of margin, you could buy 590K worth of shares, because owning the shares gives you additional margin, so effectively you only need to use half the margin to acquire the shares. With this proposed trade you'd thus be giving up the ability to buy 590K of "marginable securities," things like plain shares that give you additional margin. Sold puts do not give you any additional margin, so with this trade you'd be giving up the ability to buy 295K of them (or other "non-marginable securities").
The other wrinkle I don't understand well is that your margin buying power is limited by the lesser of your SMA or maintenance excess. I am in a situation where my maintenance excess is substantially higher than my SMA+cash. So I'm limited by the SMA. The problem is, while their margin screen makes it completely clear how the available margin and maintenance excess is calculated, I have no idea how the SMA is calculated, I just see a number there for it. Being limited by SMA without knowing where it comes from makes it hard to plan how much buying power I might have under various conditions.
Does anybody know how E*Trade calculates the "SMA" which forms the basis of the "Adjusted SMA" (SMA+cash) which limits buying power?
I am also having a similar problem with eTrade and margin where the margin calculator doesnt even work for me and I am waiting for the dev team to get back to me. Beyond that, I did not understand the calculations it did where I was not allowed to open 10x BPS w/ 100 point spread. It might be a symptom of the calculator not working for me, so until this gets resolved I am stuck with just selling puts.
This is great advice and needs be go with the first posts in this thread. Sticky? It’s important to remember that a lot of the successful option traders in this thread took small steps and gradually increased their trade sizes as they got more comfortable.I applaud all of you doing so well with spreads, quite impressive results and generous information sharing, what a great thread! I am mostly just a boring old weekly cc/ccp seller. If you are a veteran of this thread feel free to ignore the rest of my post
I feel obligated to advise beginners/lurkers who are eager to start selling spreads: I think it's critical before anyone starts to understand why it's possible to earn so much premium levering up these spreads. Using leverage is a different game and means you really must instill total discipline about entering trades and understand what exactly it means to manage one going against you to varying degrees. The posters in this thread IMO have wildly varying risk tolerances and account sizes, so don't take absolute dollar amounts posted as an indication of what is possible for you. Also, if you compound your leverage/margin and don't leave any wiggle room (e.g. using ~100% margin, narrow spreads, no non-TSLA source of liquidity on tap for a margin call, some crazy market event, or all of the above
Good luck to all and thanks again to all the regular contributors here.
As a rule I will typically not use more than 35-40% of available margin at any time. Maybe will that will change when I quit my normal job.
Also on the topic of people wondering if we are giving the hedgies too much information by posting our trades in this thread; Judging by the weekly call bets(10s of millions of dollars) from the big boys I think we are likely very small fish at this point. If the well starts to dry up we might have to be more alert but for now we just keep this going and keep it open for everyone.
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InTheShadows
Active Member
I think it should be mentioned in the first post about not following others trades and make your own plans. I have been in groups here and also at other places where people just want a trade tip to place and don’t do the work and education to understand why to make the trade and how it works.
I think most of us only post trades for reference and not for others to copy our trades. I have noticed some even wait until after market close to post their trades so that others can’t follow them.
I also only post % returns and now how many contracts I buy for two reasons, first, I don’t want a mathematician (which I know there are quite a few here) calculating out my portfolio size. And the other reason is because the returns work no matter what your capital is as long as you have the capital to purchase one spread.
We all start out somewhere, many times with much smaller accounts. It’s important to understand that no matter the portfolio size, it’s that you are learning to be a better trader that counts. Continuing to learn from others wins and losses is extremely valuable. And in my opinion is one of the greatest assets of this thread.
I think most of us only post trades for reference and not for others to copy our trades. I have noticed some even wait until after market close to post their trades so that others can’t follow them.
I also only post % returns and now how many contracts I buy for two reasons, first, I don’t want a mathematician (which I know there are quite a few here) calculating out my portfolio size. And the other reason is because the returns work no matter what your capital is as long as you have the capital to purchase one spread.
We all start out somewhere, many times with much smaller accounts. It’s important to understand that no matter the portfolio size, it’s that you are learning to be a better trader that counts. Continuing to learn from others wins and losses is extremely valuable. And in my opinion is one of the greatest assets of this thread.
Simplistically - leverage.
A simple example, using an IRA (thus fully cash secured to make the math simple) - you can sell a single $700 strike put with $70k to back the position. That strike for this Friday expiration is $3.60.
Or you can sell 7x 600/700 put credit spreads (BPS) for 3.60 - 1.0 = 2.60*7 = 18.20 premium.
Or you could sell 14x 650/700 BPS for 3.60 - 1.60 = 2.00 * 14 = 28.00 premium.
Or there is the 140x695/700 BPS for 3.60 - 3.30 = .30 * 140 = 42.00 premium.
All of these examples use the same cash backing: $70k. Leverage is a sharp edged sword and can cut hard. That 700 strike put loses the full $70k when the share price goes to 0. The 695/700 BPS loses its full value when the shares drop below $695.
This is most definitely NOT-ADVICE about what to do - simply an answer to the question about the advantage of BPS over cash secured puts.
The front end of the year took me down into a similar hole. I've also been in that "taking more risks than I should" situation trying to dig our faster, and usually just making the hole deeper, faster (at least for me).
Completely agree - just because it looks easy for somebody, doesn't mean that its easy.
And if it looks like free and easy money - it isn't. If it were, there are always better funded and equipped investors / traders in the market that will have bought up all the free money. Keep looking until you see the risks and rewards.
Oh - and realize that leverage in all of its forms (margin, options) doesn't only mean the ability to create outsized rewards. It also means the ability to create outsized losses (it ain't free).
The bit about not following others trades or attempting to create their results is really important. We're all in different places, we have different objectives. Those differences in circumstances and objectives makes a huge difference in the trading choices that are made. The value of the thread, at least to me, are the range of new ideas and situations I get exposed to. It all goes into the hopper in the back of my mind and colors my own choices. Sometimes I even see specific trades that I decide that I want to follow. But in the end I make my own decisions and experience my own consequences.
The value in the trade postings isn't the position size or the resulting profits (% is helpful) - it's the thinking that went into the position, what went right, what went wrong, the lessons learned, what they'd do the same or differently in the future; that sort of thing. This is the stuff that works the same whether its a $10k or $10M position (well - maybe the $10M position is harder to open and close
).Also full agreement.
A big part of figuring out one's risk profile, MHO, is figuring out what one's own objectives / outcomes / needs are. Do you have a number, an income, or some other mechanism for knowing when you have "enough" (whatever that is for you)? For myself I discovered the general idea and started doing this when I knew that I was close to my own retirement number, and I wanted to find a way to generate some dividend income from my TSLA holdings. I knew that I was going to have a hard time selling those holdings off in retirement to raise living expenses and that Tesla wouldn't be paying a dividend anytime soon.
Because of my own objective, a question (or maybe a reminder) I ask myself regularly when I'm opening a position - is this position consistent with a dividend objective? Usually when I ask myself that question its because I already know the answer and I don't open the position
link to IBKR margin education center for all margin 101
Margin Education Center | Interactive Brokers LLC
Learn about the financial concept of margin both in the US and outside of the US, as well as borrowing as loans vs collateral.
www.interactivebrokers.com
or skip directly to options margin calcs and examples. (this is US customer on US options - thus US regulations, sorry if my assumption that you are US was wrong, can click through to find other use cases as well)
Options Margin Requirements | Interactive Brokers LLC
Get the margin requirements for trading options based on your residence and exchange location.
www.interactivebrokers.com
hope it helps!
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