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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
In an IRA the only puts that can be sold are cash secured. The BPS enables some of the leverage that people are using margin for. The post linked above has a more detailed example, and was worked specifically for an IRA. I'm doing these actively in both a Roth and a rollover IRA, exactly as described here.
I do have an idea for folks to consider (still NOT-ADVICE
). For those that are already comfortable with cash secured puts, you can get a dynamic that is very close to a cash secured put using a very w i d e spread. So something like a -700p/+500p (I usually shorthand these as 500/700 spreads). That spread only needs $20k as backing (vs the $70k of the cash secured put) and will behave a lot like a cash secured put, at least north of say $650ish or so. So you get 3.5 of these BPS for each 1 of the csp you'd have sold previously, while also getting something that behaves a lot like that csp. Maybe do 2 of these (don't use all of the leverage) your first time out.A related idea - start distant and start small. If a position goes sideways keep the punishment lightweight but still educational. So don't make it so small that you don't pay attention
My own experience has been that its quite reasonable to get paid to learn how to do this.Though opportunity cost - if you're trading these BPS and the share price goes on a tear, you could easily earn significantly less than you'd earn by being in shares. Broadly speaking, selling options is going to do great in a sideways market and lag when the share price is going somewhere with purpose.
Such as last year when the shares went up so far, so fast. I made a lot of money selling options last year, but not nearly as much as simply buy and hold would have done. Then again buy and hold wouldn't have created this new skill I have for generating an income from my TSLA share ownership, and that's way more valuable to me.
However you like
I mostly use limit orders and position them at the midpoint, or midway between the midpoint and the worst end. I.e. if I'm opening (selling) the BPS, then I might set my sale price at 1.05 when the range is 1.00 - 1.20 (midpoint 1.10).
Especially on closes though I'll switch to a market order if I'm having trouble getting a fill and the shares are moving against me. It's sort of an "I've decided I'm done with the position - so be done with it". I've had a situation that missed a fill by less than a dime and then moved against me to the tune of 10's of dollars; I don't let that happen again.
What a crazy day! I had multiple opportunities to roll my 10/15 830/850 to 10/22 870/920 for $1.60 credit. However, thought it would end around there and was waiting for theta to burn. Went to do a quick errand at 831.xx and came back to the run up! Ended up rolling it out to 10/29 870/920 for 1.20 credit. Lesson: should've watched this closer yesterday (50% gain instead of 7x lost!). I was able to close out 840/890 for .15. I definitely didn't think that was going to be breached. Good thing I moved my opened order for that from .1 to .15 and it filled right away!
I had my first margin sell-out order from TD today on my iron condor in my Roth. They closed the short calls 15min prior to close because my limit order to close hadn’t triggered. I had sold 720/740 850/870.
Thanks for finding and providing that link. I've updated teh FAQ/Glossary thread with the link (the FAQ/Glossary thread has a link in post #1 of this thread).
Which is a good excuse to find more of these links that people have found valuable for themselves. One and all, new to the thread or have been around since the beginning - dig up those websites and links, internal and external to the thread and TMC, and post them. The FAQ / Glossary might start looking pretty chaotic but we can do more organization later. In the meantime lets get that expanded to include as much of this stuff that we've found valuable and/or repeated off and on.
One thing I'll add onto @BrownOuttaSpec description - every choice carries risks and rewards, costs and benefits, tradeoffs. In the case of cash secured puts vs. put credit spreads / BPS we're making use of leverage to improve the earnings power of the backing. So I wouldn't use "not ideal" as the description as "ideal" for each of us varies with our risk tolerance and the objective(s) we seek.
The thing about leverage is it can work for you, and it can work against you. Simplistically - 2:1 leverage means you'll be earning 2x as fast (not quite actually); it also means that when the position goes against you, you can lose money 2x as fast. The more leverage, the faster that losses can accumulate, and the faster that you can achieve a max loss. There's no such thing as a free lunch and if you think you've found one, then you need to look harder (or be willing to look silly, and ask! Better to seem silly and find out, than be silent and lose $$).
For what it’s worth I also use margin in my taxable account, because hey, it’s there. And I’m not actually taking a margin loan and paying interest by selling put spreads. (Unless things go badly enough with the put spreads that I have to buy back at a loss that overwhelms my cash reserves.)
In my IRA, I sold enough shares to bring the cash balance up to $10,000 so I could start selling 2x $50 put spreads a week. I’m not yet willing to sell a substantial fraction to crank up the spread sales, so I’ll be checking out the power of compounding gains, as others have done with kids‘ accounts and etc.
bkp_duke
Well-Known Member
No, I do them on limit orders, usually above market a few %. Try to capitalize on some short-term fluctuations. Doesn't always work, however.
How did that work out for you?
Is there something you'd have done differently given the same situation, given what you know now? I think that it is broadly true that most of us have never experienced a broker sale on a margin call, and its not exactly something most of us will go seeking - what did it look like mechanically? Did you get any further warning besides the original margin call / balance? Did the broker close earlier than the margin call expiration date?
corduroy
Active Member
I think that literally every week. Restraint is definitely a key to trading like this, and it's not easy. But the one week we drop 20% you'll be glad you didn't open more.
I’m still short 8 x p750 and 12 x p780 for 10/22. Naked puts, cash secured. Total premium received three weeks ago: 105k. After today’s rise I could have closed the position for 14k, but I think IV is still too high. With a 65 point gap to my highest strike I feel comfortable enough to stay put until next Wednesday and maybe even until expiration. Q3 numbers will likely be good, but with the big run-up the chances of a sell the news drop are increasing. I will decide on Wednesday whether to buy back the puts.
I've had some thoughts about compounding gains using BPS. The math of using the gains to sell more, and more - it's alluring. The difficulty is that a max loss might be enough to wipe one out completely - or at least down to the income from the most recent sale.
What I've done - I've got my own number for the position size I'd like to be selling. Beyond that I'm letting the cash build up and not using it for BPS. I'm also not (yet) using it for shares or LEAPs, though I semi-expect that to change. The intention is to have at least 50% more cash than I'm using in my BPS position as I believe that'll be enough to recover from a bad trade. I might allow some or most of that 50% to be in leaps or shares - still deciding on that point.
I think that 50% will be enough as I believe that managing a losing position down to a 50% loss won't be all that difficult - I accomplished that on a position where in retrospect I didn't really know what I was doing
One thing I have figured out from previous paper exercises - a huge contributor to overall profitability is managing losers aggressively (keep 'em small). Managing losers aggressively leads me to a third idea to consider (NOT-ADVICE though!) - setup a small and really aggressive position. A position that is designed to put you into a losing situation that needs management. Not only to experience the mechanics of managing a losing position, but also the emotions.
And 50% extra cash plus a 50% loss leaves me continuing to sell the full position. But that's me and my choice.
The point is that 100% compounding is (MHO) pretty risky, as it keeps us exposed to a single big and bad move.
Yeah, keeping the leaps would have done better than my sold puts this week.
As opposed to the 4 weeks prior, when the puts (or covered calls) would have been better.
Still, it's all better than my savings account!
Next week? More shares and ITM (at least for now) puts.
Nice, I closed my 780s at ~$10, didn't expect them to get in the 8s today. Opened new, "i dare you" puts for next week at 855 ...
(I may be really bad at this)
I may have stumbled across a lesson today for the timing of rolling covered calls (and probably other things). After spending most of the morning tracking prices on a tranche of 101521C820 and various roll candidates:
- 820s went ITM
- SP rise began to look like it would probably continue, so 820s etc price would rise 1:1 with SP
- roll candidates would rise less fast, so difference would close
- rather than wait until the last half hour, I pulled the trigger at 3:03pm and got a $2.82 credit on market orders.
- At close, the difference was $0.13!!!
One idea to consider in favor of early and aggressive closes -- if the share price were to turn around on Monday then you might have a re-entry possibility at that time. By closing now at a relatively high price you might be able to double or triple dip
I've pulled that off previously - had something like 5 or 6 turns in a week going put to call, back to put. It works really well when it works; until it doesn't.
Mostly its an idea to have in mind. With $14k left to earn in the position, that's still some pretty good coin left to earn as well.
When today dawned, those $855 strike puts would have been a lot more daring than they ended the day at.
I was actively checking my order status all day and I saw the filled order and initially I thought maybe I had fat fingered an accidental buy order. I opened it and there’s a red sentence at the top “ this is a margin sell out order which cannot be canceled or replaced by the user“.
they closed the short call leg at the market for $0.08 and I had a limit order to close the entire condor for $0.05. Maybe that was optimistic?
their order definitely reduced my risk and I’m not harmed at all. I’m surprised though as the max loss was cash secured. Maybe they just don’t want the hassle of assigning me the shares and selling the shares.
I'm with a different broker but I've wondered about some stuff like this. My brokerage has me in a margin call (Federal call) despite my having 100% account equity and having more than enough cash to back my BPS. As all of my short positions are winning right now I'm letting it ride, but some insight into what the broker initiated order might look like is valuable to me.
Knowing that they're more likely to close the short position(s) both makes a ton of sense, and is also my preference.
Now if I only understood why I get a margin call on a position where I hold >120% cash for the backing needed for the position. I sense a conversation with my broker in the near future.
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