Wiki Selling TSLA Options - Be the House

[Yoona]

Next time don't sell stock to get cash to buy the protective put. Just call them and they will help you buy the Put even though you are in a Margin call, because they know that buying the Put will make your margin call go away.

ooohhh, i like this neat tip! Works also if acct is locked during a timeout or margin call, so the workaround is to let the call center do the buy.

 

[BornToFly]

Also good suggestion about margin calculator - didn't think about that either. That's why this group is so great - learning things that you didn't think of. Just tried the margin calculator - looks like I could tolerate a drop to 500 without getting in negative with house surplus!

The other thing to know is the margin calculator is using today's margin % granted from you shares. If things get really volatile they can change the rules on you, and give you access to only 40% of your account value instead of 60% (or what ever it is right now). So you suddenly go from ok to Margin Call. I swear they rig it so they get folks like us to sell our shares at the lows so that they can buy them from us cheaply when we are down....

 

[AquaY]

Next time don't sell stock to get cash to buy the protective put. Just call them and they will help you buy the Put even though you are in a Margin call, because they know that buying the Put will make your margin call go away. Unfortunately, I had to deal with similar margin calls several years ago before I learned my lesson as well, so I know this from experience. Also, don't just pick a random number for margin (like 50%). Use the margin calculator tools and see how much margin you will actually have if the stock drops to 620, or what ever low number you worry about.

What margin calculator do you use?

 

[BornToFly]

What margin calculator do you use?

Hopefully your brokerage has one. Fidelity has a link on the bottom of the Balances page.

 

[AquaY]

Hopefully your brokerage has one. Fidelity has a link on the bottom of the Balances page.

Nope. They have a margin calculator but it only calcs how much margin an individual trade will take.

 

[M3Rider]

Once you get a margin call, there is very little you can do except add cash in some way - often by liquidating stock, but now you are selling the stock at low price. Then I saw posted here that one way to resolve the problem is to buy some cheap puts - effectively creating a spread.

I heard about buying puts, but not in detail, so did not have time back then to figure it out.

I figured I needed to lower the number of puts I hold. So, first I sold shares to resolve the call, then for every 4 closed puts I would sell 3 longer dated, so the extra commission for the time would pay for the losses I was taking. Lowered strikes too, going from 700 to 650.
I was quite sure EOY would be a nice recovery.
After I released extra margin with this I would re-purchase the shares I sold. So I got shares cheaper than I sold them for

 

[EV forever]

Nope. They have a margin calculator but it only calcs how much margin an individual trade will take.

Fidelity allows both - calculations for a hypothetical trade as well as price change calculation
Here is how it looks

 

[adiggs]

Good stuff. I seem to see that rather than do a 630/730 that needs managing below 730, just start with 2x 630/680s and have more safety/headroom from the start.

I can see that. I put that particular example into a trade ticket - it looks like the 2x low end of the range was collecting 2/3rds as much premium as the full range. is that about what you get and expect?

Your thought makes sense to me. And going to these really distant strikes - that makes sense to me as well.

If a position starts going bad, get out quickly, even if at a loss. Hence not selling any BCS at this time, premiums are not worth the risk of sudden spike up in SP. A few weeks back I took 20K loss on a BCS position that would have netted <1K of max profit in premiums.

The last bit is worth reinforcing. More generally when we sell an option or a spread, we are created a defined benefit with undefined loss position. Meaning that we'll never earn more than 100% of the premium we receive up front, but the loss is undefined. Well when I sell a 700 strike put and the shares go to 0, then I'll owe $70k. Not undefined loss but huge compared to the $ or 3 in premium up front.

Or as happened in the quote above - a position that brought in a $1 credit cost $20 to get out of. We can lose money really fast. Thus all the attention to managing losers.

I'm not filling quarterly. Penalty in the past has been small, and having the extra cash for the year helps make a lot more money in the end. But yes, I'm paying way more than my fair share to support all the government spending with my 7 figure tax bills. I would much rather give it to medical research, Children's hospitals, after school programs, etc.

Somebody else mentioned that the 'penalty' is really a loan that currently carries a 4% interest rate. If I'm getting 4%/week then the taxes due will be a lot higher, further increased by the loan rate, if I hold onto the cash for the year. Heck - the taxing authorities should be happy that I didn't send in the quarterly estimated tax.

Here here for 7 figure tax bills!

 

[mickle]

I'm not filling quarterly. Penalty in the past has been small, and having the extra cash for the year helps make a lot more money in the end. But yes, I'm paying way more than my fair share to support all the government spending with my 7 figure tax bills. I would much rather give it to medical research, Children's hospitals, after school programs, etc.

If you skip the quarterly payments, it's a net positive for the government too. You make more, and your yearly tax payments are higher, plus they get to collect penalties. There should really be an incentive for this behavior.

 

[BornToFly]

I can see that. I put that particular example into a trade ticket - it looks like the 2x low end of the range was collecting 2/3rds as much premium as the full range. is that about what you get and expect?

Yes, or you can split the difference, and do 2x 650/700 instead of 1x 630/730 for a more similar premium. Now danger level of 680 is similar, but the $50 spread stays out of the money longer. I'm still playing and learning.

 

[Yoona]

Yes, or you can split the difference, and do 2x 650/700 instead of 1x 630/730 for a more similar premium. Now danger level of 680 is similar, but the $50 spread stays out of the money longer. I'm still playing and learning.

are you sure you're the one learning? this is yet another tip tonight i'm taking note of.

 

[samppa]

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.

I've had this happen at IBKR. I had a short put just itm, was waiting to see how the price develops, and about 30min before market close IB liquidated the short. Then I got a notification of a forced liquidation.

IB doesn't do margin calls, instead they automatically liquidate, apparently algos check your positions around 30min before close. You can spesify some "liquidate last" attributions to your positions, I haven't really looked into that.

I guess default behavior is to buy back the short, if you have the cash/margin. If not, then they start liquidating shares.

 

[Tslynk67]

Thank you. Yes this thread is very valuable. I am in my mid twenties so I have a long way to go, but was lucky to invest in Tesla in 2019 and hold ever since. Earlier today I sold a Oct 22 $860 covered call, which I already regret doing. We'll see how this goes.

Wow, wish I'd been in this position when I was your age, that being said, my judgement back than wasn't the best

Good for you to sell a single covered call that you now regret - I started with single calls and puts, many of which lost money, I see it now as a necessary element of the practical education - almost apprenticeship, in fact - to get where I am today. Practical experience is essential to play this game, not just the mechanics of the trades, but how to deal with the whole raft of emotions that get bundled for free

 

[mongo]

Forgive the newbie question please — as I start to learn about BPS, how does collateral or cover work? I don’t see mention of this in what I’ve read so far. With covered calls, you have to own 100 TSLA per contract written, is there a similar need perhaps in cash when writing a BPS? In other words, what do I have to have in the account to start writing BPS? The account is currently close to 100% equities.

Your at risk is the difference in strike * 100. Margin varies by broker and portfolio make up.

600/685 -> short (sold) leg is 685, so you are on the hook to buy shares at 685 which may then drop further in value. However, the long (bought) leg at 600 sets a floor for the minimum share price.

Net worst case, you end up buying at 685 and selling at 600 for a $85 loss per share, $8,500 loss per contract.
If using margin on a TSLA heavy account, the account value is dropping with the share price also.

 

[doddiozil]

I executed my first trade, following the same spread I was asking about earlier. Traded BPS 675/620 10/29 x100, collected $18k in credit, and I sincerely hope we don't sell off enough after earnings to sniff under 700 again. If this works out, I'll keep on trading deep OTM BPS because it's way safer than selling cash secured puts much closer to the money while collecting less premium per put.

If this is truly the wave of the future then I have secured the retirement income and cash generation I need and I will move forward with my other plans.

What was the total amount of margin required to do this trade?

 

[CHGolferJim]

Your at risk is the difference in strike * 100. Margin varies by broker and portfolio make up.

600/685 -> short (sold) leg is 685, so you are on the hook to buy shares at 685 which may then drop further in value. However, the long (bought) leg at 600 sets a floor for the minimum share price.

Net worst case, you end up buying at 685 and selling at 600 for a $85 loss per share, $8,500 loss per contract.
If using margin on a TSLA heavy account, the account value is dropping with the share price also.

Thanks, so is it required or merely wise to have $68,500 in cash per contract if trading in a Roth account without margin?

I’m trying to figure out if raising a significant amount of cash is required, and how to balance BPS against CC writing which I think I understand pretty well and which I can do with a minimal cash reserve.

 

[bonk3125]

Thanks, so is it required or merely wise to have $68,500 in cash per contract if trading in a Roth account without margin?

I’m trying to figure out if raising a significant amount of cash is required, and how to balance BPS against CC writing which I think I understand pretty well and which I can do with a minimal cash reserve.

If no margin, then it is required to have the cash to pay the piper in case SP goes down and you suffer max loss.

In that example, it would be $8500 you would need for a BPS. You’d need $68500 if you were selling a regular $685 strike put. In a Roth, you would need limited margin privileges allowed (for spreads) in order to trade BPS.

Others please correct me if I’m wrong.

 

[mongo]

Thanks, so is it required or merely wise to have $68,500 in cash per contract if trading in a Roth account without margin?

I’m trying to figure out if raising a significant amount of cash is required, and how to balance BPS against CC writing which I think I understand pretty well and which I can do with a minimal cash reserve.

I believe it is required to have that much available, the short call could be assigned at any point, and the broker isn't going to gamble on stock price being higher than the long put.

Depending on the broker, you can't use the long put to offset the short, so you would need 68k per contract to sell the puts and the whole leverage thing doesn't work.

Fidelity has level 2+ which allows spreads. Vanguard does not, so I closed some long calls to free cash to sell puts... Then the stock jumped. Gains, but not as much as if I'd sat on my hands.

 

[BrownOuttaSpec]

Anyone use Tastyworks.com as their platform? Their website looks like a joke, but did a little research on them and they are legit. I am wanting to use the BPS strategy (I own TSLA stocks and very little cash, wanted to use margin to back the BPS trades) in my IRA and ROTH IRA and don't have that option with Vanguard but Tastyworks appears to offer that.

Thanks to everyone in this thread (and the lightly used Slack Channel) for all the info and their trade positions to get a better understanding of how this all works.

P.S. The BPS strategy is working great in my taxable investment account with e*trade.

 

[Drezil]

Thanks, so is it required or merely wise to have $68,500 in cash per contract if trading in a Roth account without margin?

I’m trying to figure out if raising a significant amount of cash is required, and how to balance BPS against CC writing which I think I understand pretty well and which I can do with a minimal cash reserve.

It is wise to have that.
Requirements CAN change from broker to Broker.

I don't know the details about Roth accounts, but in "normal" margin accounts brokers calculate the expected loss (as function of volatility) and then add a threshold. Also this can change much.

A year ago I usually had to only put up about 10% or so of the max-loss as margin. Oder 2021 the seem to have had problems with customers. Now they require more like 80% of max loss. And only give you 50% as margin on your shares compares to cash (was 80% or so).

A year ago margin-requirements could change hard with minimal stock movements. Now I use 80%+ margin in a regular basis. Even had margin requirements go down(!) On SP drops...
I also have 200 AMD shares (~20k) that only cost 74$ margin. ARKQ also has only a 10% margin-impact - meaning I get to keep 90% of that value as margin.

But every broker does this different. Also within the broker things can be different. Portfolio margin, reg-t margin, lombard-debt, etc. are all calculated different with different reasons. Then add different "levels" of margin trading (only cash secured, margin against shares, margin over several connected accounts (like wife, children,..))..

So it's hard to give very general advice.
But I could be wrong and Roth have very strict rules and only allow one certain thing - but I doubt that..