Wiki Selling TSLA Options - Be the House

[generalenthu]

Rolled up my 710/640 to 770/700, both for this Friday for a ~$1.2 credit. Not sure the credit was worth it, but the plan is to close half the exposure pre-earnings.

So thinking of Elon's sales to fund his taxes, I see there are 3 different options for him:

1. Sell all that's needed to fund his taxes.
2. Borrow all that is needed
3. A mix of 1 & 2 above

Of course Elons motivation would be to maximize his ownership stake in Tesla, while not getting overly leveraged. The precedent has been for him to take the #1 path, but at those points Tesla was a much riskier security. Also, #1 would mean a sale of ~12 million + shares, more than any offering Tesla has ever done, at least in $ terms.

I think #2 is very unlikely, purely from a leverage perspective. I see <10% chance of this happening.

I think #3 is the most likely approach, with him borrowing may be half and kicking the margin loan can down the road to next year, where he can pay it back with hopefully appreciated shares.

I think the most interesting part of all of this is a reflexive phenomenon, to borrow from Soros. If Elon sells only half of whats needed, that is a very clear message that he thinks there is further upside and it would perhaps let him sell the rest at higher prices next year. If I was gaming / brainstorming this with Elon, this would be my advice. Of course Teslarati made a valid point that there are too many irons in the fire for him and Elon needs no added stress from leverage, but keep in mind that Tesla's leverage has gone down substantially with the cash handily exceeding liabilities. Some of this can easily transform into a bit of leverage on Elon's personal balance sheet, without much of an issue.

Obviously this has implications for the post earnings trading, the reaction to news, and the best approach for options positioning.

 

[Nocturnal]

Well sugar. I might have to sell some CCs on this.

 

[EV forever]

Interesting. Mine has not changed. It is criminal that they can change this on customers and force a margin call.

Edit: It looks like mine did drop to 40%

Just to confirm- if the margin requirements next to the stock shows 40% then it means we have 60% of value available for margin, is that correct? About 95% of my account is Tesla about 5% is other stocks - some biotech stocks. The margin requirements are shown to be 40% next to Tesla and 30% next to all the other stock. I don’t think this is changed from last week. Also, I don’t get any margin from the LEAPS in this account.

All my BPS in this account closed this morning as it reached by GTC order at 75% profit. Have not opened anything new yet, may wait till tomorrow and open BPS directly for 10/29 now. This might be safer play than trying anything more for this week. I am not going to do any BCS although this does feel like ‘sell the news’ situation. Things could go crazy in either direction, so don’t want to risk too much.

 

[juanmedina]

I sold a few BCS 960/1000 for 3% return for this Friday. Maybe I am getting too greedy. I also sold more $950cc and $960lcc.

 

[PeterJA]

Maybe I'm missing something. I see folks here concerned that selling puts in the mid 700s is "too close to the sun" of a sell-the-news dip.

If TSLA dips $100 after earnings, I'd consider that a fantastic buying opportunity, since the share price is highly likely to go right back up in a few days or weeks as the news is digested and more catalysts arrive (Berlin, Austin, FSD Beta 11, etc.). What am I missing?

 

[TheTalkingMule]

My 10/29 800cs are pricing at $82 with the SP at $874. I think we need a new term for "implied volatility". Maybe "MM convenience ratio"?

 

[TheTalkingMule]

Maybe I'm missing something. I see folks here concerned that selling puts in the mid 700s is "too close to the sun" of a sell-the-news dip.

If TSLA dips $100 after earnings, I'd consider that a fantastic buying opportunity, since the share price is highly likely to go right back up in a few days or weeks as the news is digested and more catalysts arrive (Berlin, Austin, FSD Beta 11, etc.). What am I missing?

These guys are trading massive numbers of contracts that would make that very difficult. From a spare change perspective.

Edit: But yes, if you have the cash you are 1000% correct. It would more likely than not be a double win.

 

[Drezil]

Sold 900c (last friday), 930c & 950c.. and i kind of regret this.
I mean .. all backed by calls that expire months from now .. so i could roll up&out & hope for IV-crush/retraction on thursday.. not THAT nervous, but a bit unhappy that i coud have gotten a multiple of the premium ..

 

[cbh03]

Maybe I'm missing something. I see folks here concerned that selling puts in the mid 700s is "too close to the sun" of a sell-the-news dip.

If TSLA dips $100 after earnings, I'd consider that a fantastic buying opportunity, since the share price is highly likely to go right back up in a few days or weeks as the news is digested and more catalysts arrive (Berlin, Austin, FSD Beta 11, etc.). What am I missing?

For me, opportunity cost. I don't want to use up the rest of my allotted margin now and miss out on that "fantastic buying opportunity" such a dip would present.

 

[BornToFly]

These guys are trading massive numbers of contracts that would make that very difficult. From a spare change perspective.

Edit: But yes, if you have the cash you are 1000% correct. It would more likely than not be a double win.

Exactly. I have 2,000 BPS contracts with $50 spreads. Potential loss $10M if the SP drops to the long leg of the spread. The more we rise, the more a 10% drop is likely. We are well above the upper BB now. Rarely stays above it more than a few days.

 

[stealthyc]

Exactly. I have 2,000 BPS contracts with $50 spreads. Potential loss $10M if the SP drops to the long leg of the spread. The more we rise, the more a 10% drop is likely. We are well above the upper BB now. Rarely stays above it more than a few days.

Note that the upper bollinger band moves too (It's just 2 std dev from the 20 SMA), and as such the stock price does not need to retract sharply to fall back within the bands. Sideways movement will cause it too.

 

[AquaY]

It sounds to me like, with the rise in price of TSLA, you have become "overconcentrated". This causes them to reassess the margin rate just for you. The way out of this trap is to buy other stock, which you can't do because of the call... so you need to call the broker and tell them that you'll buy other stuff to reduce the concentration in TSLA. You said you had plenty of margin before this revaluation, so they should believe you.

I believe that's only for portfolio margin not Reg T account.
Given he didn't say what kind of margin acct I'm assuming it's the standard Reg T account.
BTW, TSLA is 40% at Etrade too.

Depending on the spreads he has on he might be able to close a couple to elevate the margin call then buy some closer to the money puts to narrow the spreads of his BPS which should reduce margin used.

 

[PeterJA]

For me, opportunity cost. I don't want to use up the rest of my allotted margin now and miss out on that "fantastic buying opportunity" such a dip would present.

But selling puts at the low strike price is locking in the buying opportunity, if it comes, not missing it. In fact, you are getting paid to lock in the opportunity.

 

[M3Rider]

Maybe I'm missing something. I see folks here concerned that selling puts in the mid 700s is "too close to the sun" of a sell-the-news dip.

If TSLA dips $100 after earnings, I'd consider that a fantastic buying opportunity, since the share price is highly likely to go right back up in a few days or weeks as the news is digested and more catalysts arrive (Berlin, Austin, FSD Beta 11, etc.). What am I missing?

Fundamentals have not been driving SP very much in the past. Short term.

Short term, option players like MM could prevail and kill the most options per max pain if they have enough fire power and the volume is low.

You might be betting against the house and on the institutional volume in this case.

And I think in the past institutions would take a couple of days after ER to digest and decide if they want to buy.

 

[PastorDave]

I closed my IC (700/720/880/900) for about a $4.6 per contract loss, and opened some 910cc @ $5 and again at $8. Also transformed my 11/26 600c to 11/26 700c as planned. Also have closed a few BPS that were 70-80% profitable. I have a lot (for me) of cash sitting around that I'm scared to deploy. I'll probably wait for a dip after earnings to deploy the cash or put on an IC far OTM on Wednesday to take advantage of IV crush.

 

[cbh03]

But selling puts at the low strike price is locking in the buying opportunity, if it comes, not missing it. In fact, you are getting paid to lock in the opportunity.

Sorry, I should have been more clear. I am trading BPS right now, so I am hesitant to use all of my margin at this high SP. If we get a significant pullback post earning call, then I would be much more comfortable selling additional BPS at that time. I am not looking to buy shares on margin.

 

[PeterJA]

Just to confirm- if the margin requirements next to the stock shows 40% then it means we have 60% of value available for margin, is that correct?

Yes. Schwab has a 40% margin requirement for TSLA, and has not changed it for at least a year, I think.

 

[juanmedina]

Exactly. I have 2,000 BPS contracts with $50 spreads. Potential loss $10M if the SP drops to the long leg of the spread. The more we rise, the more a 10% drop is likely. We are well above the upper BB now. Rarely stays above it more than a few days.

The $1M a week club .

Yes. Schwab has a 40% margin requirement for TSLA, and has not changed it for at least a year, I think.

E-trade used to be 30% at the beginning of the year is now 40% for me.

 

[Tslynk67]

Sold 900c (last friday), 930c & 950c.. and i kind of regret this.
I mean .. all backed by calls that expire months from now .. so i could roll up&out & hope for IV-crush/retraction on thursday.. not THAT nervous, but a bit unhappy that i could have gotten a multiple of the premium ..

You gotta do what you do when you do it, based on what you know/think at that moment, impossible to predict this run-up

 

[PeterJA]

Sorry, I should have been more clear. I am trading BPS right now, so I am hesitant to use all of my margin at this high SP. If we get a significant pullback post earning call, then I would be much more comfortable selling additional BPS at that time. I am not looking to buy shares on margin.

Understood, thanks. How many BPS do you need to sell to equal a $100 gain in the share price?