Wiki Selling TSLA Options - Be the House

[adiggs]

Holy Sh*t. I finally see the light regarding wide spreads, mainly because of something you have said earlier, and that is that wide spreads behave more like naked Puts. What do I know about naked Puts - you can be ITM and basically roll the same strike forever as long as there is enough time value and cost to prevent the owner from assigning the shares. It doesn't work with $50 spreads, because the long leg is too expensive. But with really wide spreads, the long leg is just there for margin management. It is so cheap, that I don't care what I sold the long leg that I'm closing for.

Example of $50 vs $200 wide spread:
1050/1000 - to Close for this week costs $20, and the same strike next week gets you $20. Gain = 0
1050/850 - to close this week costs $25.2, and the same strike next weeks earns you $44.55-6.65 = $37.9. Gain $22.7!!!!

Wow. Ok. I need more time to look at this more closely, but I think a small light bulb just went off in my thick skull.

Edit: I won't sell 1050/850 BPSs, just using those numbers. But if sold 800/600 and they went ITM, I wouldn't care. Probably roll the 800/600 for ever.

I've found myself beginning to think about $300 wide spreads. As a practical matter the spread width needs to be wide enough that the long put is really cheap margin management (as you say) and the overall position behaves like short puts - which we already know and love. The spread width is going to vary with IV and share price. A $200 wide spread with shares at $5000 is going to be ... not enough

I'd like to figure out a ratio - I think I'm in the neighborhood of 4:1, so an 800 share price and a 200 wide spread match up. With shares where they are I should probable move up to 250 wide spreads, and widen again to 300 at a 1200 share price. I like to keep multiples of 4 or even 8 as I have simple 2 for 1 management choices available (1/2 spread width, 2x contracts) more than once. But I can do a 3 for 2 or other ratio change as well - I am, in theory, a mathematician after all.


Amusing to me I saw others talking about these things from Feb through to June and never did see how they mattered to me and my small stack of 760 puts when shares were low 600s. Took me like 5 months for the light bulb to show itself to me


EDIT to add: Using those 800/600s as an example and keeping in mind that the midpoint is the end of effective rolls, and nearing the midpoint is worse and worse quality rolls, my guess is you'd want to roll those down to 500/700s with shares in the mid/lower 600s or better. Or use wider spreads. But the way I see it the principle is the same. The wide spread gives you time to roll with the punches the way that the narrow spread doesn't.

I've settled on 100s but this week has been tumultuous enough watching from the sidelines and thinking about what a black swan into my put spreads would be like, I think I'm ok with $200 wide spreads as my norm.

I have never seen Fidelity show a wash sale on options. If they cost vastly different amounts, with different strikes or expiration, by definition, they can't be essentially the same security. If they were, they would cost the same.

I've seen Fidelity flag trades as wash sales. They've invariably been mistakes or close to it. The first time - I had a position that I did a buy to close out of one spread. Then when I found the new spread, I did a buy to open that same strike, and that seemed to do the job. I've seen some others.

I've seen enough different sources - the tax law around options seems to be that options needs to be identical for wash sales to apply. Same underlying, expiration, strike - everything. (IANA Tax Lawyer or CPA - do your own due diligence). Its my understanding (as I set out above) that wash sales are meaningful in the last month of the year as the losses that are subject to wash sales get bundled into the successor position which if closed in the new year would pull the loss into the new tax year, rather than enabling the loss to be takenin the just ended tax year.

 

[Drezil]

something to think about after-hours...

interesting meeting with my bank today; they offered to increase my margin room by 75% if i give them half my cash; in return, i will receive "preferential institutional 1% margin rate compared to market 4%"

for example, if my trading acct is $2000, bank is suggesting to split it into 2 accts:
- TA (my existing trading acct) $1000
- BMA (new bank-managed acct) $1000

BMA will be managed by bank on their funds or safe growth investments (aka GIC, dividends, etc) or equity funds, whatever i want

TA will have new $750 margin aka nearly-free line of credit; new total size $1750; the collateral of the LOC is BMA

therefore, new grand total playroom = $2750 (instead of the existing $2000)
- TA $1750
- BMA $1000

disadvantage:
- TA size is reduced from $2000 to $1750 (ie less options capital, but only by 12.5% really)
- BMA is growing dramatically less (ie 6% compounding annual growth?) compared to TA's weekly 1%

advantage:
- i have investment diversification and risk spread out
- BMA will compound annually as super passive income
- if i blow up TA on black swans, i have BMA as backup annual income and i won't be the next McDonald's cashier

what would you do... assume options trading is your fulltime dayjob
- accept? click love
- decline? click funny
- not sure? that's OK!

With 8 figures I would split it. With only 7 figures the money you give up is too much imo

 

[tradenewbie]

Unfortunately, I’m still “holding” my -c800s. Not enough money to buyback and roll. I can’t remember, but probably sold them initially for $3-5/sh and they are now $250 or so. Yesterday, I looked at rolls and I couldn’t even get a $5 improvement in strike. Not worth the effort. This is exactly why selling options works until it doesn’t. Thankfully, these are CCs and not spreads. I fully expect to “sell” shares on Saturday and then start selling CSPs on Monday, only $250 behind. If I’m lucky (or better at trading than this month), I’ll somehow manage to get $20/sh/wk selling puts. Damn, and I was so close to my share target last month.

I am even worse, I still have one of my cc 750 which I have kept rolling for quite sometimes already. I just roll again to next week to same strike with only around $1 credit. (During the rolling past few months, most of the time it seems rolling on Wednesday would be better off to roll than any other day, esp. thurs/fri). Since the SP has shoot off, I am thinking it would be very difficult to keep rolling forever since it's so deep ITM now.

Wondering about few options:
1) Just go ahead to sell shares, and start selling CSP every week and generate better premium and wish it will come back one day
2) Roll to 2022/2023 and get the maximum strike improvement
3) Flip it to put to 2022/2023 and get the best lowest strike, but it will cost a lot to hold my money (I can use less money if I change it to BPS, but the strike of short leg would be much higher than normal csp because of the expensive long leg as well)
4) Keep rolling forever, take an average of $2-3 debit to roll in order to get a $5 strike improvement

 

[jeewee3000]

Unfortunately, I’m still “holding” my -c800s. Not enough money to buyback and roll. I can’t remember, but probably sold them initially for $3-5/sh and they are now $250 or so. Yesterday, I looked at rolls and I couldn’t even get a $5 improvement in strike. Not worth the effort. This is exactly why selling options works until it doesn’t. Thankfully, these are CCs and not spreads. I fully expect to “sell” shares on Saturday and then start selling CSPs on Monday, only $250 behind. If I’m lucky (or better at trading than this month), I’ll somehow manage to get $20/sh/wk selling puts. Damn, and I was so close to my share target last month.

I am even worse, I still have one of my cc 750 which I have kept rolling for quite sometimes already. I just roll again to next week to same strike with only around $1 credit. (During the rolling past few months, most of the time it seems rolling on Wednesday would be better off to roll than any other day, esp. thurs/fri). Since the SP has shoot off, I am thinking it would be very difficult to keep rolling forever since it's so deep ITM now.

Wondering about few options:
1) Just go ahead to sell shares, and start selling CSP every week and generate better premium and wish it will come back one day
2) Roll to 2022/2023 and get the maximum strike improvement
3) Flip it to put to 2022/2023 and get the best lowest strike, but it will cost a lot to hold my money (I can use less money if I change it to BPS, but the strike of short leg would be much higher than normal csp because of the expensive long leg as well)
4) Keep rolling forever, take an average of $2-3 debit to roll in order to get a $5 strike improvement

I've been theorycrafting about these situations and want to present one (bullishly minded) option that is probably not profit-maximizing but more of a "set it and forget"-fix, to get rid of the stress.

Specifically I looked at @ReddyLeaf 's case where he/she is stuck with a sold 800cc @$250.

I'm assuming you are as bullish as most on TMC and we assume TSLA will make it to multiples of the current stock price some time in the future.

You could flip the sold CC into a BPS. With current options pricing (will swing some more given the premarket rise) you could convert your 800cc into a $300 wide BPS: -2000p/+1700p for expiration at June 2023. (My broker hasn't added further out expirations unfortunately).

This would net you an ever so slight credit of $5.48 and would require $30k cash to be locked up as margin till June 2023. Then, either the stock is $+2000 and you saved your shares or you roll out further.

Pros:
+ no need to look at it ever again, probably will work out ok
+ you keep your shares
Cons:
- slight (very low) risk of early exercise by the $2000 put buyer in which case you have to exercise your $1700 put also and cough up the difference. (30k)
- you lock up $30k for a long time, not being able to make money of it.

After typing the whole thing out, this strategy seems terrible since the call is priced too high right now and you have to go out too far (expiration date) and too ITM (strike price) on the BPS.

However, you could first roll the cc some more - same strike week by week - and do the above strategy on the first major dip. If the stock were to dip to say $900 you could flip to a more reasonable BPS which you could close out when we go back to ATH.

The main thing to consider for yourself is: do you believe the stock will ever drop below $800 again? If not and you think the rally has only started, flipping to BPS might work out for you better to drop the value of that $250 hole you are in. (And nothing would prevent you from flipping the BPS back to a higher striked covered call when you believe the stock has reached a local high, therefore trading the peaks and valleys to erode the position faster than the set-it-and-forget-it strat).

If you think you can make more money by letting the call exercise and use the $80k to sell spreads or puts against, then that is what you should do.

TL;DR: do the math for yourself, comparing all options (no pun intended).

 

[DaveG_NJ]

Unfortunately, I’m still “holding” my -c800s. Not enough money to buyback and roll. I can’t remember, but probably sold them initially for $3-5/sh and they are now $250 or so. Yesterday, I looked at rolls and I couldn’t even get a $5 improvement in strike. Not worth the effort. This is exactly why selling options works until it doesn’t. Thankfully, these are CCs and not spreads. I fully expect to “sell” shares on Saturday and then start selling CSPs on Monday, only $250 behind. If I’m lucky (or better at trading than this month), I’ll somehow manage to get $20/sh/wk selling puts. Damn, and I was so close to my share target last month.

Same here (-c800s). Was able to keep pace rolling as the stock clawed through the 600's and 700's, and back then would have been thrilled to see 800, but this one got away from me. Still thinking about rolling up and out vs letting the shares go and switching to CSPs. Happy for those of you who are flush!

 

[AquaY]

something to think about after-hours...

interesting meeting with my bank today; they offered to increase my margin room by 75% if i give them half my cash; in return, i will receive "preferential institutional 1% margin rate compared to market 4%"

for example, if my trading acct is $2000, bank is suggesting to split it into 2 accts:
- TA (my existing trading acct) $1000
- BMA (new bank-managed acct) $1000

BMA will be managed by bank on their funds or safe growth investments (aka GIC, dividends, etc) or equity funds, whatever i want

TA will have new $750 margin aka nearly-free line of credit; new total size $1750; the collateral of the LOC is BMA

therefore, new grand total playroom = $2750 (instead of the existing $2000)
- TA $1750
- BMA $1000

disadvantage:
- TA size is reduced from $2000 to $1750 (ie less options capital, but only by 12.5% really)
- BMA is growing dramatically less (ie 6% compounding annual growth?) compared to TA's weekly 1%

advantage:
- i have investment diversification and risk spread out
- BMA will compound annually as super passive income
- if i blow up TA on black swans, i have BMA as backup annual income and i won't be the next McDonald's cashier

what would you do... assume options trading is your fulltime dayjob
- accept? click love
- decline? click funny
- not sure? that's OK!

what are the rules for going forward?
Do you have to periodically rebalance portfolio and give them 1/2 to manage? So it's kept 50/50 or is this a one time thing?
What about future funds. If you acquire capital elsewhere can you put it all in your trading account?
Can you withdraw funds from the bank side for expenses? Say you want to buy a new S plaid can you use the money in the BMA?

 

[traxila]

something to think about after-hours...

interesting meeting with my bank today; they offered to increase my margin room by 75% if i give them half my cash; in return, i will receive "preferential institutional 1% margin rate compared to market 4%"

for example, if my trading acct is $2000, bank is suggesting to split it into 2 accts:
- TA (my existing trading acct) $1000
- BMA (new bank-managed acct) $1000

BMA will be managed by bank on their funds or safe growth investments (aka GIC, dividends, etc) or equity funds, whatever i want

TA will have new $750 margin aka nearly-free line of credit; new total size $1750; the collateral of the LOC is BMA

therefore, new grand total playroom = $2750 (instead of the existing $2000)
- TA $1750
- BMA $1000

disadvantage:
- TA size is reduced from $2000 to $1750 (ie less options capital, but only by 12.5% really)
- BMA is growing dramatically less (ie 6% compounding annual growth?) compared to TA's weekly 1%

advantage:
- i have investment diversification and risk spread out
- BMA will compound annually as super passive income
- if i blow up TA on black swans, i have BMA as backup annual income and i won't be the next McDonald's cashier

what would you do... assume options trading is your fulltime dayjob
- accept? click love
- decline? click funny
- not sure? that's OK!

Congratulations with all your success!

Does the bank turn promise not to turn around and put the screws on your extra margin if they suddenly decide that they don’t like something or market conditions turn “unfavourable”?

So sick of bankers….

 

[jeewee3000]

I have $TSLA FOMO right now, so looking to get back into LEAPS

Planning to go oTM with 40x c1200 and immediately set 11/5 lcc1200's against them

Any objections?

We're in price exploration mode so this could work perfectly. Or not if we gap fill back to the low 900's.

What expiration are you thinking of? 2024?

 

[Drezil]

Thought you were a DITM LEAPS kind of guy?

just wait 6 months, then they are DITM ..

the 600$ LEAPs i bought some time ago (when they were ATM) are now DITM ..

 

[bkp_duke]

What's the "not advice" on an Iron Condor for 10/29?

Was eyeing 930/980 1150/1200. Too close to the sun? Options profit calculator gives it a 98.5%, but somehow that just seems falsely high to me.

 

[st_lopes]

something to think about after-hours...

interesting meeting with my bank today; they offered to increase my margin room by 75% if i give them half my cash; in return, i will receive "preferential institutional 1% margin rate compared to market 4%"

for example, if my trading acct is $2000, bank is suggesting to split it into 2 accts:
- TA (my existing trading acct) $1000
- BMA (new bank-managed acct) $1000

BMA will be managed by bank on their funds or safe growth investments (aka GIC, dividends, etc) or equity funds, whatever i want

TA will have new $750 margin aka nearly-free line of credit; new total size $1750; the collateral of the LOC is BMA

therefore, new grand total playroom = $2750 (instead of the existing $2000)
- TA $1750
- BMA $1000

disadvantage:
- TA size is reduced from $2000 to $1750 (ie less options capital, but only by 12.5% really)
- BMA is growing dramatically less (ie 6% compounding annual growth?) compared to TA's weekly 1%

advantage:
- i have investment diversification and risk spread out
- BMA will compound annually as super passive income
- if i blow up TA on black swans, i have BMA as backup annual income and i won't be the next McDonald's cashier

what would you do... assume options trading is your fulltime dayjob
- accept? click love
- decline? click funny
- not sure? that's OK!

Welcome to the Canadian private banking world. I’m surprised they didn’t try to convince you to stack the LoC funds.

Take the 750 put it in BMA and they’ll give you up to another 1250. So actually 2x leverage if you reinvest the capital in a BMA.

All depends on where you are in terms of financial situation and what your risk tolerance levels are. It definitely is an interesting way to diversify. Especially when you also consider that some BMA will provide you structured pay out solutions with capital protection (eg 5-7% annual payouts with guaranteed capital). Compare that to the 1% interest rate and it’s an easy way to lock in cash flows while mitigating downside risk. Then again, so is real estate.

That said, 5-7% doesn’t FEEL impressive anymore… thanks Tesla…

Also anything in the BMA is untouchable from options selling purposes (may be able to sell CCs but not much else).

 

[winfield100]

something to think about after-hours...

interesting meeting with my bank today; they offered to increase my margin room by 75% if i give them half my cash; in return, i will receive "preferential institutional 1% margin rate compared to market 4%"

for example, if my trading acct is $2000, bank is suggesting to split it into 2 accts:
- TA (my existing trading acct) $1000
- BMA (new bank-managed acct) $1000

BMA will be managed by bank on their funds or safe growth investments (aka GIC, dividends, etc) or equity funds, whatever i want

TA will have new $750 margin aka nearly-free line of credit; new total size $1750; the collateral of the LOC is BMA

therefore, new grand total playroom = $2750 (instead of the existing $2000)
- TA $1750
- BMA $1000

disadvantage:
- TA size is reduced from $2000 to $1750 (ie less options capital, but only by 12.5% really)
- BMA is growing dramatically less (ie 6% compounding annual growth?) compared to TA's weekly 1%

advantage:
- i have investment diversification and risk spread out
- BMA will compound annually as super passive income
- if i blow up TA on black swans, i have BMA as backup annual income and i won't be the next McDonald's cashier

what would you do... assume options trading is your fulltime dayjob
- accept? click love
- decline? click funny
- not sure? that's OK!

start looking for another bank

 

[buttershrimp]

I have never seen Fidelity show a wash sale on options. If they cost vastly different amounts, with different strikes or expiration, by definition, they can't be essentially the same security. If they were, they would cost the same.

If you are right... then you are my new friend. I hope you are right... I got a gnarly tax bill yesterday from the job that I'm good at. I'd like to cancel out that bill somehow with the job I am currently bad at ..... sloppy options trading.

 

[BornToFly]

What's the "not advice" on an Iron Condor for 10/29?

Was eyeing 930/980 1150/1200. Too close to the sun? Options profit calculator gives it a 98.5%, but somehow that just seems falsely high to me.

After the burn I just got, way to close to the sun for me....

 

[stealthyc]

I have never seen Fidelity show a wash sale on options. If they cost vastly different amounts, with different strikes or expiration, by definition, they can't be essentially the same security. If they were, they would cost the same.

It is my understanding that it's a gray area that has not been well defined by the IRS, and doesn't have much at all to do with strikes or expiration, but rather the potential upside of a given option. Here's a discussion:

Substantially Identical Securities | www.optionstaxguy.com

Discussion of what and, more importantly, what does not comprise a substantially identical security for wash sale purposes

www.optionstaxguy.com

 

[ammulder]

something to think about after-hours...

interesting meeting with my bank today; they offered to increase my margin room by 75% if i give them half my cash; in return, i will receive "preferential institutional 1% margin rate compared to market 4%"

for example, if my trading acct is $2000, bank is suggesting to split it into 2 accts:
- TA (my existing trading acct) $1000
- BMA (new bank-managed acct) $1000

BMA will be managed by bank on their funds or safe growth investments (aka GIC, dividends, etc) or equity funds, whatever i want

TA will have new $750 margin aka nearly-free line of credit; new total size $1750; the collateral of the LOC is BMA

therefore, new grand total playroom = $2750 (instead of the existing $2000)
- TA $1750
- BMA $1000

disadvantage:
- TA size is reduced from $2000 to $1750 (ie less options capital, but only by 12.5% really)
- BMA is growing dramatically less (ie 6% compounding annual growth?) compared to TA's weekly 1%

advantage:
- i have investment diversification and risk spread out
- BMA will compound annually as super passive income
- if i blow up TA on black swans, i have BMA as backup annual income and i won't be the next McDonald's cashier

what would you do... assume options trading is your fulltime dayjob
- accept? click love
- decline? click funny
- not sure? that's OK!

I think it's a good idea to have some shares in things other than TSLA. Though a catastrophic black swan is unlikely, it is possible, and it would be nice to have a reserve to fall back on. It is true that you'd be reducing your earnings potential by doing this, but the question is, by how long/how much? Many in this thread seems to be projecting gains of at least 2% per week, which comes out to about a year to double your portfolio. If that's realistic, it would set you back a year to put half your portfolio aside as an emergency reserve. I would take that deal. If you want to be more conservative and say it would take 3-5 years to make up the amount set aside, that's more questionable. If it was going to take 10 years, I'd definitely set aside less.

I am forced into this by a 401k for my current employer that I can't get the money out of and can't invest in TSLA or TSLA-heavy funds, etc. I was grumpy about that at first, but it saved a lot of stress and marital friction (my spouse would have been super-unhappy making our entire financial future dependent on TSLA), and I'm coming around to the idea that it was a good thing. Of course, I have a family and kids likely going to college, so there's more futures at risk here than just my own, which changes the arithmetic.

A key question is, if you were going to set something aside, would it be better to just put whatever you set aside into an index fund or something rather than let your bank manage it?

Finally, I wouldn't use increased margin offered by the bank or provided by the set-aside investment. There's no point to this if a black swan can not only wipe out your TSLA assets, but also wipe out the supposedly "safe" ones.

 

[tradenewbie]

I decided to close my -1200/1300 with a net profit of $0.8, still very scared about what happened to me on Monday...
If there is a rise of SP later today, will open -1250/1350 instead during the rise

 

[EVCollies]

I think it's a good idea to have some shares in things other than TSLA. Though a catastrophic black swan is unlikely, it is possible, and it would be nice to have a reserve to fall back on. It is true that you'd be reducing your earnings potential by doing this, but the question is, by how long/how much? Many in this thread seems to be projecting gains of at least 2% per week, which comes out to about a year to double your portfolio. If that's realistic, it would set you back a year to put half your portfolio aside as an emergency reserve. I would take that deal. If you want to be more conservative and say it would take 3-5 years to make up the amount set aside, that's more questionable. If it was going to take 10 years, I'd definitely set aside less.

I am forced into this by a 401k for my current employer that I can't get the money out of and can't invest in TSLA or TSLA-heavy funds, etc. I was grumpy about that at first, but it saved a lot of stress and marital friction (my spouse would have been super-unhappy making our entire financial future dependent on TSLA), and I'm coming around to the idea that it was a good thing. Of course, I have a family and kids likely going to college, so there's more futures at risk here than just my own, which changes the arithmetic.

A key question is, if you were going to set something aside, would it be better to just put whatever you set aside into an index fund or something rather than let your bank manage it?

Finally, I wouldn't use increased margin offered by the bank or provided by the set-aside investment. There's no point to this if a black swan can not only wipe out your TSLA assets, but also wipe out the supposedly "safe" ones.

I have always been a diversified investor till TSLA and due to their success, I am now 70% TSLA. I'm currently investing half of my options proceeds into SP500 for some diversification. When I need some cash for closing or rolling, having some SP500 to sell might be better if TSLA dropped suddenly.

 

[phantasms]

EDIT. Made the move....see later on.


Looking for advice.

I had two 1000 calls for this week. Frankly, I'm ok with one of them getting called but would rather not lose both...but it would be fine.
My question is on strategy.

I rolled one of them at a slight profit to $1020 next week for a small gain. My thought was maybe the fed announcement will hurt the markets.
With my $1000 expiring this week, while I did think it would pull back a few days ago I'm no longer thinking that's the case. I'm considering rolling that call to early January. My thought is push the tax liability out to a year where it seems, hopefully, there will be expanded tax credits on Tesla products, specifically adding to my solar and getting Powerwalls. I could buy back my $1000 this week for ~$6k and sell a $1060 first week in Jan for ~$10k. I'm pretty sure I have to sell the call out of the money to keep the long term tax basis.

FWIW I make less than $400k / year so hopefully I wouldn't have higher cap gains next year.

Thoughts? Is this a good idea? Of course maybe the stock is at $2000 by Jan but if I'm losing it either way, why not. I'll get more for the stock plus added premium.

Then with my $1020 next week I'll cross my fingers for a pull back. hmm...perhaps I could even buy this back with the proceeds from the roll to jan $1060.

Thanks!

Best,
Gene

 

[corduroy]

A key question is, if you were going to set something aside, would it be better to just put whatever you set aside into an index fund or something rather than let your bank manage it?

I am late to the game and still in heavy portfolio growth mode, but I always have in the back of my mind that if I do accumulate a large enough chunk of cash, I may just drop half in something like a RYLD that pays around .25/share per month dividend. $1M in there would pay out $10k per month in stress free, check your portfolio once a month, income. Then of course use the other half to play TSLA options.