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Wiki Selling TSLA Options - Be the House

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The 5-7% return I quoted was net of management fees, but yes their structured products all have fees, which is why they will extend LIBOR or bank prime rates on the leverage (eg Scotiabank Investor Solutions) because they make it up in management fees.

In the example being discussed, park 1000 to receive 2000 in leverage if reinvested at bank or 750 if you want to self manage. You also could put that 750 at IBKR and stack leverage, though that is flying close to the sun. So 3000 of exposure at 5-7% (150-210) annualized for 1000 of capital, 15-21% (“low risk”) before interest charge return on your pre leverage capital.

Becomes more a matter of do you want to continue self managing and navigating positions through any macro pullbacks or live with the 5-7% return with guaranteed capital (for future estate as an example). Trading off the risk for guaranteed return and capital for what may be better return if you self manage.

Talking about multigenerational wealth preservation rather than accumulation.
Thanks @st_lopes !
concept of leveraging principal protected product blew my mind, it truly looks like risk free leverage.
Do I get it right if I rephrase it like this in traditional brokerage terms: essentially it looks like a product with margin requirement of ~33% _and_ you can never get a margin call because principal amount is guaranteed.

Do you know if the distributions and eventual end gain taxed as ordinary income or capital gains? I just read up on Principal Protected Notes and the results are somewhat inconclusive... some products seem to structure distributions as ROC but I am not sure if this is common practice.
 
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Please bear with, I've spent way to much time today calculating crazy scenarios and the brain is foggy.

Suppose you had an ITM BCS, like a -1050/1150 and the SP shoots up even more. You had a $300 credit so your max loss is $9,700 per contract. Buying to close has passed by, you are staring down that near max loss, and just want out. What if you have accepted that fate, but to minimize your loss you roll down and in?

For example roll down the -1050/1150 to -500/600 for a $4200 credit before expiring ITM and taking your loss. But instead of $9700, it is now $5,500, reduced by 42%. Am I missing a key component here? Or somehow stumbled on a way to reduce max risk of a spread by nearly half? Note, in this example the $4,200 is about the max credit, even if you went to -100/200.
 
Please bear with, I've spent way to much time today calculating crazy scenarios and the brain is foggy.

Suppose you had an ITM BCS, like a -1050/1150 and the SP shoots up even more. You had a $300 credit so your max loss is $9,700 per contract. Buying to close has passed by, you are staring down that near max loss, and just want out. What if you have accepted that fate, but to minimize your loss you roll down and in?

For example roll down the -1050/1150 to -500/600 for a $4200 credit before expiring ITM and taking your loss. But instead of $9700, it is now $5,500, reduced by 42%. Am I missing a key component here? Or somehow stumbled on a way to reduce max risk of a spread by nearly half? Note, in this example the $4,200 is about the max credit, even if you went to -100/200.
wait, what? this is very interesting

"i'm at max loss anyway, and the loss is the same regardless how high further the sp goes, so i might as well roll to same expiration but way deeper ITM to get whatever credit i can; the new bcs will have a smaller max loss"

i tested this and it looks valid and margin usage is same - anyone else have a thought?
 
Please bear with, I've spent way to much time today calculating crazy scenarios and the brain is foggy.

Suppose you had an ITM BCS, like a -1050/1150 and the SP shoots up even more. You had a $300 credit so your max loss is $9,700 per contract. Buying to close has passed by, you are staring down that near max loss, and just want out. What if you have accepted that fate, but to minimize your loss you roll down and in?

For example roll down the -1050/1150 to -500/600 for a $4200 credit before expiring ITM and taking your loss. But instead of $9700, it is now $5,500, reduced by 42%. Am I missing a key component here? Or somehow stumbled on a way to reduce max risk of a spread by nearly half? Note, in this example the $4,200 is about the max credit, even if you went to -100/200.
I’m not sure where you are getting the $4,200 credit from in that roll. A roll is just closing one position and opening another. In order to close your ITM 1050/1150 BCS, you will have to pay ~$10,000. Then if you open a 500/600 BCS you will get ~$10,000 credit. So the net credit will be $0 and then at expiry you will owe $10,000. So it all just ends up with $9,700 loss whether you do that roll or not.
 
Thanks @st_lopes !
concept of leveraging principal protected product blew my mind, it truly looks like risk free leverage.
Do I get it right if I rephrase it like this in traditional brokerage terms: essentially it looks like a product with margin requirement of ~33% _and_ you can never get a margin call because principal amount is guaranteed.

Do you know if the distributions and eventual end gain taxed as ordinary income or capital gains? I just read up on Principal Protected Notes and the results are somewhat inconclusive... some products seem to structure distributions as ROC but I am not sure if this is common practice.

You nailed it.

It would generally be a mix of interest, dividends, capital gains, and return of capital. Some products would be more focused on tax efficiency than others. A lot of customization available on these products.
 
Please bear with, I've spent way to much time today calculating crazy scenarios and the brain is foggy.

Suppose you had an ITM BCS, like a -1050/1150 and the SP shoots up even more. You had a $300 credit so your max loss is $9,700 per contract. Buying to close has passed by, you are staring down that near max loss, and just want out. What if you have accepted that fate, but to minimize your loss you roll down and in?

For example roll down the -1050/1150 to -500/600 for a $4200 credit before expiring ITM and taking your loss. But instead of $9700, it is now $5,500, reduced by 42%. Am I missing a key component here? Or somehow stumbled on a way to reduce max risk of a spread by nearly half? Note, in this example the $4,200 is about the max credit, even if you went to -100/200.
Sure sounds like cheating which means there must be something I'm missing. I'm in favor of this kind of cheating BTW :)

When you figure it out, and/or try it out, let us know how it goes.
 
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You nailed it.

It would generally be a mix of interest, dividends, capital gains, and return of capital. Some products would be more focused on tax efficiency than others. A lot of customization available on these products.
Thanks that was very useful info.

I guess hidden cost of moving to such product would be triggering capital gains prematurely and limiting future growth by amount lost to taxes.

This could be mitigated if manoeuvre is flipped around ... excess liquidity from margin account is invested into leveraged managed product, rather than other way around. That does not require any TSLAs sold and generates passive income.
 
Which is best - I have no opinion on. Direction and magnitude of the share price is the critical element to all of these.

I just want to point out that the split roll (flip / split-flip roll) and some of the others represent an increase in leverage. The objective in increasing leverage would be for a big strike improvement as well as an increase in the rate of improvement when you're right about the share price move. In short you earn back the loss more quickly.

The downside is that you're adding leverage to a badly performing position, increasing your rate of loss, and helping the position arrive at max loss more quickly.

Just something to keep in mind. Good luck!
Actually, perhaps I should clarify, that I mean something different by "split" roll. I may be using wrong term. I am advocating taking a bad BPS or BCS and converting it into a condor (or butterly if really far from the money), therefore not increasing margin, risk or leverage. You are simply selling the extrinsic value each week in an attempt to work your way slightly closer to the share price until it you can build a condor for net credit and eventually get wider and wider with a condor until it can expire worthless. This is not ideal in any way except one. You are aren't taking a loss.

A "split" roll in this context, doesn't necessarily mean you are increasing margin or risk, even If you are cutting the size of the spread by half, and doubling the contracts, the risk is the same (excluding commission and fees). At least this is how I understand it. The implications of this strategy are profound because it means a max loss spread position can be cured eventually without an increase in risk or leverage. The trade off is dead capital until the position is cured.
 
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I’m not sure where you are getting the $4,200 credit from in that roll. A roll is just closing one position and opening another. In order to close your ITM 1050/1150 BCS, you will have to pay ~$10,000. Then if you open a 500/600 BCS you will get ~$10,000 credit. So the net credit will be $0 and then at expiry you will owe $10,000. So it all just ends up with $9,700 loss whether you do that roll or not.
Here is what E*TRADE shows me for that trade right now:

1635729460766.png


That looks like a $4368 credit to me. (Obviously pricing would change when the market opens tomorrow.)

Did I enter it wrong? I think that part of it is that the -1050/1150 isn't at max loss yet. (SP at $1114)
 
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Here is what E*TRADE shows me for that trade right now:

View attachment 727915

That looks like a $4368 credit to me. (Obviously pricing would change when the market opens tomorrow.)

Did I enter it wrong? I think that part of it is that the -1050/1150 isn't at max loss yet. (SP at $1114)
This only works because your long leg is not yet in the money.
 
Here is what E*TRADE shows me for that trade right now:

View attachment 727915

That looks like a $4368 credit to me. (Obviously pricing would change when the market opens tomorrow.)

Did I enter it wrong? I think that part of it is that the -1050/1150 isn't at max loss yet. (SP at $1114)

Wait, do you have 100 shares to cover this? Or are you just going to close the $500-600 on expiration date? They are DITM so you will have to pay $10,000 at the expiration date to close them. After account for the $43.68 credit you receive, you are still losing $57.32.

Edit:

If you just close out your $1,050-1,050 straight up, you will also lose about $54 . Rolling to the $500-600 doesn’t really change anything.
 
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Please bear with, I've spent way to much time today calculating crazy scenarios and the brain is foggy.

Suppose you had an ITM BCS, like a -1050/1150 and the SP shoots up even more. You had a $300 credit so your max loss is $9,700 per contract. Buying to close has passed by, you are staring down that near max loss, and just want out. What if you have accepted that fate, but to minimize your loss you roll down and in?

For example roll down the -1050/1150 to -500/600 for a $4200 credit before expiring ITM and taking your loss. But instead of $9700, it is now $5,500, reduced by 42%. Am I missing a key component here? Or somehow stumbled on a way to reduce max risk of a spread by nearly half? Note, in this example the $4,200 is about the max credit, even if you went to -100/200.

You may have accepted it'll go to max loss, but it's not at max loss yet. You could close out around $5500 right now if things stay the same, right? So you're getting a ~$1300 credit compared to now (5500 - 4200) to accept almost certain loss, whereas the SP certainly could come back down to 1050 in 2 weeks.
 
Does anyone have a good way to trade ForEx? I need 1.5 million Euro next quarter. What is the best way to convert USD to EURO?

I'm with Interactive Brokers. Are there any ForEx futures like stock puts where I can offer to buy Euro at 1.12 in the future?

CME E-mini EuroFX may be a possibility



contract specs:


some key terms:
44FB99E9-FF98-4ACD-812B-A87722D50687.jpeg


careful with futures.
mind all contract details like trade cutoffs, multipliers, settlement terms, liquidity, etc

a quick search revealed the above. it’s possible there are better products for your specific need.

either way, best of luck!
 
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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!

4% is high

is the 6% they guaranteed you variable or fixed? and what is term limit?
 
I am not sure I follow.
Based on my experience with "professional" wealth management, that $1000 in BMA will come with 1..2% in fees or $10-$20 fees a year. Thats a lot.

Wouldn't moving 2000 to IBKR be better option?
Park $1000 in a target date fund or index fund with MER under .5%
Use $1000 for aggressive stategies

Have margin available based on $2000 equity at 1..1.5% ?

I might have oversimplified something. Am I missing something here?

i’d be more worried about what my costs are and go somewhere cheaper as you suggested.

i’d also be weary about ‘locking’ in 6% returns if we believe a rising rate environment is in the cards. if they do rise enough you risk opportunity loss (in excess of your 6%) so you can “sleep easy”, or maybe i’m missing important details about the product.
 
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This evening I've been reviewing all my ITM covered calls coming up the next few weeks. When I originally sold them I only had contracts at a few different strike prices, but through-out last week, I only rolled a few at a time, hoping for better rolls as the week went on. So I ended up with a lot of smaller lots at all sorts of strikes, like 1015, 1020, 1025, 1040, etc. (and plan is to slowly roll them up or buyback, which will take many weeks). So I have a concern about early assignment, being in a taxable account.

I had a thought that this could actually be a beneficial way to defend against assignment. The reason being that if an anti-social trader owns a call they might try to exercise, it is more than likely they only have a set of contracts for one of those strikes but not all of them. So I might lose a few contracts at a single strike but the rest would probably be safe.

So, for example, if I had 10 ITM contracts at a very popular strike like 1000, but then rolled 2 at a time to odd strikes like 1005,1010,1015,1020,1025, then my risk of losing all 10 to assignment is much lower, and maybe I'd only lose 2 in worst case.
 
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Here is what E*TRADE shows me for that trade right now:

View attachment 727915

That looks like a $4368 credit to me. (Obviously pricing would change when the market opens tomorrow.)

Did I enter it wrong? I think that part of it is that the -1050/1150 isn't at max loss yet. (SP at $1114)
Already answered but in your original scenario you said to assume the 1050 and 1150 calls were both already ITM. In that case, the roll would be essentially be zero credit. Of course because your long leg is still OTM, you will get a credit to roll down (you are moving to a spread that is way more likely to end ITM and leave you with a loss you you will get paid for this).
 
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