Wiki Selling TSLA Options - Be the House

[ammulder]

The worst time (in hindsight) to sell options is like 3 weeks ago after a long flattish period when the IV was low and many of us flew too close to the sun selling OTM calls to get some profit that burned us. Those are also the hardest times to predict - when a big move will happen.

In all honesty, I can’t agree with this. I sold calls that were just as dumb as anybody’s and turned just as red… but it wasn’t unpredictable. We waited from unexpectedly (to Wall St) great production numbers through unexpectedly great earnings, and then sold too-close calls *two days later*. The outcome was probably predictable, even if the Hertz announcement wasn’t.

I’m chalking it up to “a learning experience.” Sounds better than “experimental idiocy.”

 

[OrthoSurg]

My Not Advice is If they get ATM I would roll them out a month and for the highest strike that you can do for zero credit.

just looked at the neutral credits rolls, I could do a $1475 16/12 for zero credit. This looks like an interesting option.

 

[st_lopes]

Closed my 750/800 and 850/900 BPS. Closed my naked 900p. All at 90% profit.

Rolled my 1200/1250 BCS to 1230/1280 11/12 for a debit (consumed 1/2 of the premium gained from closing the BPS and puts).

Opened 900/950 BPS for next week, making an IC with my 1230/1280.

They now join my 700/800 1100/1200 11/12 IC.

I still have 1300/1350 BCS, which I’ll hope to close at near full profit tomorrow.

I will then initiate an IC for next week, though I’ll wait for Monday to do that. I don’t believe in weekend theta anymore. Seems to be way to much IV shifting over weekends for theta to be meaningful.

 

[OrthoSurg]

Inevitably the SP will settle downs in the next few weeks and then we will be able to make nice profits selling high IV very OTM puts and calls.

The danger will be after 6-9 months of trading sideways, IV going down, going from 25% OTM to 15% to cash the same premiums then another meteoric rise to 2T valuation. Will we remember? I can’t be more thankful to my wife who sent the copy that didn’t have a signature and got my option account conversion delayed 2 months.

 

[BornToFly]

just looked at the neutral credits rolls, I could do a $1475 16/12 for zero credit. This looks like an interesting option.

Exactly, but I would wait, because your call is still fairly OTM right now, and if it goes almost into the money it doesn't matter, you will still be able to roll up and out. If you are nervous, maybe roll it when you are within $20-50 of your strike. This is different from narrow spreads, where just getting close starts to get expensive because the two legs don't stay in synch, and a $2 difference between the legs, when you opened the position, can become $10-20 quickly.

 

[EVCollies]

Just placed an order to close my 11/5 CC 1250s @5, which will be a 20% loss. Currently at 6.9 so should happen, hoping to catch MMD tomorrow morning, I don't have time to babysit it tomorrow...

 

[MP3Mike]

The danger will be after 6-9 months of trading sideways, IV going down, going from 25% OTM to 15% to cash the same premiums

That would be the problem. You can't pick your strikes based on the premium you want. You have to pick your strikes based on the amount of risk you are comfortable with. If that is 25% OTM, then you pick 25% OTM, and you are either happy with the premium available, or if it is too low you sit out and take a break. (Or find a different strategy that is in your risk comfort level.)

I have sat out a couple weeks where I couldn't get enough to make the risk worth it. (At least not when I had the time to trade.)

I have also found that it appears that I can do better if I take a "quick" ~60-70% and then buy in again when the market moves in my favor again instead of trying to milk the last 30-40% out of the position.

 

[Spreadman]

Any not advice for unique roll scenarios to manage a 11/5 1080/1130 BCS?

Got caught in the squeeze last week and already rolled for a credit last week. The continued parabolic movement this week has been demoralizing. Where are the MMS at?!?!

 

[rotor.vol]

Many people on this thread are talking about rolling the deep ITM call on the weekly basis for a many weeks for a small advance in share price.

My question is for those who do it in US Taxable accounts what are the tax implications?

One can argue that each time there is roll the short term loss part of the roll is not counted because of the wash sale rule and the credit part would be taxable in all entirety.

If the wash sale rule stands the taxable amount would snowball with each roll.

Or may be the wash sale rule does not apply when rolling the calls because the new strike price and the expiration date is different and then it is considered different financial vehicle?

Can somebody please provide a feedback on this situation?

 

[M3Rider]

Many people on this thread are talking about rolling the deep ITM call on the weekly basis for a many weeks for a small advance in share price.

My question is for those who do it in US Taxable accounts what are the tax implications?

One can argue that each time there is roll the short term loss part of the roll is not counted because of the wash sale rule and the credit part would be taxable in all entirety.

If the wash sale rule stands the taxable amount would snowball with each roll.

Or may be the wash sale rule does not apply when rolling the calls because the new strike price and the expiration date is different and then it is considered different financial vehicle?

Can somebody please provide a feedback on this situation?

I haven't seen wash sales from the options trades. My understanding is that they are not considered to be the same security.
Also, when I look at realized gains/losses for the year on the broker's site, I see my gains evaporated due to rolling these ITM ccs.

 

[pz1975]

In all honesty, I can’t agree with this. I sold calls that were just as dumb as anybody’s and turned just as red… but it wasn’t unpredictable. We waited from unexpectedly (to Wall St) great production numbers through unexpectedly great earnings, and then sold too-close calls *two days later*. The outcome was probably predictable, even if the Hertz announcement wasn’t.

I’m chalking it up to “a learning experience.” Sounds better than “experimental idiocy.”

Not sure what you don’t agree with. I think we are saying the same thing. Everyone who sold calls and got burnt learned a valuable lesson We need to be extra careful when IV is low and premiums are low and we start chasing premium by getting to close to the SP. And especially after a great ER and the stock was going up! I had 95:5 sold puts but should have been 100:0 at the point especially since premiums were higher on the put side and the SP was way more likely to go up then down. Those 5% calls are still sitting there rolled out and very red mocking me!

 

[MrMoo]

Not sure what you don’t agree with. I think we are saying the same thing. Everyone who sold calls and got burnt learned a valuable lesson We need to be extra careful when IV is low and premiums are low and we start chasing premium by getting to close to the SP. And especially after a great ER and the stock was going up! I had 95:5 sold puts but should have been 100:0 at the point especially since premiums were higher on the put side and the SP was way more likely to go up then down. Those 5% calls are still sitting there rolled out and very red mocking me!

I had FAR OTM calls i sold for $60 a contract. Like literally $60 a contract. I ended up buying them back at $500 a contract (And this is one of the much cheaper buy backs I had to do) which was the right thing to do as the SP kept blasting up and they would probably be worth double that now. This is definitely what they meant by pennies in front of a steam roller. I had already shifted a lot of my CC selling to Put selling instead so I'm only out about 3% of my entire portfolio with this current break out but I would like to get that 3% Back. On the bright side i'm up over 100% YTD so can't complain lol.

Also still have short calls and short puts I need to wait to expire before I can get back on that premium wheeling and dealing again. 1 more month.

 

[Yoona]

11/12 IC is 450 wide:
+p950/-p1000 11Δ 18% OTM
-c1450/+c1500 11Δ 18% OTM
Breakeven 994/1457

View attachment 729242

as of tonight's chain, i am thinking this IC is looking good since theta overwhelms both the delta and vega?

can the greek experts here pls confirm? TIA!

(i am still learning trading using greeks and IV, aside from the usual distancing via %OTM)

 

[adiggs]

So about these leap covered calls, or poor man's covered call (diagonal call spread?), couple questions, did I get this right:
- buy an ITM call far out to future (LEAP)
- sell eg a weekly otm call, the call is in essence covered by the bought call
- if short call goes itm and rolling is not feasible, just close both legs

Sounds like a low-risk strategy. What's a good entry price for the leap? I guess long call needs to have smaller strike than sold short calls. What am I missing?
I think this could conplement my bps strategy while minimizing the risk of getting shares called away.

In this country, taxation on realized gains can be much lower if you have held the asset for over 10 years.. so I really don't want to sell my shares. Also that is why I don't own any leaps - there are no leaps 10 years into the future.

This is precisely how I'm handling the cc I'm selling.

For the long call when I'm going out to the latest available date (currently Jan 2024) I go for the strike where I can buy 2 of 'em for the price of 100 shares. That's very far ITM and typically carries a delta around .8 or .85. So you get 160 to 170 delta for the price of 100 delta, and the ability to sell 2 cc for the price of 1.

I've also been considering much closer expiration dates for the long call. My hypothesis is that I won't need to go so deep ITM to push the time value down to something comparable to the monthly time value on the Jan 2024, and therefore I can carry more long calls (more cc). But it also means that changes in the share price will propagate into the call and be realized more often - I'll be realizing gains and losses in the long call as I'm rolling it up and down with the shares going up and down. Like I said - still considering this and I haven't worked the numbers very much yet.


And this is what I'm doing instead of call spreads. The core problem I've experienced and am seeing with call spreads, at least with a stock like TSLA, is that they are likely to get into trouble (big share runs happen), and when spreads get in trouble they are tougher to manage. In this strategy, no matter how deeply ITM the calls go, you always have the 'out' to take assignment (which really means closing the short and long calls). You might miss out on some gain, but you'll sell your long call at the short call strike (effectively), so you'll have positive cash flow and probably positive realized P/L. It might be less than was available, but you won't be facing permanent loss of capital that you'd get when a spread goes ITM on both legs.

 

[Drezil]

as of tonight's chain, i am thinking this IC is looking good since theta overwhelms both the delta and vega?
View attachment 729481

can the greek experts here pls confirm? TIA!

(i am still learning trading using greeks and IV, aside from the usual distancing via %OTM)

Well, Theta is per day & Vega per % IV.
As this is an IC, it lists at -xx$. IV going down multiplied by negative Vega then actually helps you
IV should be ~70% or so for next week and will crash hard on days with no action and thus still dominate over Theta. Normally we come down to ~30% or so on Friday afternoon.

Those Greeks only tell you how it behaves when the market does X. Most important is the thing you already know: let the SP be within your IC wings

 

[Drezil]

And this is what I'm doing instead of call spreads. The core problem I've experienced and am seeing with call spreads, at least with a stock like TSLA, is that they are likely to get into trouble (big share runs happen), and when spreads get in trouble they are tougher to manage. In this strategy, no matter how deeply ITM the calls go, you always have the 'out' to take assignment (which really means closing the short and long calls). You might miss out on some gain, but you'll sell your long call at the short call strike (effectively), so you'll have positive cash flow and probably positive realized P/L. It might be less than was available, but you won't be facing permanent loss of capital that you'd get when a spread goes ITM on both legs.

This is exactly what happened to me.
I had 800c for Dec & some gamble 1200c.
Sold calls against the 800c. Got caught by the rise. Rolled out & up. Had them at ~1150 1-2 weeks ago. Then said: f it. I want to be done with it.
Rolled them to dec 1450 - now covered by the 1200c.

Worst outcome of we rise further: a measly 500k on that Bull call spread they form. If we stay below that: close the CC deep in the green, roll the 1200 out, start the game again.

Downside: if we rise to 3k by Dec I give up ~3m in possible gains.. but 3k by Dec? I don't think so. 1500 maybe. But 500k would be enough to dry my tears a bit

 

[Right_Said_Fred]

What % of your margin do you allocate for selling naked puts on a weekly basis?
is there a percentage you don’t cross in case of a potential black swan event? Or since you now stay 25% far OTM you take larger positions?

I’m not using the margin possibility I have on my stocks. I only use cash for my naked puts.

The exercising value of the naked puts represents at max. 150% of the cash in the account, which means if the puts were to get assigned I would buy 2/3 of the shares with cash and 1/3 on margin.

But I make sure there’s no chance of assignment by rolling puts that get deep ITM, so that there’s always time value left. Should the need arise I have the opportunity to swiftly transfer extra funds.

I do not want to use the margin possibility I have on my stocks because I could get in trouble during a crash, as it would hit both the shares and the puts. The shares would be worth less, causing the margin amount to drop, but the broker could also decide to suddenly limit the margin because they think the stock has become too risky.

 

[ammulder]

Any not advice for unique roll scenarios to manage a 11/5 1080/1130 BCS?

Got caught in the squeeze last week and already rolled for a credit last week. The continued parabolic movement this week has been demoralizing. Where are the MMS at?!?!

If you thought the stock was going to keep going up, you could buy back the 1080 and let the 1130 profit. But that won’t work if the stock pulls back.

If you have cash or margin to spare, you could sell enough puts or put spreads to cover the cost of buying back the call spread. Puts were getting very nice prices yesterday. If you have a bunch of those call spreads, a single 2024 put or put spread close to ATM could cover several of them.

If you don’t have a large number of those, you could buy them back and eat the $5k loss and move on.

 

[OrthoSurg]

little Basic question here. From the option alpha course, they tend to place 45 days trades 95% of the time being option sellers during high IV periods, their average Period of holding before closing a position is 28 days, from doing that they go from a 70% win rate to a 77% win rate on trades. However, isn’t time decay accelerating in the last few days of selling an option. On my options I sold close to expiration, the value drops like crazy in the last week. Someone would have to explain to me why in option alpha that use 45 days contracts and buy Back their position around 28 days instead of focusing on the last week? Thanks

 

[samppa]

This is precisely how I'm handling the cc I'm selling.

For the long call when I'm going out to the latest available date (currently Jan 2024) I go for the strike where I can buy 2 of 'em for the price of 100 shares. That's very far ITM and typically carries a delta around .8 or .85. So you get 160 to 170 delta for the price of 100 delta, and the ability to sell 2 cc for the price of 1.

I've also been considering much closer expiration dates for the long call. My hypothesis is that I won't need to go so deep ITM to push the time value down to something comparable to the monthly time value on the Jan 2024, and therefore I can carry more long calls (more cc). But it also means that changes in the share price will propagate into the call and be realized more often - I'll be realizing gains and losses in the long call as I'm rolling it up and down with the shares going up and down. Like I said - still considering this and I haven't worked the numbers very much yet.


And this is what I'm doing instead of call spreads. The core problem I've experienced and am seeing with call spreads, at least with a stock like TSLA, is that they are likely to get into trouble (big share runs happen), and when spreads get in trouble they are tougher to manage. In this strategy, no matter how deeply ITM the calls go, you always have the 'out' to take assignment (which really means closing the short and long calls). You might miss out on some gain, but you'll sell your long call at the short call strike (effectively), so you'll have positive cash flow and probably positive realized P/L. It might be less than was available, but you won't be facing permanent loss of capital that you'd get when a spread goes ITM on both legs.

Good post, thanks. I've been thinking about this, and does it entail some opportunity cost.
Right now I can get about jan 2024 $850 call for 61k, so that's about the cost of 50 shares. It will use up 61k of my cash reserves, and about 50k of maintenance margin. So looks like with IB, calls don't give much of margin at all. Then I can sell one covered call against this, say 11/12 1400 call pays $9.70.

Or I can take that 50k and sell 5 $100 wide bull put spreads, that would be 5x -900/+800 bps for example.

Looking at this math, looks like I'm better of sticking with bull put spreads.. of course right now IV is high, so it's not a good time to buy leaps.
Feels like this is a good strategy, if you want to own leaps instead of stock. But bying leaps in order to to be able to sell poor man's covered calls doesn't seem so great after all.

Especially in my situation, where holding an appreciating asset over 10 years will provide a significant tax reduction. Also I do not plan to sell any stock in the foreseeable future.. leaps I would have to sell at the very latest at expiry, and then I would have to pay 34% tax on capital gains on those leaps.