Wiki Selling TSLA Options - Be the House

[Cherry Wine]

This dynamic can matter for tax purposes. If you roll a lot and into next year, the realized losses can shrink or eliminate your gains for this year and defer them to next year.

Is this in the gray area of wash sales? Brokerages don't consider rolling trades to be wash sales but this seems similar in the sense of a strategy to defer taxes.

I think the problem is it can mean two things to be "substantially identical": "considerably but not completely identical'; or "identical in substance" (e.g., a position in common stock and a synthetic long.) To me, the first meaning is nonsensical as it introduces a modifier to distort what the word "identical" means, which is "exactly alike", a yes/no binary condition.

Given the notoriously gray area around wash sales, I get the sense that if the IRS wanted to bring the hammer down on someone for deferring taxes in this way, they could, irrespective of what your broker's 1099 says. At that point, you'd probably have to get an attorney to settle with the IRS and/or litigate the issue if you wanted to fight it.

It's why I've considered trader tax status in the past - it removes the above uncertainty.

 

[ammulder]

Personally I now consider the realized P/L to be the income (that I can spend as I like) and not the cash flow. That's consistent with more general accounting principles. Realized P/L is the income - cash flow is what keeps us in business.

Yes, I end up tracking both my P/L and cash flow. They don't necessarily align; this week I rolled spreads early because the pricing was better for next week than the remainder for this week; that dragged down this week's P/L (since I closed some before my more typical 80%) but gave me more inbound cash than I've previously brought in in a single week. It's hard for me not to treat that cash flow as "spendable income" because it's there in my balance and it's what the margin/backing is calculated with. Hard to pretend it doesn't yet exist. But I do end up keeping more cash around than I otherwise might "just in case" I need it to close out losing trades. I'm not keeping exact amounts according to my computed P/L, more of a gut feeling of what feels safe on top of my unused margin.

Sometimes I think I spend too much time tweaking spreadsheets. Other times I think I need to really understand this well in order to leave myself an adequate cash/margin reserve and to be prepared for when I need to rescue a bad position. I don't yet have a big enough available margin that I feel I can use just 1/4 of it and let that be my safety factor.

 

[Yoona]

after lots of data number-crunching and re-reading of posts, i have decided to halve my TSLA and test dip my toes into the "all cash" structure

for me, this is good news coz:
- potential for more options income
- i can open more positions and go safer deeper OTM
- risk management is easier: 'more DOTM positions will have more probability of success' is better than 'less OTM positions with some probability of success'
- even with lesser credit (due to far OTM), it's still more recurring/compounding income than just pure hodl
- even if sp increases by 50% annually, account total value is still more than just pure hodl
- even if sp increased by $100 into $1000 right now, it's still unrealized gain and not income - i can't spend it and can't compound the gain
- less worrying about black swan which could literally happen overnight and wipe out my account that i need for the next 30 years (think covid 2020, Black Monday, 420 funding secured, 911, etc)
- less worrying about the daily sp swings
- combined with more trading based on IV, there is less worrying if TSLA is directionally downhill
- less worrying about margin rooms and margin calls (since more cash means less reliance on margin)
- if i need to profit on the earnings sp spike, i may just go in and out (ie buy then sell the news)
- more cash means i can sometimes play with the 10:30 MMD for quick stock daytrading (for top-up of options income)
- more income means i have more capability to kickstart and fund my kids' post-university dreams - i rather they own a business than have a dayjob waiting to be paid every 2 weeks (son wants to own an indoor basketball gym and manage a league)

as far as i know, there are at least 2 big guns here who are also in "all cash" and they seem to be doing well

this is my 2 cents!

back to topic... my BCS today is probably safe; will close it soon:
View attachment 724301

latest update on decision to sell TSLA in lieu of cash:

my cash/taxable acct has been 100% all-cash for a while and i it so much

- "no longer care" if SP is up or down; no emotional roller coaster ride with the ticker

- zero margin used; no threat of margin call; no margin fees; no margin maintenance; i have nothing to do with margin

- since i am only doing Credit Spreads (ie max loss pre-defined and cash reserved for it), then Option Buying Power is a fixed value throughout the day; no need to babysit it to ensure it doesn't drop

- i can open 2x more positions coz underlying gave me only 50% buying power, but cash gives 100% buying power

- as long as i watch the delta and be far OTM, there is less stress overall watching the acct (ie the acct total value doesn't swing as wildly as the SP)

- of course, positions can still go ITM; i spend more time now looking at the "list of all positions and their P/L%" than on the ticker candlesticks; spending more time doing analysis than babysitting

The overall experience is that there is less stress managing the trading acct. Income-wise, i expected to be earning less since i am far OTM (ie part of strategy of going for very high probability of success in exchange for low credits) but the opposite is true: the doubling of contracts made up for the "lost income". Because i am freed from margin, my nightly review is now more focused on "planning what to trade next" rather than doing margin maintenance.

Being an all-cash trader instead of an investor made focusing on wealth creation so so so much simpler: compounding slow and steady profits beating SP appreciation AS LONG AS i am not greedy and i do not chase better premiums.

 

[SinghCo]

For the Canadians:

I have transferred my wifes and my TFSA to Questrade and turned on margin power. This allows you to access the TFSA asset in your margin account by creating it as a collateral. I have a lot in TFSA due to TSLA so now love the ability to finally sell puts with it as we are not allowed to sell puts in the TFSA account itself.

Note to be conservative from assignment as the margin rates in Questrade are >5%.

 

[st_lopes]

For the Canadians:

I have transferred my wifes and my TFSA to Questrade and turned on margin power. This allows you to access the TFSA asset in your margin account by creating it as a collateral. I have a lot in TFSA due to TSLA so now love the ability to finally sell puts with it as we are not allowed to sell puts in the TFSA account itself.

Note to be conservative from assignment as the margin rates in Questrade are >5%.

You can negotiate the rate down, particularly if you have a larger total balance with them. That said, rate doesn’t really matter if all you intend to do is sell options. You don’t pay interest unless you take assignment or go negative cash balance on the margin account.

Their portfolio margin power is actually great, and highly encourage you to use their desktop trading platform if you’re getting in to options. I’ve yet to find another broker in Canada that allows you to leverage your TFSA like that.

The only frustrating part is their margin requirement % for TSLA is still at 50% and sometimes their platform doesn’t pair your BPS and BCS properly. The latter is fixable through a phone call.

 

[st_lopes]

Positions going in to next week:

• 50x 700/800 1100/1200
• 20x 900/950 1230/1280
• 100x 840/890 1350/1400

Left myself plenty of margin to either enter more positions next week or manage existing legs as needed. Ideally I’d like to do some more repair on the 1100/1200 to try to accelerate closing that one out positively. Either by rolling up the BPS and trading that credit to pay a debit to roll up the BCS, or by rolling out the BCS if we get a pullback that puts the price within my spread range.

Also still nursing 795 and 800 CCs which are now rolled to 11/26. Not ready to bite the bullet on these until I’m convinced we won’t see a major pullback from these levels. Just a few too many large gaps to fill in 800s for me to be ready to bite that bullet. Though I will likely start closing individual contracts from premium sold. One step at a time.

 

[InTheShadows]

I'm surprised that the 11/12 990/940 BPS I bought yesterday is already at >60%, after just one day... I'd close it out, but I don't know what I would replace it.

I reopen early closes at higher strikes. I make decisions based on delta usually

 

[Mokuzai]

Given the notoriously gray area around wash sales, I get the sense that if the IRS wanted to bring the hammer down on someone for deferring taxes in this way, they could, irrespective of what your broker's 1099 says. At that point, you'd probably have to get an attorney to settle with the IRS and/or litigate the issue if you wanted to fight it.

It's why I've considered trader tax status in the past - it removes the above uncertainty.

As much as I've read into wash sales and also had my accountant look into it...rolling options seems to be currently materially different enough to not be caught in wash sales. Been using this the past couple years to defer gains...even though future years might have a higher tax burden I don't really have the cash on hand without selling stock to cover the tax implications. So rather defer and build a cash buffer via selling options. Also why I stopped doing my own taxes and now hire a reputable accountant to go to bat for me should questions arise.

 

[JustMe]

Hey folks, I just opened my first bps positions today. Thanks to you all for the guidance and inspiration

10x 925/825 @ $1.60
10x 875/775 @ $1.10

Playing it safe with these - considering the possibility of a violent correction next week.

It blows me away that these are margin backed but there’s no margin interest charged. It’s not risk free by any means but it somehow feels like free investment income

Respecting the risk here, I will be treading lightly.

I also did a bunch of day trading 11/5 options, 1200c and 1250p. Stressful as hell but I made some walking around money

 

[MindOverMatcha]

latest update on decision to sell TSLA in lieu of cash:

my cash/taxable acct has been 100% all-cash for a while and i it so much

- "no longer care" if SP is up or down; no emotional roller coaster ride with the ticker

- zero margin used; no threat of margin call; no margin fees; no margin maintenance; i have nothing to do with margin

- since i am only doing Credit Spreads (ie max loss pre-defined and cash reserved for it), then Option Buying Power is a fixed value throughout the day; no need to babysit it to ensure it doesn't drop

- i can open 2x more positions coz underlying gave me only 50% buying power, but cash gives 100% buying power

- as long as i watch the delta and be far OTM, there is less stress overall watching the acct (ie the acct total value doesn't swing as wildly as the SP)

- of course, positions can still go ITM; i spend more time now looking at the "list of all positions and their P/L%" than on the ticker candlesticks; spending more time doing analysis than babysitting

The overall experience is that there is less stress managing the trading acct. Income-wise, i expected to be earning less since i am far OTM (ie part of strategy of going for very high probability of success in exchange for low credits) but the opposite is true: the doubling of contracts made up for the "lost income". Because i am freed from margin, my nightly review is now more focused on "planning what to trade next" rather than doing margin maintenance.

Being an all-cash trader instead of an investor made focusing on wealth creation so so so much simpler: compounding slow and steady profits beating SP appreciation AS LONG AS i am not greedy and i do not chase better premiums.

Your outline of all the reasons why cash works so well is eye-opening!
I'm thinking to sell my shares and go to cash after realizing I'm making more $$ per share using BPS than HODLing.

I am curious how you structured the sell-off for your taxable account. I imagine selling it off at once is the easiest way. Did you stagger it year over year or just sell it within the same year?

By the way, love your son's dream. My dream job would be wrestling and judo coach. I got to coach kids, teens, and adults for a good 6-7 years after high school. But studying for grad school and training for my own competitions made it hard to commit full time to coach and compete. Now, I run my own practice (working 10 hrs/week) and am back on the mats coaching and sparring. With this BPS income, I could just open my own gym and coach full-time, but I really do love my work and enjoy helping my clients. Once my clients graduate, I probably won't accept any new ones and just go full-time into coaching. Heck, I've still got some years in me to compete so I may jump back into competition.

Hope your son finds his way. I'm sure he'll do great if he has the passion and discipline for it.

 

[adiggs]

latest update on decision to sell TSLA in lieu of cash:

my cash/taxable acct has been 100% all-cash for a while and i it so much

- "no longer care" if SP is up or down; no emotional roller coaster ride with the ticker

- zero margin used; no threat of margin call; no margin fees; no margin maintenance; i have nothing to do with margin

- since i am only doing Credit Spreads (ie max loss pre-defined and cash reserved for it), then Option Buying Power is a fixed value throughout the day; no need to babysit it to ensure it doesn't drop

- i can open 2x more positions coz underlying gave me only 50% buying power, but cash gives 100% buying power

- as long as i watch the delta and be far OTM, there is less stress overall watching the acct (ie the acct total value doesn't swing as wildly as the SP)

- of course, positions can still go ITM; i spend more time now looking at the "list of all positions and their P/L%" than on the ticker candlesticks; spending more time doing analysis than babysitting

The overall experience is that there is less stress managing the trading acct. Income-wise, i expected to be earning less since i am far OTM (ie part of strategy of going for very high probability of success in exchange for low credits) but the opposite is true: the doubling of contracts made up for the "lost income". Because i am freed from margin, my nightly review is now more focused on "planning what to trade next" rather than doing margin maintenance.

Being an all-cash trader instead of an investor made focusing on wealth creation so so so much simpler: compounding slow and steady profits beating SP appreciation AS LONG AS i am not greedy and i do not chase better premiums.

I look forward to achieving n00b status.

Really good stuff. And just happens to be germane to my situation and has me thinking. Thank you

 

[Yoona]

Your outline of all the reasons why cash works so well is eye-opening!
I'm thinking to sell my shares and go to cash after realizing I'm making more $$ per share using BPS than HODLing.

I am curious how you structured the sell-off for your taxable account. I imagine selling it off at once is the easiest way. Did you stagger it year over year or just sell it within the same year?

By the way, love your son's dream. My dream job would be wrestling and judo coach. I got to coach kids, teens, and adults for a good 6-7 years after high school. But studying for grad school and training for my own competitions made it hard to commit full time to coach and compete. Now, I run my own practice (working 10 hrs/week) and am back on the mats coaching and sparring. With this BPS income, I could just open my own gym and coach full-time, but I really do love my work and enjoy helping my clients. Once my clients graduate, I probably won't accept any new ones and just go full-time into coaching. Heck, I've still got some years in me to compete so I may jump back into competition.

Hope your son finds his way. I'm sure he'll do great if he has the passion and discipline for it.

thanks, i agree: one needs passion to be happy and to succeed, whether it is sports, hobby, work, etc; i spent the last 3 days looking at IKEA cabinets and it was so much fun haha

i cashed out of stock in 3 stages; the first one was by accident coz i forgot to BTC some CC and shares disappeared when it went ITM

but then i saw that i suddenly had more room to maneuver and doing flip-rolls etc became easier (ie less need of sell this first, then buy this, then sell that, then do this); having the extra cash meant i can just open the new flipped position and then close the bad one

my twisted thinking about taxes is very simple... the more i pay, the more i keep

i'm in the 50% tax rate:
if i paid $100k taxes, then i have $100k at the end of the day
if i paid $500k taxes, then i have $500k at the end of the day
i want to pay millions in taxes

i don't have a convoluted corporate structure designed to avoid/minimize taxes; therefore, it is impossible to be in a lower tax bracket if i am successful in options trading, so might as well earn the max and happily give up half

 

[deerfield]

Does anyone know what happens in an IRA account when selling spreads if there is an early exercise? Let's say if you have a 100k account and sell a 1200/1300c spread. The short leg is itm, and it gets exercise. Long leg is not itm. What happens here? There's no margin in IRA account. And you can't just dump cash in due to contribution limit. Where would the shares come from for that assignment? Same case for bps. Where would the cash come from to pay for the shares?

 

[mongo]

Does anyone know what happens in an IRA account when selling spreads if there is an early exercise? Let's say if you have a 100k account and sell a 1200/1300c spread. The short leg is itm, and it gets exercise. Long leg is not itm. What happens here? There's no margin in IRA account. And you can't just dump cash in due to contribution limit. Where would the shares come from for that assignment? Same case for bps. Where would the cash come from to pay for the shares?

Not advice:
The route I see with Stock price of SP, premium of P and SP < 1300 is:
Inital: $100,000, 0 shares
Sell Bear (Credit) Call Spread: $100,000 + P, -1 1200c, +1 1300c
1200 is assigned: +$120,000, -100 shares
Broker buys to cover: -$100*SP, +100 shares
Net position: $220,000-100*SP+P, 1300c

At 1,300 (1,299.99):
$220,000-130,000+P, 1300c
$90,000+P, 1300c
Which aligns with the max risk per contract of spread*100
So the max number you can sell with $100k would be 10, which in worst case leaves you with:
10*P, 10×1300c where the 1300c expire worthless OTM.

 

[AquaY]

For @Lycanthrope and anyone else who tracks trades with spreadsheets:

How do you organize your trades into weeks to calculate your weekly profit/loss? Based on the day you opened the trade, the day you closed the trade, the expiration date of the option/spread, or something else?

Most of my trades are opened on one week and closed on another, but some of them are closed early on the same week they were opened, which might not be the week they expire, so no matter what I do it seems like there are some exceptions. I think I don't want to be in a position where I have to go back and change the total for a prior week, so I'm thinking the best way might be to group into weeks based on the day I close a trade, even if I got the income for opening those trades on a prior week, except then longer-dated options just hang out in the "future" bucket for a while (and if I sold them and got paid up front, I may have a lot of cash that's not yet reflected in the weekly totals).

Or do you just track the cash in/out instead of making the individual trades the thing? That seems weird because you get the cash up front for selling options, but you don't know at that time how much of it you'll get to keep (or how, much more you might lose, worst case).

How is this normally done?

I have my Excel spreadsheet set up by week of expiration.
I run totals per week and per month by expiration. If I roll, it closes out in the one week and opens in the other. Most of my trades are for the week of or the following week.
While I love seeing the revenue I'm generating the rational part of my brain wants to track info to judge strategy over time.
My goal is consistent income with consistent limited risk. So I really want to figure out over time what works best.
I also do some higher risk trades of course and I note those on my sheet

My broker's portfolio system (Etrade pro) allows me a great deal of flexibility in showing me P&L.
I can do over all, or overall type. I can do a ticker. I can do Tax year, or enter any custom time frame I wish.
I use that with my spreadsheet . At each weeks end I look up my P&L for that week and input it into my spreadsheet so I get accurate P&L by closing date. So if I happen to do a bunch of trades for next week that I close out this week and didn't move them the broker's system tracks that for me.

I did the free trial with Wingman but found that using it with Etrade was a PITA. It is less time intensive doing it my way and because of my trading style it fits pretty well. Not perfect. But I saw no benefit for me to using Wingman

 

[elasalle]

With so many in and out trades - it became too much work to add every transaction

Now I just have a spreadsheet where I enter portfolio value of like 5-6 different accounts at end of quarter. also add some macro and Tesla specific notes for the quarter cheers!!

 

[Knightshade]

Being an all-cash trader instead of an investor made focusing on wealth creation so so so much simpler: compounding slow and steady profits beating SP appreciation AS LONG AS i am not greedy and i do not chase better premiums.

Has premiums from all cash beating SP appreciation been true even during sharp upturns like the recent 909->1200+ one?

 

[Right_Said_Fred]

latest update on decision to sell TSLA in lieu of cash:

my cash/taxable acct has been 100% all-cash for a while and i it so much

- "no longer care" if SP is up or down; no emotional roller coaster ride with the ticker

- zero margin used; no threat of margin call; no margin fees; no margin maintenance; i have nothing to do with margin

- since i am only doing Credit Spreads (ie max loss pre-defined and cash reserved for it), then Option Buying Power is a fixed value throughout the day; no need to babysit it to ensure it doesn't drop

- i can open 2x more positions coz underlying gave me only 50% buying power, but cash gives 100% buying power

- as long as i watch the delta and be far OTM, there is less stress overall watching the acct (ie the acct total value doesn't swing as wildly as the SP)

- of course, positions can still go ITM; i spend more time now looking at the "list of all positions and their P/L%" than on the ticker candlesticks; spending more time doing analysis than babysitting

The overall experience is that there is less stress managing the trading acct. Income-wise, i expected to be earning less since i am far OTM (ie part of strategy of going for very high probability of success in exchange for low credits) but the opposite is true: the doubling of contracts made up for the "lost income". Because i am freed from margin, my nightly review is now more focused on "planning what to trade next" rather than doing margin maintenance.

Being an all-cash trader instead of an investor made focusing on wealth creation so so so much simpler: compounding slow and steady profits beating SP appreciation AS LONG AS i am not greedy and i do not chase better premiums.

This!

I have already sold 60% of my shares to ensure I can retire whenever I want to and also to raise cash for option selling. I’m seriously considering selling the rest when we hit 1300-1400 and just be done with that rollercoaster.

The higher the stock goes, the bigger the amounts involved, which can be uncomfortable during big drops. And during those downturns, which undoubtedly will come again, you can only watch the ticker and do nothing. You’re feeling powerless, at the mercy of the whims of the market.

I enjoyed being able to earn money selling options during the downturn this year, while until a month ago 100% stockholders could only wait to see if the stock would recover.

With options you can profit from movements in both directions or (preferably) within a bandwidth. Especially with short expiry dates of one week, option selling is much less sensitive to disappointing news and FUD.

 

[elasalle]

No just black & white in trading game, esp. options trading game ...

Shares & Cash (esp Tesla shares - where company plans to grow at 50% clip)
Buy & Sell
Weeklys & Leaps
Greed & Fear
Margin when appropriate and when it can be managed.
(only exception - as of now - no naked shorts)
Why limit Options options ...
Jack be nimble, Jack be quick - Jack jump over the daily/weekly Candlestick

+ waiting for the day Tesla issues dividends ... so I'm keeping my stonks

 

[MindOverMatcha]

thanks, i agree: one needs passion to be happy and to succeed, whether it is sports, hobby, work, etc; i spent the last 3 days looking at IKEA cabinets and it was so much fun haha

i cashed out of stock in 3 stages; the first one was by accident coz i forgot to BTC some CC and shares disappeared when it went ITM

but then i saw that i suddenly had more room to maneuver and doing flip-rolls etc became easier (ie less need of sell this first, then buy this, then sell that, then do this); having the extra cash meant i can just open the new flipped position and then close the bad one

my twisted thinking about taxes is very simple... the more i pay, the more i keep

i'm in the 50% tax rate:
if i paid $100k taxes, then i have $100k at the end of the day
if i paid $500k taxes, then i have $500k at the end of the day
i want to pay millions in taxes

i don't have a convoluted corporate structure designed to avoid/minimize taxes; therefore, it is impossible to be in a lower tax bracket if i am successful in options trading, so might as well earn the max and happily give up half

Haha! I just bought a kitchen table for more cooking space, without being cheap about it! A lot more fun to shop without serious constraints.

I feel pretty comfortable just selling in one go then. I'll be shooting for that high tax rate soon like you!