Wiki Selling TSLA Options - Be the House

[BornToFly]

No, but what if the black swan is the week you started this strategy? And would you rather spend 4 weeks building back your reserves or 22? (well, 2 weeks or 6-11, in the more likely scenarios were you close early)

Example 25% ROIC trade (I used to report these, but they're directly counter to most of the not-advice here and I put a lot of these on) placed this morning:
11/12 BPS 20x 1120/1105 @ $3.26. This is about 6.5k max gain, 23.5k max loss or 27% ROIC. At the time I sold this, it looked like 1150 was a support and high IV let me get what I considered to be a very good chance at 27% ROIC. If I need to close this early, it will probably be for a reasonable loss, but my only real management strategy is BTC.

Right now a lot of the trades I put on Friday are underwater, but I'm still thinking that we close the week close to 1200 (or at least visit), barring some macro event, and my ICs and trades from this morning are making up the losses.

The Black swan known as "Hertz week" came 4 weeks after I started doing $50 BPS, and the week after I decided to start BCS to form an IC. So that was painful. But now with way OTM, $200 spreads I'm not worried about the 1-2% ROIC, because another loss is extremely unlikely. It will be interesting to see if you continue the more aggressive strategy that has regular losses compared to my slow and steady strategy after a year. If there was a real black swan like Elon dying, I would immediately close the sold leg, and let the purchased leg (which was worth almost nothing to buy with a $200 spread), just build value if the stock kept dropping. So while a $200 spread has higher theoretical max loss for a low ROIC, it rarely would come into play, even with a black swan event.

 

[PastorDave]

These are high-volume, ultra-narrow, close to the money spreads, right?

My typical trade of this type is Low volume (x10, x20), 20 wide, and about maybe 30 points away from the money. With the high IV I've been able to get further away from the money recently. I'll have several of these on at once at different strikes as I feel out the week.

Another example trade like this that I put on last Thursday when the SP was much higher (near ATH):
11/12 BPS 20x 1150/1130 @ $3.92, or 24% ROIC. This trade is currently underwater by about 5.5k, but I haven't closed it because I think our chances of ending the week above that level are still great.

 

[PastorDave]

The Black swan known as "Hertz week" came 4 weeks after I started doing $50 BPS, and the week after I decided to start BCS to form an IC. So that was painful. But now with way OTM, $200 spreads I'm not worried about the 1-2% ROIC, because another loss is extremely unlikely. I will be interesting to see if you continue the more aggressive strategy that has regular losses compared to my slow and steady strategy after a year. If there was a real black swan like Elon dying, I would immediately close the short leg, and let the long leg (which was worth almost nothing to buy with a $200 spread), just build value if the stock kept dropping. So while a $200 spread has higher theoretical max loss for a low ROIC, it rarely would come into play, even with a black swan event.

But what if the SP gapped down 200 points before the options market opened? You can't always manage these things, especially under stress. I agree that's super rare, but that's also the definition of black swan.

I think ultra wide spreads are fine, so long as you've got the cash to roll or are ok with taking the shares. The majority of my cash is in naked puts or ultra wide spreads like this (some of witch are also underwater, lol). I don't consider those risky because I'd like to own stock. If we somehow dropped to $900 and I had naked puts there or enough cash to cover whatever # of contracts I'd sold, that would be a great time to add shares. Selling 25% ROIC 20 wide spreads is about 10% of my capital. My point was, if I wanted to make 100k, I would consider it riskier to put 2.2M @ 1% chance of failure than 400k at say 10%, because I can live with the latter but not the former.

 

[BornToFly]

These are high-volume, ultra-narrow, close to the money spreads, right?

That is what I see to. So they are more of a "gamble," in that the SP has to do exactly what you hope or you lose (most or all of theoretical max loss). The other strategy allows the SP to do almost anything without managing the trades, except for the rare black swan, which will then require some work to either limit the loss, or turn it into a profitable roll.

 

[BornToFly]

But what if the SP gapped down 200 points before the options market opened? You can't always manage these things, especially under stress. I agree that's super rare, but that's also the definition of black swan.

I think ultra wide spreads are fine, so long as you've got the cash to roll or are ok with taking the shares. The majority of my cash is in naked puts or ultra wide spreads like this (some of witch are also underwater, lol). I don't consider those risky because I'd like to own stock. If we somehow dropped to $900 and I had naked puts there or enough cash to cover whatever # of contracts I'd sold, that would be a great time to add shares. Selling 25% ROIC 20 wide spreads is about 10% of my capital. My point was, if I wanted to make 100k, I would consider it riskier to put 2.2M @ 1% chance of failure than 400k at say 10%, because I can live with the latter but not the former.

200 points before the market opens won't even reach the 900 or my 700/900...
But, I see your point. Right now if the impossible happened, it would use up all my margin, and cut my portfolio in half. If I was all in cash, it might be a good idea to use only 50% just in case.

 

[scubastevo80]

No, but what if the black swan is the week you started this strategy? And would you rather spend 4 weeks building back your reserves or 22? (well, 2 weeks or 6-11, in the more likely scenarios were you close early)

Example 25% ROIC trade (I used to report these, but they're directly counter to most of the not-advice here and I put a lot of these on) placed this morning:
11/12 BPS 20x 1120/1105 @ $3.26. This is about 6.5k max gain, 23.5k max loss or 27% ROIC. At the time I sold this, it looked like 1150 was a support and high IV let me get what I considered to be a very good chance at 27% ROIC. If I need to close this early, it will probably be for a reasonable loss, but my only real management strategy is BTC.

Right now a lot of the trades I put on Friday are underwater, but I'm still thinking that we close the week close to 1200 (or at least visit), barring some macro event, and my ICs and trades from this morning are making up the losses.

As a newbie, I think anything within 3% of current price would be too nerve racking for me but appreciate your perspective. At this point, I almost feel like I can't take a loss, so playing the slow steady 20% move in a week game is easier than placing these types of trades where you always need to be right of you get wiped out. Maybe I missing something here, but it seems like you may be managing these full time and trading any time during a given day? I've got a long way to go before I'd have to confidence to trade something like that, but perhaps our goals are different. I'm looking for safe ancillary income for my parents on Social Security, while others may be doing this for wealth accumulation or as a day job.

 

[PastorDave]

That is what I see to. So they are more of a "gamble," in that the SP has to do exactly what you hope or you lose (most or all of theoretical max loss). The other strategy allows the SP to do almost anything without managing the trades, except for the rare black swan, which will then require some work to either limit the loss, or turn it into a profitable roll.

Exactly. To me, this is "safe". To everyone else on this board, it's a gamble. I can manage the expected moves of the SP with very little problem. I can get in and get out and make informed decisions. What gets me is the unexpected moves, which could turn that 1% gain into a huge loss. That's what I think of as gambling, risking losses that large for gains that small. And again, I'm still selling ICs; just not at 2% ROIC.

 

[scubastevo80]

200 points before the market opens won't even reach the 900 or my 700/900...
But, I see your point. Right now if the impossible happened, it would use up all my margin, and cut my portfolio in half. If I was all in cash, it might be a good idea to use only 50% just in case.

200 points before the market opens and I'm using HELOC cash to buy additional shares. If I get wiped out on the high end because we blow through $1400 in a week, I'm up quite a bit more on existing long shares. I guess my parents "options" account is more of an opportunistic one relative to some of you folks and the main accounts are long-term buy and hold focused.

 

[juanmedina]

so slow and steady doesn't win the race?

 

[BornToFly]

so slow and steady doesn't win the race?

As fast as you can go without having to keep going backwards wins the race....

 

[vikings123]

I know I've said this before, but I think we've got "safe" and "risky" reversed on this forum. To me, risking 2.2M to make 100k (or whatever your actual max profit was) is extremely risky, and would keep me up at night too. Anything "real" happening like Elon dying, China invading Taiwan, etc. is likely to plow through even a 99% chance BPS. And it would take 22 weeks of profit to build up a cash wall against a single black swan event.

I'd rather have a reasonable plan for what the SP is going to do using the excellent information on this board, and place trades that risk 400k to earn 100k, and leave 1.8M in cash or in naked puts, which also don't bother me. That way so long as there isn't a black swan once a month, I should be ok. My ICs should be similar; I'm looking for something that earns about 20% so that I can build up cash reserves and don't get wiped out by rare events.

This whole tweet thing only impacted my portfolio by about -100k using approximately the above strategy, so it's closer to risking 100k for 100k, since I could have in theory exited those positions for 100k loss after an 80 point drop this morning. I'm back up to basically even with where I was on Friday now, after selling BPS into the dip. But if it had been a something-burger, I can take a max loss on those trades, roll a few naked puts for a while and sleep just fine.

Anyway, not criticism or advice, just wanted to share my perspective.

This is pretty much how look at it too and what I was alluding to in my post earlier today. Risking 20X to gain X is very bad risk/reward in my opinion. Reason why I think sticking to a combination of cash/margin covered puts and selling covered calls would help me sleep better at night.

I will say we dodged a bullet today with all the positive analyst upgrades and China news essentially balancing out the Elon Saturday morning drama. Slow and steady is fine by me, still have a lot of learning to do. Tough to keep the market maker’s greed in check.

 

[BornToFly]

OptionAlpha targets trades that have a 70% success rate. However, they say to only put 1-2% into any one trade. Since we are very concentrated in one stock, and all the trades are almost identical weekly trades, a 70% success rate will quickly wipe you out with a string of "bad luck." I will be curious to see how the Pastor is doing if we have 5-10% down/week for 6 weeks straight. Not trying to pick on him at all. I'm just trying to learn more, like I did debating $50 vs $200 spreads previously (where I thought I was right, until Hertz week and Adiggs convinced me otherwise).

 

[dl003]

This is pretty much how look at it too and what I was alluding to in my post earlier today. Risking 20X to gain X is very bad risk/reward in my opinion. Reason why I think sticking to a combination of cash/margin covered puts and selling covered calls would help me sleep better at night.

I will say we dodged a bullet today with all the positive analyst upgrades and China news essentially balancing out the Elon Saturday morning drama. Slow and steady is fine by me, still have a lot of learning to do. Tough to keep the market maker’s greed in check.

What if...
Elon already sold and knew the China number would be good and wanted to prevent another unnecessary gamma squeeze?
all the PT upgrades were intended to lessen the blow from his announcement?
This is fun.

 

[EVMeister]

What if...
Elon already sold and knew the China number would be good and wanted to prevent another unnecessary gamma squeeze?
all the PT upgrades were intended to lessen the blow from his announcement?
This is fun.

 

[dl003]

You might think I'm crazy, but how do you explain the $80 drop on October 26th?

 

[ammulder]

My point was, if I wanted to make 100k, I would consider it riskier to put 2.2M @ 1% chance of failure than 400k at say 10%, because I can live with the latter but not the former.

So what does this 10% really mean? If it means it actually happens 5 times per year on weekly trading, whoa I’m outta here. I mean, then you’re planning to lose $2M over the course of every year, and you have to make $2M just to break even. I guess if you’re making $100k the other 45-ish weeks, that might be acceptable, but it would be a painful way for me to go.

I’m hoping we don’t have a $200 gap down with following sustained loss black swan every two years, either. Seems increasingly unlikely due to regular operating circumstances and Elon can only be hit by a bus once, right? One pandemic per decade?

I guess what I’m saying is, these percentages seem a little bizarre to me.

 

[vikings123]

What if...
Elon already sold and knew the China number would be good and wanted to prevent another unnecessary gamma squeeze?
all the PT upgrades were intended to lessen the blow from his announcement?
This is fun.

Oh for sure this is all connected. Remember Elon tried the whole Hertz no contract thing first. Elon wants to reign in the stock price. That just tells me there is more good news coming. No doubt in my mind, something bigger any of us can imagine.

 

[Yoona]

i wish there is a way to download this thread into a PDF so i can easily copy/paste/print info that i need

searching through 500+ pages is a maxpain

trying to know more about the benefit of 100-300 spreads... especially about the part where the "-p is closed out earlier if it's threatened" and "+p can stay longer"

my $50 spreads are working beautifully and there is always time to react (due to far -p OTM) but maybe there is a better strategy

it is important to be educated on all the tricks of the trade!

 

[MindOverMatcha]

In the last 30 minutes, we drop from 1180 to 1162. Guess what Max Pain is this week...1160!!

Don't know if 1160 is the magnet as MMs and Shorts aren't always going to conclude on the same number. I imagine Shorts are smelling blood and may continue this game tomorrow. Pullback but not a crash as 20-day moving average moves up and the price moves down. I'll be happy for sideways/slight downs this week. Gives a chance to build solid support over time.

Tomorrow is a TSLA board meeting. Doubt there will be a stock split announcement but if there is. Whoa.

 

[bkp_duke]

i wish there is a way to download this thread into a PDF so i can easily copy/paste/print info that i need

searching through 500+ pages is a maxpain

trying to know more about the benefit of 100-300 spreads... especially about the part where the "-p is closed out earlier if it's threatened" and "+p can stay longer"

my $50 spreads are working beautifully and there is always time to react (due to far -p OTM) but maybe there is a better strategy

it is important to be educated on all the tricks of the trade!

Use the "bookmark" feature (top right of a post near the number).

I bookmark in the forum posts I want to go back to reference at a future date.