Wiki Selling TSLA Options - Be the House

[FS_FRA]

I do it slightly differently, my preferred approach is to sell positions early in the week for expiry the week after, but to close those positions out when they hit >80% profits, which can often be Friday the same week, but more usually Monday/Tuesday the week after - so this seems to drain most of the theta out pretty quick, then I run again

After this last weekend, I'm thinking closing the Friday anyway might be better for my health - a closed trade no longer carries any risk and the less time the trade is open the better

Maybe that's what I tried to say....differently Let me give an example and see if it aligns:

Weekly Play #1.1:
Thursday 11/4 - opened 11/12 BPS -900/+700 - intention is to let this run to zero, or as close as possible, but >90% by or before 11/12

Tuesday 11/8 - close 11/12 BPS -900/+700 @ 90%

Weekly Play #1.2:
Tuesday 11/8 - see opportunity to "double-dip" for Friday 11/12: open new 11/12 BPS -1050/+750

Weekly Play #2:
mid-week open BPS for expiry Friday next week

Two plays a week of course require appropriate margin or cash to backup the position(s), so sometimes a double-dip in one week if running concurrently is not possible.

 

[CLK350]

Well I know this is a forum with a bias on selling options - and more complex bets - but it really seems to me the situation calls for plain buying optons ..
Posted in the main thread but maybe relevant here - ".. yesterday right before the 3:30 dip (sigh) bought more chairs and a few TSLA 03/18/2022 1600.00 C @ 6015 *

Why these .. I've not yet (!) learned enough about options but figured they were as good a way to multiply gains if my thesis does hold. (or multiply losses, otherwise, but c la vie - what's conviction without serious bets behind it?)
BTW anyone care to enlighten me on this particular trade, welcoming the feedback in advance : D "

 

[InTheShadows]

I'm too busy to put it all into a spreadsheet, but I'm sure there's a case to be made to have 2 plays a week paying out say 50-70%, than one per week paying out 50-99%....

There is. I usually go through two cycles per week. I usually open next weeks on Thursday, if I open them Wednesday or Thursday, I set a 25% GTC order. If they don’t fire, friday am I change them to 50% and Friday opens are set at 50%. A lot of times those trades will execute Monday or Tuesday. If they do. I open new positions with a delta between 16 and 10 (10 and 5 the last three weeks because of the run up) and set GTC orders for 50%. The next day, I change them to 80%. This 80% usually ends up with them executing Thursday or early Friday am.

A week that we went on vacation, I set GTC orders for 95% because I told my wife I wouldn’t trade while we were on vacation. I still looked at my positions during our trip and it was so painful watching that last 15% bleed off.

This week, yesterday morning, all of my 50% GTC orders fired and I opened new positions. I am now on my second round for the week. They are -50% right now because of the sell off into close yesterday. If we open back up around 1180 and stay flat, then most will be around +30% by the end of the day.

 

[mongo]

Well I know this is a forum with a bias on selling options - and more complex bets - but it really seems to me the situation calls for plain buying optons ..
Posted in the main thread but maybe relevant here - ".. yesterday right before the 3:30 dip (sigh) bought more chairs and a few TSLA 03/18/2022 1600.00 C @ 6015 *

Why these .. I've not yet (!) learned enough about options but figured they were as good a way to multiply gains if my thesis does hold. (or multiply losses, otherwise, but c la vie - what's conviction without serious bets behind it?)
BTW anyone care to enlighten me on this particular trade, welcoming the feedback in advance : D "

Not advice:
Why not both?
Buy a call, sell a call, make a spread.
1350/1600, $5k at risk, breakeven at 1400, Max return $20k at 1600
TSLA Call Spread calculator

1600C: $6k at risk, breakeven at 1660, infinite upside
TSLA Long Call (bullish) calculator

New general options thread:
Noob option trading questions

 

[AquaY]

Well I know this is a forum with a bias on selling options - and more complex bets - but it really seems to me the situation calls for plain buying optons ..
Posted in the main thread but maybe relevant here - ".. yesterday right before the 3:30 dip (sigh) bought more chairs and a few TSLA 03/18/2022 1600.00 C @ 6015 *

Why these .. I've not yet (!) learned enough about options but figured they were as good a way to multiply gains if my thesis does hold. (or multiply losses, otherwise, but c la vie - what's conviction without serious bets behind it?)
BTW anyone care to enlighten me on this particular trade, welcoming the feedback in advance : D "

You are losing value due to theta decay when you are long a call.
An OTM Call has no extrinsic value. It is all time value ( which you are losing slowly everyday and the rate will become greater the closer you get to expiration) and volatility.
An OTM call does not gain value as well like the underlying stock does.
Most calls expire worthless. These are reasons of concern in buying OTM calls.

What is your thesis as you put it?
Why do you think the SP will be 1600 or over by March?
I did a quick look at it and it seems to have about a 26% probability of being profitable. So a 1 in 4 chance.

 

[Tslynk67]

Maybe that's what I tried to say....differently Let me give an example and see if it aligns:

Weekly Play #1.1:
Thursday 11/4 - opened 11/12 BPS -900/+700 - intention is to let this run to zero, or as close as possible, but >90% by or before 11/12

Tuesday 11/8 - close 11/12 BPS -900/+700 @ 90%

Weekly Play #1.2:
Tuesday 11/8 - see opportunity to "double-dip" for Friday 11/12: open new 11/12 BPS -1050/+750

Weekly Play #2:
mid-week open BPS for expiry Friday next week

Two plays a week of course require appropriate margin or cash to backup the position(s), so sometimes a double-dip in one week if running concurrently is not possible.

Ah no, I rarely play the double-dip game, I (nearly) always look for a new position for following week expiry. I'm not really interested I, rolling closer to the money, I've done it in the past when a position has closed and then the SP reversed, but mostly I will avoid

Exceptions are this week, where I closed the BPS yesterday then sold some naked for this week, just for shlts'n'giggles

Will be looking today for a position for next week expiry. Can't say that I liked the look of DOTM spread premiums, might run with some safe naked instead - to be seen, but for sure I'm going to tone the capital at risk down a bit

 

[Drezil]

What is your thesis as you put it?
Why do you think the SP will be 1600 or over by March?
I did a quick look at it and it seems to have about a 26% probability of being profitable. So a 1 in 4 chance.

I would play these things i i want vega-exposure until january or so. If we hit 1400 or so by then, the extrinsic value should rise enough to make up for the lost theta.

Still a gamble.

@CLK350: OTM calls are ALWAYS a gamble. And most of the time you lose everything. Most of us have ITM call or DITM calls here, where we sell short calls against. So you can bet on "TSLA over 1000 by 2023", but "under 1400 next week". Wort case on the sold call is you have to give up the 1000c for over 400$

 

[AquaY]

I would play these things i i want vega-exposure until january or so. If we hit 1400 or so by then, the extrinsic value should rise enough to make up for the lost theta.

Still a gamble.

@CLK350: OTM calls are ALWAYS a gamble. And most of the time you lose everything. Most of us have ITM call or DITM calls here, where we sell short calls against. So you can bet on "TSLA over 1000 by 2023", but "under 1400 next week". Wort case on the sold call is you have to give up the 1000c for over 400$

1400 and 1600 are WAY different

 

[Drezil]

1400 and 1600 are WAY different

but as we are @ ~1200 then 1400 in january is midpoint to 1600 in march. Thus making the trade profitable if you sell in jan & don't hold to march, as Theta woud widdle away less than delta & vega would give you up to then.
After that it will go south fast if we don't close @1700 or so in march

 

[jeewee3000]

Well I know this is a forum with a bias on selling options - and more complex bets - but it really seems to me the situation calls for plain buying optons ..
Posted in the main thread but maybe relevant here - ".. yesterday right before the 3:30 dip (sigh) bought more chairs and a few TSLA 03/18/2022 1600.00 C @ 6015 *

Why these .. I've not yet (!) learned enough about options but figured they were as good a way to multiply gains if my thesis does hold. (or multiply losses, otherwise, but c la vie - what's conviction without serious bets behind it?)
BTW anyone care to enlighten me on this particular trade, welcoming the feedback in advance : D "

My personal feedback-not-advice:

It seems to me your expiration date is quite close for a 1600 strike price. Last May/June we discussed OTM call bets a lot and the main takeaway was that - since theta decay is strongest the closer you are to expiration - you should always choose an expiration date far behind the period in which you expect the rally to happen.

In your case, if you expect 1300-1800 by spring (which I can agree with, Q4 will be monstrous and Q1 will seem even better with Austin/Berlin coming online), you should pick an expiration date around June 2022 at the closest. This way you can let the call play out (let it increase in value during the rise in the coming months) and then you can sell the call around march for a healthy profit (i.e. more profit than you would've gained in the case of HODLING shares).

If you expect 1800 or higher by march your call bet is worth it and you can just let the option exercise by then. If you just want to gain value faster than with shares, it seems a very risky bet. If we end up around $1600 by march, you would have gained (starting from $1200 now let's say):

33% in the case of HODLING
0% with your call: you get to buy the shares at 1600.

In the short term the call is probably worth it. On the first rebound to +$1250 (hopefully within the next 2 weeks) the call will have apreciated and you can sell it at a profit. Hold it longer than that and you will be the victim of theta decay equal to you gains, netting you zero or minimal profit. (or worse, loss).

To be constructive, I'd suggest a call that is either less OTM and/or with a further expiration date, such as sep16th 2022 $1400c @175.

Yes, the cost of the call is about 3x what you paid, but a positive outcome (which in my eyes is not just a profit, but a profit larger than HODLING shares for an equivalent of money would net you) is waaaaaaaaay more likely.

As a final thought, you could also just sell a march 2022 $1300 put @252. This will expire worthless (if you are correct in guessing the SP range by then) so you would receive 25k "for free", if you can back these up with margin you have open (on your shares for example). If you're really agressive you can sell ITM BPS for maximum return, for example:
Mar2022 -1350p/+1300p @35. For each of these you open you need 5k margin. You receive 3.5k profit = 70% gain if the SP is above 1350 by March.
Only (slight) risk is if someone exercises the short puts early. But the risk is minimal.

Not advice. All depends on your risk profile, margin capacity, cash capacity, etc. Just throwing some ideas around in case you wonder what methods there are to profit from your belief of a rising SP.

 

[traxila]

Well I know this is a forum with a bias on selling options - and more complex bets - but it really seems to me the situation calls for plain buying optons ..
Posted in the main thread but maybe relevant here - ".. yesterday right before the 3:30 dip (sigh) bought more chairs and a few TSLA 03/18/2022 1600.00 C @ 6015 *

Why these .. I've not yet (!) learned enough about options but figured they were as good a way to multiply gains if my thesis does hold. (or multiply losses, otherwise, but c la vie - what's conviction without serious bets behind it?)
BTW anyone care to enlighten me on this particular trade, welcoming the feedback in advance : D "

As others have already explained here, your most probable path to profits on this option will be to sell it at least six weeks before expiration before the theta decay kicks in like mad. And this is assuming that the SP continues to make strong moves to the upside.

Holding it to expiration has a high probability of total loss. Consider the SP closing at 1595 on 3/18/2022. You will have been spectacularly correct about the movement and direction of the SP and your reward will be an 100% loss. Also consider you are buying at a time when the IV on options is high.

Not telling you your bet could not pay off big time, but it has a long road. TSLA has to keep exploding in the short term. Am guessing you paid around 50 for the calls, so you are looking at 1650 to break even, or yet another 50% TSLA upward in the next four months.

 

[stealthyc]

It's pretty straightforward to see that a trade that has a 3:1 risk/reward ratio at 75% chance of success is going to be a loss much more often than a 20:1 risk/reward trade that has 95% chance of success. And that if options were truly priced perfectly then over time you would expect to make 0% with enough bankroll to avoid sequence of returns risk with either.

Those risk/reward percentages however are based on value at expiration. To me the question is more about how much control you have over the amount of loss prior to expiration. I am more of a fan of the taking the loss early vs other management options like rolling. If you can limit the loss through early management then the risk/reward ratio becomes defined by you. It could be 1:1 if you like. But working against you are two things:

1. Gap risk. If the stock gaps against you putting you at a max loss price, there is little that can be done about it. The time that it happens in the life of the option does matter, as a gap to the long strike of your spread with many DTE will not put you at max loss instantly - probably more like half. Closer to expiration it is very deadly. This is probably an argument for taking profits earlier. The farther OTM you are the less likely of being gapped to death as well.

2. Risk of getting stopped out. If you think you want to get out at no more than 100% loss relative to premium, that's great until the stock bounces down quickly enough that you hit your threshold and take the loss but then the stock immediately rebounds.

I'm personally still unsure about the right blend of risk/reward, but these are some of the factors that I've been pondering. I lean toward the higher risk/reward ratio, far OTM trades with higher chance of success because I suspect they are less vulnerable to the issues listed above but I do not have any specific data to back it up. It is definitely interesting to hear how others have fared with the opposite strategy.

 

[OrthoSurg]

Well I know this is a forum with a bias on selling options - and more complex bets - but it really seems to me the situation calls for plain buying optons ..
Posted in the main thread but maybe relevant here - ".. yesterday right before the 3:30 dip (sigh) bought more chairs and a few TSLA 03/18/2022 1600.00 C @ 6015 *

Why these .. I've not yet (!) learned enough about options but figured they were as good a way to multiply gains if my thesis does hold. (or multiply losses, otherwise, but c la vie - what's conviction without serious bets behind it?)
BTW anyone care to enlighten me on this particular trade, welcoming the feedback in advance : D "

The market also has a bias into selling options in times of high IV. Since the contracts are overpriced of 6.25% compared to historical volatility. By buying a long call today, high Implied volatility would be working against you and the price of your call option would be going down if the stock price settles in the next few weeks as implied volatility is going to go down, bringing the price of your contract you just bought down with it. The one thing I have learned from optionalpha course is that tou have to be on the right side of volatility for the maths to work in your favour.

 

[Yoona]

I do it slightly differently, my preferred approach is to sell positions early in the week for expiry the week after, but to close those positions out when they hit >80% profits, which can often be Friday the same week, but more usually Monday/Tuesday the week after - so this seems to drain most of the theta out pretty quick, then I run again

After this last weekend, I'm thinking closing the Friday anyway might be better for my health - a closed trade no longer carries any risk and the less time the trade is open the better

excellent tip

 

[PastorDave]

I think that the point people are missing is that in this approach you don't use anything like all of the cash.

Making some #s up (I'm interested in learning better what real numbers are for you - standardizing to some total position is a good idea, IMHO):
- Given $1M in cash and a desire to earn $20k/week (2%), instead of using the $1M to sell 100x$100 wide spreads (very low premium that is very far OTM), one would instead use $80k invested at 25% return.

1/4th of $80k is that $20k target or 2% overall, but only has $80k in the pot.

For a max loss week that's $80k and there's still $920k remaining to continue, and in 4 weeks the $80k loss will have been earned back.


So the win rate is critical. If these are winning 9/10 then that's generating 10*$20k - $80k per 10 trades, or $120k total : $12k/week.

Then again the win rate is critical whatever the approach. Using that same $1M and 2% full positions, 1 max loss in 50 is enough to use up all of the gains. For weekly trades 1 max loss wipes out the year. And if it happens early in the year then there isn't enough of a pot remaining to get started again. Clearly managing these positions to << max loss is non-optional .

With the $80k positions there are no black swans that can do very much to you.

Bingo. I totaled it up this morning and I've got about 150k max loss risk from 7 open positions of this 25% (closer to 33%, now that I look at it) gain 20 wide spread type. That's like 5% of my cash. I'm working on a more detailed explanation that I'll post later (apparently I touched a nerve).

From my current positions:
if we go all the way down to 1050:
156k down from BPS I can't roll
84k up from IC full profit
down 72k net, which is fine.

if we stay above 1150:
BPS = 46k extra income - 100k not lost.
74k net gain in this case

And I've got a large (40%+) cash position in reserve and mostly naked puts on for the rest. I'm going to add BCS this morning and hopefully take off some of the positions I placed on Friday on a pop today, or later this week if we get one.

 

[Cherry Wine]

Bought back my -1100/+800 spreads when I saw us break through $1150 for $23 and resold them at $30 when we were at $1106ish.

EDIT: looks like I should have waited longer.

 

[OrthoSurg]

Sold some puts at 995 for Friday when it was -4%, already -9%. That’s was not a MMD, what the hell

 

[ammulder]

Wow... all I can say

 

[FS_FRA]

So much for closing my BPS for 90% with that dump at the open....

EDIT: Uptick rule triggered

 

[jeewee3000]

Is this what Elon selling looks like?