20% away the day before exp., and 15% the day of, will get you nothing. If you want to be that conservative, do 40% away the Thur./Fri before, 30% on the Monday/Tues. Reposition on Wednesday if it's worth it. Use $200 spreads with margin available to widen, or $300 to start with so they are easier to roll.
Better yet, use your knowledge of TSLA. In mid December, 10-20% away for BPS, 30-40% for BCS. 10% for naked Puts. If P&D is good, keep it going until the week before earnings (then take cover).
I have previously (and still do, to some degree) used delta to make my decisions along these lines. It adjust automatically as you near expiration and is an approximation of finishing ITM. I.e. a .10 delta option has an approximately 10% change of finishing ITM, and thus 90% of finishing OTM. Even better is to find your broker's information about PoP (probabilility of profit), ProbITM, or similar. That's a more exact reading on how the market is pricing the likelihood of being ITM/ OTM at expiration.
YESSS!! Thank you so much for the details!! You have addressed all the variables I've been racking my brain over.Know thyself. A fantastic example.
I agree that this IS real work. At least for me, I believe that to do this well, there has to be at least something about this that is fascination to fun about it. If this were work, in the sense of something that I was making myself do, then I wouldn't be doing it well.
NOT-ADVICE; just way that I see things. Worth working out your own examples to see if you agree.
The way I see rolling in general, and spreads more particularly... when a position is close to the money or in the money, and the purpose of the roll being considered is to buy time for the share price to turn around and the position to move back OTM (vs, a convenience roll - confirm the profit for this week, while opening the position for next week), then:
There is a balance between rolling too soon, and rolling too late that we're looking for. Of course if the crystal ball was always clear then it'd be easy, but the crystal ball is cloudy.
The factors that affect the roll - everything else being equal we'd like to roll with the time value as close to 0 as possible. The rationale is that on a roll we are buying out the time value remaining in the old position so we can sell the time value in the new position. The less time value in the old position, the less there is to buy out. Or a different way of thinking about the same thing - our earnings are in the time value; the less of there is remaining, the more that we've earned. That mostly means that the closer to expiration, the better.
The other factor is just how deeply ITM one goes. Generally speaking the quality of the available roll decreases as the share price approaches the short strike and continues getting worse as you go further and further ITM. It seems like the very best rolls are ATM or slightly OTM, but are still good enough that waiting a few extra days while going slightly ITM is a better tradeoff (time value melting away).
Too soon and you're buying out more time value than you want to (lower quality position to roll into), and too late may see you get too deeply ITM, thereby lowering the quality of the position you can roll to.
My own bias in this tradeoff is to roll early and for maximum strike improvement (subject to a net credit). There are two reasons for this:
1) The maximum strike improvement is going to get me the best protection if THIS move is a biggie. Most of them aren't, but if this is the one, then I'd like to have given myself the very best chance of staying ahead of it, so the shares can reverse.
2) I view the roll as buying time and that means I'll have a week (or more) of effectively no earnings. Earnings going to 0 for a week or more is way better than realizing losses. And since I'm in this for income, and I've got enough buffer from the weeks that win, one of the uses for those winning weeks is to allow for weeks with no income. Oh - and realized losses are bad, really bad, for income
Rolling early if the shares aren't gapping up and down will bias towards still OTM. If I'm close to expiration and OTM, then I might split the difference on the roll - find out my max strike improvement and then come back 1 strike so I get a bit of income that week while still providing lots of coverage if this is a BIG move against me.
From what I've seen high IV provides significantly better rolling choices, while also being an environment in which more rolls are needed (can't get something for nothing).
I learned at the beginning of the year when IV was high that I could get an effective roll while $80 ITM. Shares around 720 and strike around 800 on some puts, so 10% ITM at that point, where effective = credit + strike improvement available, whether I take the strike improvement or not. A month later with IV down, I no longer had an effective roll when $40 or $50 ITM. I don't have a formula here - I just regularly setup candidate rolls when its possible that I might be needing them soonish so I can see just what's available.
I learned that there are situations where a 1 week roll is barely or not effective, while the 2 week roll IS effective. Or 1 week vs 3 or 4 weeks. I personally choose to not roll out to more than 4 weeks, at least without a lot of thought about it. I've rolled out to 1 and 2 years before and really didn't like that dynamic. Once I'm up to 3-5 weeks to expiration then it might be time to take assignment (or the loss) and move on.
I've seen situations where the 2-4 week roll is much more than 2-4 1 week rolls. And heck - if you're deep enough in the doodoo, then I've rolled for as much as a month just to avoid the weekly work (and get a better credit).
When really deeply ITM on naked puts and calls, the time value will approach 0 much sooner than the day before expiration. I keep an eye on that and have been in situations where I was rolling 1 week ahead of expiration to avoid early assignment (a good time to be considering monthly rolls). That doesn't guarantee no early assignment - I just don't try to push time value really, really low. Probably around .30 to .50 is as close as I've gone (guessing at the number - it is at least directionally accurate).
And last that I can think of right now - spreads have different roll characteristics from plain short options. These are best seen in a really tight spread, but the dynamic applies to some degree to any spread. To the degree that a spread behaves like a short put|call, then the rolls that maintain the spread size should be expected to behave similarly or the same. From what I've seen this relationship holds pretty well through 1/4th of the way into the spread. So $50 on a $200 wide spread.
The spread stops rolling for a credit or strike improvement at the mid point.
Rolls past the midpoint of the spread are a net worsening of the position, either by paying a debit to maintain the strikes, worsening the strikes, and/or bringing more capital into the trade.
And somewhere in there - probably the midpoint and lower - adding more time to the roll doesn't change the quality of the roll that is available. I think that what's going on here is that the % change in time value for the long and short legs are now changing roughly the same, so whether you add 1 week or 4, the time value relationship between the two changes about the same, thus little or no extra value in more time. Maybe even a worse roll with more time - I haven't tested this though.
FAQ post of merit. Still cogitating on this, but here are some more suggestions and questions when considering rolling. I’m wondering if rolling would be better in a rising or falling SP scenario, in a higher or lower variability time (morning oscillation or afternoon siesta), or whether it makes no difference. When rolling CCs are decoupled into multiple, sequential trades, it makes sense to BTC lower and STO higher (rising SP environment). However, when this BTC+STO occurs in single multi-leg trade, does direction matter? Maybe not.Know thyself. A fantastic example.
I agree that this IS real work. At least for me, I believe that to do this well, there has to be at least something about this that is fascination to fun about it. If this were work, in the sense of something that I was making myself do, then I wouldn't be doing it well.
NOT-ADVICE; just way that I see things. Worth working out your own examples to see if you agree.
The way I see rolling in general, and spreads more particularly... when a position is close to the money or in the money, and the purpose of the roll being considered is to buy time for the share price to turn around and the position to move back OTM (vs, a convenience roll - confirm the profit for this week, while opening the position for next week), then:
There is a balance between rolling too soon, and rolling too late that we're looking for. Of course if the crystal ball was always clear then it'd be easy, but the crystal ball is cloudy.
The factors that affect the roll - everything else being equal we'd like to roll with the time value as close to 0 as possible. The rationale is that on a roll we are buying out the time value remaining in the old position so we can sell the time value in the new position. The less time value in the old position, the less there is to buy out. Or a different way of thinking about the same thing - our earnings are in the time value; the less of there is remaining, the more that we've earned. That mostly means that the closer to expiration, the better.
The other factor is just how deeply ITM one goes. Generally speaking the quality of the available roll decreases as the share price approaches the short strike and continues getting worse as you go further and further ITM. It seems like the very best rolls are ATM or slightly OTM, but are still good enough that waiting a few extra days while going slightly ITM is a better tradeoff (time value melting away).
Too soon and you're buying out more time value than you want to (lower quality position to roll into), and too late may see you get too deeply ITM, thereby lowering the quality of the position you can roll to.
My own bias in this tradeoff is to roll early and for maximum strike improvement (subject to a net credit). There are two reasons for this:
1) The maximum strike improvement is going to get me the best protection if THIS move is a biggie. Most of them aren't, but if this is the one, then I'd like to have given myself the very best chance of staying ahead of it, so the shares can reverse.
2) I view the roll as buying time and that means I'll have a week (or more) of effectively no earnings. Earnings going to 0 for a week or more is way better than realizing losses. And since I'm in this for income, and I've got enough buffer from the weeks that win, one of the uses for those winning weeks is to allow for weeks with no income. Oh - and realized losses are bad, really bad, for income
Rolling early if the shares aren't gapping up and down will bias towards still OTM. If I'm close to expiration and OTM, then I might split the difference on the roll - find out my max strike improvement and then come back 1 strike so I get a bit of income that week while still providing lots of coverage if this is a BIG move against me.
From what I've seen high IV provides significantly better rolling choices, while also being an environment in which more rolls are needed (can't get something for nothing).
I learned at the beginning of the year when IV was high that I could get an effective roll while $80 ITM. Shares around 720 and strike around 800 on some puts, so 10% ITM at that point, where effective = credit + strike improvement available, whether I take the strike improvement or not. A month later with IV down, I no longer had an effective roll when $40 or $50 ITM. I don't have a formula here - I just regularly setup candidate rolls when its possible that I might be needing them soonish so I can see just what's available.
I learned that there are situations where a 1 week roll is barely or not effective, while the 2 week roll IS effective. Or 1 week vs 3 or 4 weeks. I personally choose to not roll out to more than 4 weeks, at least without a lot of thought about it. I've rolled out to 1 and 2 years before and really didn't like that dynamic. Once I'm up to 3-5 weeks to expiration then it might be time to take assignment (or the loss) and move on.
I've seen situations where the 2-4 week roll is much more than 2-4 1 week rolls. And heck - if you're deep enough in the doodoo, then I've rolled for as much as a month just to avoid the weekly work (and get a better credit).
When really deeply ITM on naked puts and calls, the time value will approach 0 much sooner than the day before expiration. I keep an eye on that and have been in situations where I was rolling 1 week ahead of expiration to avoid early assignment (a good time to be considering monthly rolls). That doesn't guarantee no early assignment - I just don't try to push time value really, really low. Probably around .30 to .50 is as close as I've gone (guessing at the number - it is at least directionally accurate).
And last that I can think of right now - spreads have different roll characteristics from plain short options. These are best seen in a really tight spread, but the dynamic applies to some degree to any spread. To the degree that a spread behaves like a short put|call, then the rolls that maintain the spread size should be expected to behave similarly or the same. From what I've seen this relationship holds pretty well through 1/4th of the way into the spread. So $50 on a $200 wide spread.
The spread stops rolling for a credit or strike improvement at the mid point.
Rolls past the midpoint of the spread are a net worsening of the position, either by paying a debit to maintain the strikes, worsening the strikes, and/or bringing more capital into the trade.
And somewhere in there - probably the midpoint and lower - adding more time to the roll doesn't change the quality of the roll that is available. I think that what's going on here is that the % change in time value for the long and short legs are now changing roughly the same, so whether you add 1 week or 4, the time value relationship between the two changes about the same, thus little or no extra value in more time. Maybe even a worse roll with more time - I haven't tested this though.
| 50.897 IV | 0.166 delta | 0.007 gamma | -2.683 theta | 0.179 Vega |
| 60.997 IV | 0.165 delta | 0.002 gamma | -1.421 theta | 0.407 Vega |
| 68.698 IV | 0.065 delta | 0.001 gamma | -0.817 theta | 0.207 Vega |
I’m only allowed to sell CCs, and I can’t trade TSLA since the account is much smaller than $106,351.00. I’m currently experimenting with QS and LCID, and really enjoy the actual roll function. After a month, I’ll request level 2, then maybe try to get 2+, so that I can trade spreads. Watching QS today reminds me of TSLA these past few weeks. I will definitely be practicing my rolling skills (sold a 11/19 -50cc today, SP near $40, IV near 100, up 16% today).Your numbers look right, if it closes above 1040.
You forgot compounding in your second calculation.Something I have been thinking about after these last few stressful weeks. Is there an easier way than weeklies? Something I could set and forget? I started looking at longer dated strategies to replicate weekly trading profits.
For example, given a bullish outlook on the SP, one could:
Buy a March 2023 $700 call for $473
Sell a March 2023 $1200 call for $255
Entry cost: $21,810.00
Maximum risk: $21,810.00 (at TSLA$700.00)
Maximum return: $28,190.00 (at TSLA$1,200.00)
Max return on risk: 129.3% (95.9% annual)
Breakevens at expiry: $918.10
Probability of profit: 58.1% (I think this is actually closer to 100% with TSLA)
As far as weeklies, I assume for every $10,000 cash, I could conservatively make $200/wk selling BPS. So 70 weeks x $200 x 2 = $28,000
Two strategies that could arrive at the same point. Except one require maintenance and action every week, and one could be ignored for 2 years. I'm not sure if I would do something like this, but it sure is interesting.
Yeah, but at 10k a contract and 200 a week, it will be 50 weeks until this specific position goes from 2 to 3 contracts.
Something I have been thinking about after these last few stressful weeks. Is there an easier way than weeklies? Something I could set and forget? I started looking at longer dated strategies to replicate weekly trading profits.
For example, given a bullish outlook on the SP, one could:
Buy a March 2023 $700 call for $473
Sell a March 2023 $1200 call for $255
Entry cost: $21,810.00
Maximum risk: $21,810.00 (at TSLA$700.00)
Maximum return: $28,190.00 (at TSLA$1,200.00)
Max return on risk: 129.3% (95.9% annual)
Breakevens at expiry: $918.10
Probability of profit: 58.1% (I think this is actually closer to 100% with TSLA)
As far as weeklies, I assume for every $10,000 cash, I could conservatively make $200/wk selling BPS. So 70 weeks x $200 x 2 = $28,000
Two strategies that could arrive at the same point. Except one require maintenance and action every week, and one could be ignored for 2 years. I'm not sure if I would do something like this, but it sure is interesting.
Short answer - no. Rolling an ITM BPS is best done earlier rather than later in the week. You may still get a reasonable roll on Thursday depending on IV, but into Friday the P+ loses a lot of value while the P+ for next week is still expensive. This makes rolling an ITM BPS very expensive as it gets close to expiry in the final week.
Thank you so much for explaining! I have ITM BPS expiring 11/19. I am worried about....anything at this point. I may look
Forgot to mention my current situation:Know thyself. A fantastic example.
I agree that this IS real work. At least for me, I believe that to do this well, there has to be at least something about this that is fascination to fun about it. If this were work, in the sense of something that I was making myself do, then I wouldn't be doing it well.
NOT-ADVICE; just way that I see things. Worth working out your own examples to see if you agree.
The way I see rolling in general, and spreads more particularly... when a position is close to the money or in the money, and the purpose of the roll being considered is to buy time for the share price to turn around and the position to move back OTM (vs, a convenience roll - confirm the profit for this week, while opening the position for next week), then:
There is a balance between rolling too soon, and rolling too late that we're looking for. Of course if the crystal ball was always clear then it'd be easy, but the crystal ball is cloudy.
The factors that affect the roll - everything else being equal we'd like to roll with the time value as close to 0 as possible. The rationale is that on a roll we are buying out the time value remaining in the old position so we can sell the time value in the new position. The less time value in the old position, the less there is to buy out. Or a different way of thinking about the same thing - our earnings are in the time value; the less of there is remaining, the more that we've earned. That mostly means that the closer to expiration, the better.
The other factor is just how deeply ITM one goes. Generally speaking the quality of the available roll decreases as the share price approaches the short strike and continues getting worse as you go further and further ITM. It seems like the very best rolls are ATM or slightly OTM, but are still good enough that waiting a few extra days while going slightly ITM is a better tradeoff (time value melting away).
Too soon and you're buying out more time value than you want to (lower quality position to roll into), and too late may see you get too deeply ITM, thereby lowering the quality of the position you can roll to.
My own bias in this tradeoff is to roll early and for maximum strike improvement (subject to a net credit). There are two reasons for this:
1) The maximum strike improvement is going to get me the best protection if THIS move is a biggie. Most of them aren't, but if this is the one, then I'd like to have given myself the very best chance of staying ahead of it, so the shares can reverse.
2) I view the roll as buying time and that means I'll have a week (or more) of effectively no earnings. Earnings going to 0 for a week or more is way better than realizing losses. And since I'm in this for income, and I've got enough buffer from the weeks that win, one of the uses for those winning weeks is to allow for weeks with no income. Oh - and realized losses are bad, really bad, for income
Rolling early if the shares aren't gapping up and down will bias towards still OTM. If I'm close to expiration and OTM, then I might split the difference on the roll - find out my max strike improvement and then come back 1 strike so I get a bit of income that week while still providing lots of coverage if this is a BIG move against me.
From what I've seen high IV provides significantly better rolling choices, while also being an environment in which more rolls are needed (can't get something for nothing).
I learned at the beginning of the year when IV was high that I could get an effective roll while $80 ITM. Shares around 720 and strike around 800 on some puts, so 10% ITM at that point, where effective = credit + strike improvement available, whether I take the strike improvement or not. A month later with IV down, I no longer had an effective roll when $40 or $50 ITM. I don't have a formula here - I just regularly setup candidate rolls when its possible that I might be needing them soonish so I can see just what's available.
I learned that there are situations where a 1 week roll is barely or not effective, while the 2 week roll IS effective. Or 1 week vs 3 or 4 weeks. I personally choose to not roll out to more than 4 weeks, at least without a lot of thought about it. I've rolled out to 1 and 2 years before and really didn't like that dynamic. Once I'm up to 3-5 weeks to expiration then it might be time to take assignment (or the loss) and move on.
I've seen situations where the 2-4 week roll is much more than 2-4 1 week rolls. And heck - if you're deep enough in the doodoo, then I've rolled for as much as a month just to avoid the weekly work (and get a better credit).
When really deeply ITM on naked puts and calls, the time value will approach 0 much sooner than the day before expiration. I keep an eye on that and have been in situations where I was rolling 1 week ahead of expiration to avoid early assignment (a good time to be considering monthly rolls). That doesn't guarantee no early assignment - I just don't try to push time value really, really low. Probably around .30 to .50 is as close as I've gone (guessing at the number - it is at least directionally accurate).
And last that I can think of right now - spreads have different roll characteristics from plain short options. These are best seen in a really tight spread, but the dynamic applies to some degree to any spread. To the degree that a spread behaves like a short put|call, then the rolls that maintain the spread size should be expected to behave similarly or the same. From what I've seen this relationship holds pretty well through 1/4th of the way into the spread. So $50 on a $200 wide spread.
The spread stops rolling for a credit or strike improvement at the mid point.
Rolls past the midpoint of the spread are a net worsening of the position, either by paying a debit to maintain the strikes, worsening the strikes, and/or bringing more capital into the trade.
And somewhere in there - probably the midpoint and lower - adding more time to the roll doesn't change the quality of the roll that is available. I think that what's going on here is that the % change in time value for the long and short legs are now changing roughly the same, so whether you add 1 week or 4, the time value relationship between the two changes about the same, thus little or no extra value in more time. Maybe even a worse roll with more time - I haven't tested this though.
For those hitting 2%/week, I suggest one considers excluding compounding from return calculations, as well as not actually compounding the results. Especially if you're using spreads (which is how I've been able to get to 2%/week) then whatever the spread size is you've got a relatively reachable maximum loss available. I.e. - a +800p/-900p spread only needs to reach $800 or lower share price for a max loss, while the same capital devoted to cash secured puts needs a share price of $0 for a max loss.
. But the idea stands - compounding keeps 100% of your capital at risk which means that one's exposure to a black swan doesn't get better over time.
I honestly don't really know what I would do. If you were to simply BTC these positions, would the time value lower the actual loss to be less than a max loss? My guess is that if the loss were smaller, then it wouldn't be much smaller.
After all - there isn't a bigger than max loss as long as you trade the position as a spread. So a further move down doesn't change anything.Absolutely thank you! There's still next week. I HOPE it spikes up to 1150 and I will be partying so hard!! I'm just...so close!! Hoping max pain comes through for 1110! Then I may roll my 11/19 out further to buy myself more time. Again, like you said it's hard to know what to do. Just know what strategy to deploy. I will have to keep my eye on the 11/19s as I imagine rolling Monday/Tuesday would be my last bet if things go south.I honestly don't really know what I would do. If you were to simply BTC these positions, would the time value lower the actual loss to be less than a max loss? My guess is that if the loss were smaller, then it wouldn't be much smaller.
With today's close at 1063 it looks like the only position here that isn't a max loss is the 1050/1080 and that one is close.
So I'm pretty sure that there aren't any rolls for a credit that retains the current strikes - you'd be rolling to a worse strike for the credit, or you'd be rolling for a debit to keep the strikes. And you'd still be at a max loss. The way I see it rolling a max loss is throwing good money after bad. Eating the max loss will hurt, but it also lets you start next week with a clean slate and start earning back the losses.
One idea - if they're already max loss and you've still got time, then I don't see a downside to just letting them run - maybe we get that spike back up to 1150 and you're partying in the aisles
One of the ideas I've seen floated is to buy your way out of the short put and keep the long put(s). The idea makes sense to me but the 2 times I've tried it:
- bunch of extra work keeping tabs on the long puts and picked up an extra dime or 3 per share; totally not worth the energy and time (to me)
- bunch of extra work and the shares moved against me. Ended up with a loss on both sides (much less than a max loss, but larger than simply closing the spread).
Then again I didn't start with the insurance already ITM. If you felt strongly about the shares continuing down, and doing it soon, then this approach might dig you out fast. If you're wrong then you might swing a bigger than max loss! (So I'm not a fan - but that's not advice).
Good luck with these - lets root for a pop up to max pain tomorrow at 1110!
some NOT-ADVICE..Absolutely thank you! There's still next week. I HOPE it spikes up to 1150 and I will be partying so hard!! I'm just...so close!! Hoping max pain comes through for 1110! Then I may roll my 11/19 out further to buy myself more time. Again, like you said it's hard to know what to do. Just know what strategy to deploy. I will have to keep my eye on the 11/19s as I imagine rolling Monday/Tuesday would be my last bet if things go south.
I think my goal would be to have my spreads ITM or OTM then BTC them...
Again, really appreciate your insight and positivity! Helps keep me going!
Funny enough, I found an old journal entry back when I sold my first CC 4 months ago and was languishing about losing $3,000 when my portfolio was half what it is now. It is nice to see how far TSLA has come in those 4 months, so that has given me a smile
An advantage I see in the vertical spread strategy is the protection it provides against SP decrease, as the OTM short leg would then lose a lot of value (even with long dated options).
Some digging your self out of the hole and survival strategies:
