Wiki Selling TSLA Options - Be the House

[adiggs]

When the shares reverse aggressively and push my new 12/23 1000 strike calls deeply ITM, y'all can thank me for my sacrifice.

Y'all are welcome. You see what I did there? Sell covered call at the lowest price of the day, just to make sure that WAS the lowest price of the day.

I looked at those too, but decided they were too borderline for comfort, wrong side of MP too...

Where's the old @Lycanthrope from the early days of the thread? I'd have expected you to be in for something more like a 950 or 980

I swear the market does these head fakes just to scare options sellers into rolling. Almost rolled -p930 that I ultimately didn't need to roll from 1000 last week, which I ultimately didn't need to roll from 1040 the week before. At least I sat on them this week.

NOT-ADVICE (for really real)
It's been my observation that -almost- every time I roll it proves to be unnecessary or that I should have rolled straight out to earn 2 weeks of credits in the 2nd week when the shares recover.

This is where knowing one's objective is important. My personal objective is income and my results are good enough that I will do great earning income 13 - 20 weeks of the year. Rolling for max strike improvement and minimum credit is a good risk mitigation strategy for me, and I give up a lot of income and capital appreciation / gain doing those sorts of rolls.

The other thing is that it works .. until it doesn't. Rolling for big credit and then watching the shares keep running away, and then not coming back for months (or never); that's beyond painful.

Is this also what is referred to as a "Diagonal"?

Yes.

Also, I'm not sure I understand the difference between a "Poor Man's Covered Call" and a LCC. And, why aren't we calling the LCC an LCS (Leap Call Spread)?

They are the same thing. Random reading on the internet will get you furthest using the Poor Man's Covered Call term.

We also use lcc (leap covered call) as our own in=house term. They are the same thing. They are really, technically, a diagonal spread (also a term that will get you traction in a DuckDuckGo search; leap covered call / lcc won't get you traction ).

The same idea - purchase a call that is a long time to expiration (we each define what that means) and then sell calls with a low DTE (less than the purchased call). Keep selling calls as you don't get assigned and collect premium like madman. Profit. Win. (Or something like that).


One thing to be clear on - if your short calls go to expiration and are ITM, or you get assigned on those before expiration, then the purchased / long calls won't automatically be exercised to offset the short call assignment.

At least for me, when I talk about taking assignment on these positions, that really means that when I choose to close the combo, then I STC the purchased call and simultaneously BTC the short / sold call. I don't actually allow either leg to reach expiration. It gets messy if the short call goes to assignment.

 

[GeoX750]

Y'all are welcome. You see what I did there? Sell covered call at the lowest price of the day, just to make sure that WAS the lowest price of the day.


Where's the old @Lycanthrope from the early days of the thread? I'd have expected you to be in for something more like a 950 or 980


NOT-ADVICE (for really real)
It's been my observation that -almost- every time I roll it proves to be unnecessary or that I should have rolled straight out to earn 2 weeks of credits in the 2nd week when the shares recover.

This is where knowing one's objective is important. My personal objective is income and my results are good enough that I will do great earning income 13 - 20 weeks of the year. Rolling for max strike improvement and minimum credit is a good risk mitigation strategy for me, and I give up a lot of income and capital appreciation / gain doing those sorts of rolls.

The other thing is that it works .. until it doesn't. Rolling for big credit and then watching the shares keep running away, and then not coming back for months (or never); that's beyond painful.

Yes.

They are the same thing. Random reading on the internet will get you furthest using the Poor Man's Covered Call term.

We also use lcc (leap covered call) as our own in=house term. They are the same thing. They are really, technically, a diagonal spread (also a term that will get you traction in a DuckDuckGo search; leap covered call / lcc won't get you traction ).

The same idea - purchase a call that is a long time to expiration (we each define what that means) and then sell calls with a low DTE (less than the purchased call). Keep selling calls as you don't get assigned and collect premium like madman. Profit. Win. (Or something like that).


One thing to be clear on - if your short calls go to expiration and are ITM, or you get assigned on those before expiration, then the purchased / long calls won't automatically be exercised to offset the short call assignment.

At least for me, when I talk about taking assignment on these positions, that really means that when I choose to close the combo, then I STC the purchased call and simultaneously BTC the short / sold call. I don't actually allow either leg to reach expiration. It gets messy if the short call goes to assignment.

How problematic is it if the short call is ITM at expiration and not paired with the long call (being automatically exercised)?

I guess you would need to have cash/margin in your account to cover the difference between your strike and the ITM market price until you could manually sell the long call to cover.

Also, does your broker consider the short call to be covered by the long call or is there a large cash/margin requirement ?

 

[adiggs]

How problematic is it if the short call is ITM at expiration and not paired with the long call (being automatically exercised)?

I guess you would need to have cash/margin in your account to cover the difference between your strike and the ITM market price until you could manually sell the long call to cover.

Also, does your broker consider the short call to be covered by the long call or is there a large cash/margin requirement ?

The last question first - at least my broker lines up the short call sales with the long purchased call as a debit spread automatically. This is true in both my brokerage and retirement accounts where I'm doing these trades. I'm with Fidelity but I would expect this of any brokerage. Thus there is no cash/margin requirement as the purchased call is that cash/margin requirement.

The first question about how problematic - this is my understanding.
1) If there are shares in that account, in addition to the leaps, then its easy - the broker will sell as many shares as needed when the short call is assigned. That's literally what assignment on a sold call means - you'll sell your shares if called to do so by the buyer of your call(s). That might not be what you want to happen, but its at least easy to describe

2) The case we care about - there aren't any shares in the account, only the purchased calls that are the backing for the short calls. The long calls form a debit spread with the short calls, but they won't be automatically exercised on your behalf. Instead the broker will sell shares you don't have, leaving you short shares (but hey - you do receive strike price * 100 when you sell those shares!). I don't know what will happen after that. This will have happened over the weekend after expiration.

When the market opens on Monday your account will have a TSLA -100 share position, and your broker will most likely be looking for you to clean that up right away. One way to clear that up is to exercise your long call, purchasing 100 shares at your long call strike price. This is (virtually) always a bad idea, as early exercise gives away the time value that remains in the long call. What you'll probably do is sell that long call (raising another strike price * 100) and make use of all of that cash to purchase 100 shares, possibly at market, to offset the -100 shares, thereby resolving the assignment of the short call.


Avoiding early assignment on options is really easy. One -can- be early assigned, but most of the time that is a win for you - the person that did an early exercise just gave you the remaining time value in the option. You should thank them . In the world we live in where there is no such thing as free money - this is actually an instance of free money.

Early assignment comes into play when time value is virtually $0 and/or very close to expiration. Therefore to avoid early assignment roll when either of those circumstances is arising. If you read far enough back in the thread you'll find the phrase "Roll Thursday" which arises from the idea that you don't wait for Friday to roll an ITM short option - you roll it on Thursday as early assignment rarely happens before Friday.

The other situation that can arise (and which I've been in) is to be so far ITM that there is virtually no time value in a 1 or 2 week option. In that case I was rolling a full week before expiration (time value was in the .20 or .40 kind of range by that point). I should probably have been rolling 2-4 weeks at a time in that specific instance instead of the 1 week I was usually using. The point was to avoid having the time value get so small that a particularly early assignment became more probable.

 

[adiggs]

I guess you would need to have cash/margin in your account to cover the difference between your strike and the ITM market price until you could manually sell the long call to cover.

Or this .

 

[Tslynk67]

Where's the old @Lycanthrope from the early days of the thread? I'd have expected you to be in for something more like a 950 or 980

I'm sorry, I became old and boring!

Actually, if they had been real cc's I might have gone for it, but as I'm covering with LEAPS, and looking to mitigate risk right now, I'm more looking at the delta between the long and short strikes, so that if I did have to exercise both, I would not make a loss on the long side

 

[FS_FRA]

So no F4 was filed yesterday - I believe so far they have always filed the same day as Elon Sales Day. The uncertainty continues.

FWIW, MaxPain = $1000 and in Frankfurt we're at $943 after topping at $959 after 45min of trading.

 

[tradenewbie]

I haven't sold any BPS until yesterday because I feel uncomfortable about the FOMC this week. Yesterday I couldn't wait and decided to sell some BPS.

I was thinking about 2 options: sell the -850/+650 (expiry this week) for around $3-$3.5, or -800/+600 (expiry 12/31) for $9-$10. Eventually I decided to sell the 12/31 expiry one. The logic behind is I want to have a relatively lower strike while having similar premium / week. But to look back, it seems it might be a better idea to take the expiry this week and then roll if the SP starts coming close to 850 this week (higher cost to BTC, but also higher premium to STO)?

Any non-advice from you guys?

 

[FS_FRA]

I haven't sold any BPS until yesterday because I feel uncomfortable about the FOMC this week. Yesterday I couldn't wait and decided to sell some BPS.

I was thinking about 2 options: sell the -850/+650 (expiry this week) for around $3-$3.5, or -800/+600 (expiry 12/31) for $9-$10. Eventually I decided to sell the 12/31 expiry one. The logic behind is I want to have a relatively lower strike while having similar premium / week. But to look back, it seems it might be a better idea to take the expiry this week and then roll if the SP starts coming close to 850 this week (higher cost to BTC, but also higher premium to STO)?

Any non-advice from you guys?

Since I'm looking for weekly returns, coupled with a desire not to have to actively watch the ticker all day long, I'm doing weekly expiries only, well OTM (or so I thought on Friday with my -900/700). I also believe in slowly wins the race, so rather a sure $3 in the pocket this week, than an uncertain $10 for the end of the year. Close the $3 at 85%, rinse - repeat for next week. If the spread goes ITM or close to at the end of the week, roll for credit to next week.

I'm not comfortable going further out than one week in the current uncertain environment. Also, I use the max % of margin I feel comfortable with each week, so going more weeks out basically keeps me out of the market for anything new in the interim.

 

[mongo]

So no F4 was filed yesterday - I believe so far they have always filed the same day as Elon Sales Day. The uncertainty continues.

FWIW, MaxPain = $1000 and in Frankfurt we're at $943 after topping at $959 after 45min of trading.

Not always...

 

[Drezil]

As there always is some confusion onto what is what, here is a guide for SPREADS.

SPREAD = 2 position of the same type (put or call) that you observe as one virtual position.

canonical naming: (horizontal | vertical | diagonal) (credit | debit) (put | call) spread.

horizontal: different expiration, SAME strike
vertical: SAME expiration, different strike
diagonal: different expiration, different strike

Think of a huge 2-dimensional calendar. if you go left/right you move in time, up/down you move in strike. The things above are then horizontal/vertical/diagonal lines.

credit: you get paid for opening & want the spread to fall
debit: you pay for opening & want the spread to rise

put/call: the option-side you chose.

Now for some examples/slang around here:
LEAP: call-option way in the future. If you then sell a short-term call against it this forms a spread. We say leap covered call, because it is traded like a covered-call against stock & not like a spread you take to expiration.
Canonically these are horizontal or diagonal debit call spreads. But they get played as a short credit call against your long-running asset.
Other name: Poor mans covered call.

Now to the put-side - which most of us play.

Why the put-side? Because usually those are credit-spreads & you won't go cash-negative & pay interest to your bank/use a margin-loan.
Think of some random diagonal credit put spread. if you mirror the diagonal in the middle horizontal and flip put to calls you get the diagonal call debit spread with IDENTICAL behaviour. But now here you pay for your bet. On a 50$ spread if you would have gotten 10$ via the put-spread you would pay 40$ via the call-spread - in both cases 40$ is max-loss & 10$ is max-gain. Difference is the cash in your account in the meantime

If you combine both of them you get a "box-spread". That one is a risk-free strategy (unless stock moves after close on expiration date & you get an after-hour assignment, but can't exercise yourself anymore) & can be used (not by you!) to arbitrage market-inefficiencies. Usually the payout is way way less than the transaction-fees.

The "bull put" (or BPS) people here play is a vertical put credit spread.
The BCS (Bear call spread) people here play is a vertical call credit spread.
The "bull put" is good for "stock won't fall below xx", the "bear call" is good for "stock won't rise above xx". Both together form the 2 sides of an "iron condor". Also this can be named ironfly (if xx is the same strike for the bull side & the bear side).

--

So much for the SPREADS. A bit more esoteric, but also mentioned here sometimes: If we combine a call with a put we get a strangle or a straddle (if both sides buy or sell) or a synthetic long/short (if strikes are the same, but one side is buy & the other is sell) or a risk reversal (double the change or no change in a specific interval).

The only really relevant thing is the short strangle & short straddle. You basically want to pick the exact stock price/price range at expiration.
i.e. if you think this well we will nail 1000, then open a straddle with selling a 1000 call & a 1000 put. This gives you all the money from volatility and the price to close is about the difference to 1000 on expiration day. If done perfect (haha .. is if!) you can extract around 2000$ per contract per week at the moment.
The strangle gives you a bit more leeway: sell the 1010 call & the 990 put. You reak in way less premium (~1500$ or so per contract & week), but you "only" need to have the SP between 990-1010.

Strangles/Straddles pay out VERY late & are very high risk. But depending on your other position you might be in a spot where you want to cover gains in exactly one range & have other positions that cover the loss if SP moves against you. I.e. you can treat the short call of a strangle as a replacement for some leap-covered calls if *sugar* hits the fan.

Hope this clarifies a bit & i did not confuse you even more. If things are unclear, just ask & i will try to answer.

 

[MP3Mike]

FWIW, MaxPain = $1000

MaxPain has dropped to $990...

 

[BornToFly]

I disagree. There's always a floor. Having a better understanding of that floor than the hedgies playing these games is a huge advantage.

Knowing where to double down or triple down is great, knowing the true fundamentals will take SP positive within a certain time window is like gold.

People in this thread selling BPS $750-1000 can feel pretty good knowing it's just a matter of how many rolls til they expire those contracts. Nothing's certain, but that's as close as you can get in this type of investing.

I think ignoring this knowledge(guessing) is a big mistake.

I agree with most of what you wrote. But I don't know if you realize that a $750-1000 spread can't be rolled without a debit once the SP hits about $880. So while I'm not worried about my deep ITM 12/21 1200 naked puts, I was not comfortable with my 700/1000 spreads. While I think a drop to 850 isn't likely, I didn't want to gamble real money on the wild reactions of the market.

 

[JustMe]

MaxPain has dropped to $990...

TSLA doesn’t have the guts to close at $990 this week!

 

[TheTalkingMule]

But I don't know if you realize that a $750-1000 spread can't be rolled without a debit once the SP hits about $880.

I'm sorry, sometimes I write sentences that sense no make good.

I just meant put spreads comprised of short strikes in the range of $750 to $1000, not an actual 750/1000 spread. So something like a +$800/-$1000 BPS or +$650/-$850.

And yes, definitely learning things this week about when BPS can be rolled for credit. I've adopted the 1/4 ITM rule and greatly appreciate everyone's help here! Gracias.

 

[FS_FRA]

TSLA doesn’t have the guts to close at $990 this week!

Conversely it will be interesting if THEY again don't let it drop past $930 today. We should see in the next 30min or so...

 

[vikings123]

Anybody opening new 12/17 BPS positions with this latest drop? I feel like it's a good time pocket some premiums both on BPS and CCs. I think we will trade in a range with low volume.

I just opened 10X 740/840 BPS @ 7.50 for 12/23

 

[strago13]

Rolled my 12/23 930 Puts to 1/7 890 for a credit when we breached 930 since it looks like that is going to fall.

Unless we have a huge move upwards, I will catch you all in the New Year! Happy Holidays.

 

[adiggs]

As there always is some confusion onto what is what, here is a guide for SPREADS.

SPREAD = 2 position of the same type (put or call) that you observe as one virtual position.

canonical naming: (horizontal | vertical | diagonal) (credit | debit) (put | call) spread.

horizontal: different expiration, SAME strike
vertical: SAME expiration, different strike
diagonal: different expiration, different strike

Think of a huge 2-dimensional calendar. if you go left/right you move in time, up/down you move in strike. The things above are then horizontal/vertical/diagonal lines.

credit: you get paid for opening & want the spread to fall
debit: you pay for opening & want the spread to rise

put/call: the option-side you chose.

Now for some examples/slang around here:
LEAP: call-option way in the future. If you then sell a short-term call against it this forms a spread. We say leap covered call, because it is traded like a covered-call against stock & not like a spread you take to expiration.
Canonically these are horizontal or diagonal debit call spreads. But they get played as a short credit call against your long-running asset.
Other name: Poor mans covered call.

Now to the put-side - which most of us play.

Why the put-side? Because usually those are credit-spreads & you won't go cash-negative & pay interest to your bank/use a margin-loan.
Think of some random diagonal credit put spread. if you mirror the diagonal in the middle horizontal and flip put to calls you get the diagonal call debit spread with IDENTICAL behaviour. But now here you pay for your bet. On a 50$ spread if you would have gotten 10$ via the put-spread you would pay 40$ via the call-spread - in both cases 40$ is max-loss & 10$ is max-gain. Difference is the cash in your account in the meantime

If you combine both of them you get a "box-spread". That one is a risk-free strategy (unless stock moves after close on expiration date & you get an after-hour assignment, but can't exercise yourself anymore) & can be used (not by you!) to arbitrage market-inefficiencies. Usually the payout is way way less than the transaction-fees.

The "bull put" (or BPS) people here play is a vertical put credit spread.
The BCS (Bear call spread) people here play is a vertical call credit spread.
The "bull put" is good for "stock won't fall below xx", the "bear call" is good for "stock won't rise above xx". Both together form the 2 sides of an "iron condor". Also this can be named ironfly (if xx is the same strike for the bull side & the bear side).

--

So much for the SPREADS. A bit more esoteric, but also mentioned here sometimes: If we combine a call with a put we get a strangle or a straddle (if both sides buy or sell) or a synthetic long/short (if strikes are the same, but one side is buy & the other is sell) or a risk reversal (double the change or no change in a specific interval).

The only really relevant thing is the short strangle & short straddle. You basically want to pick the exact stock price/price range at expiration.
i.e. if you think this well we will nail 1000, then open a straddle with selling a 1000 call & a 1000 put. This gives you all the money from volatility and the price to close is about the difference to 1000 on expiration day. If done perfect (haha .. is if!) you can extract around 2000$ per contract per week at the moment.
The strangle gives you a bit more leeway: sell the 1010 call & the 990 put. You reak in way less premium (~1500$ or so per contract & week), but you "only" need to have the SP between 990-1010.

Strangles/Straddles pay out VERY late & are very high risk. But depending on your other position you might be in a spot where you want to cover gains in exactly one range & have other positions that cover the loss if SP moves against you. I.e. you can treat the short call of a strangle as a replacement for some leap-covered calls if *sugar* hits the fan.

Hope this clarifies a bit & i did not confuse you even more. If things are unclear, just ask & i will try to answer.

FAQ'd that. Thanks!~

 

[Flehmenlips]

FAQ'd that. Thanks!~

Excellent! I was going to suggest that very thing.

 

[mickificki]

Fed Officials Project Three Interest Rate Rises in 2022 and Accelerate Stimulus Wind-Down

It is the latest sign of how an acceleration and broadening of inflationary pressures, together with signs of an ever-tighter labor market, is reshaping officials’ economic outlook and policy planning.

www.wsj.com

"Most Federal Reserve officials signaled Wednesday they were prepared to raise their short-term benchmark rate at least three times next year to cool high inflation.

As expected, officials also approved plans to more quickly scale back its pandemic stimulus efforts in response to hotter inflation, opening the door to rate increases starting next spring.

Fed officials voted to hold rates near zero on Wednesday, but the latest projections are a significant shift from just three months ago. In September, around half of those officials thought rate increases wouldn’t be warranted until 2023.
It is the latest sign of how an acceleration and broadening of inflationary pressures, together with signs of an ever-tighter labor market, is reshaping officials’ economic outlook and policy planning.

Officials in their postmeeting statement described their goal of inflation moderately exceeding their 2% target as being met and said they would keep rates near zero until they were satisfied labor market conditions were consistent with maximum employment..

They chose to accelerate their stimulus wind-down “in light of inflation developments and the further improvement in the labor market,” the statement said.

Fed officials in early November agreed to reduce their then-$120-billion-a-month in bond purchases by $15 billion a month, to $90 billion this month. On Wednesday, officials said they would accelerate that wind down beginning next month, reducing purchases by $30 billion a month. As a result, they will purchase $60 billion in Treasury and mortgage securities in January, putting the program on track to end by March"