Wiki Selling TSLA Options - Be the House

[Drezil]

I still don't understand why we don't just have a TMC hedge fund. Wouldn't that be easier than everyone doing this work separately?

Target 1% a week forever, and I think we could do it. Including black swan and global meltdowns. Minus the considerable fees of course.

Thought about those things. Then looked at financial regulation laws.
Here in Europe (and if you want our money you also have to obey our laws -.-) you have to have some kind of compliance department signing off of things etc.

I currently work together with a partner trading in a company. We thought about opening it up. It would mean recruiting & paying at least 3 more people fulltime for compliance alone.. not to mention all the contract-work, liability issues and other things... just to continue doing what we do with "other peoples money".
What we CAN do however is taking loans (but you only get fixed(!) interest, not performance-bound) or issue shares and pay out things as dividents.
But for other people to obtain shares in a non-publicly traded company you need to be an accredited investor in the US (afaik) or a kind of "self employed" investor over here (with implications on things like healthcare premiums, retirement obligations, etc. pp. even if you work full time as an employee) when you expect a significant flow back...

So .. CAN be possible. BUT expect very very many restrictions in obscure legalese....

 

[adiggs]

I was thinking the same earlier today. I decided to wait and see what tomorrow brings. I'm not trusting the head fake just yet.

This is an interesting situation though for opening into strength. At first blush today was a good day for closing puts as the shares were up by so much. But today IS strength if the closing price today is the low price for the next few days - if this is what happens then opening puts today is just right.

@Lycanthrope was right but the strike wouldn't have worked for me - I'd have done something more like 900s than 950s.

But today - the 950s are just right! Opening 750/950s for $5ish and 760/960s for 6.50ish, both expiring next Friday. On these $200 wide spreads these get me 2-3% of the money at risk as credits (cash flow). I frequently close around 2/3rds - if that is what happens here then I'll earn something like 1.5-2% over the week.

This also puts me into a 750(760) and 1100 somewhat-strangle for next week. Somewhat because strangles are short puts plus short calls, while mine are put spreads to the downward side, and covered calls (actually call diagonal spreads as I use purchased calls as backing for my covered calls), but conceptually I think of these as strangles. Everything else being equal I like being in strangles as I'll be earning money whichever way the shares go.

 

[stealthyc]

This is why I consider the income and capital growth mindsets, at least with TSLA, to be somewhat incompatible. Or at least that each leads to thought patterns and investment decisions that can be bad for the other.

For me the happy middle ground is holding shares and making income off of spreads backed by margin. It feels very much like a have your cake and eat it too scenario, but it seems to work well enough. They are still somewhat at odds of course in that I very much do what I can to avoid having to sell any shares, and due to the margin backing I have to limit my capital deployed to generate income. But I find myself able to earn nearly double my reasonably high paying salary while allowing the shares to grow, so I'll keep heading down this path until a different, better path is uncovered.

 

[ChefBoyardee]

After a very successful June - Oct based on guidance learned here, I didn’t follow the rules established and nearly blew up my account in November during the post Q4 earnings swings/Hertz/Elon Twitter poll ordeals.

After ~5 weeks of rolling for small debits instead of accepting max losses I opted to roll my deep ITM BPSs as far out and up as possible where I could stomach the debit needed.

All in all, I’m left with several Jan 2024 1850/1800 (brokerage acct) and Jan 2024 2000/1900 BPSs (IRA) - and ties up 75% of available margin for 2 years.

Has anyone ever held deep ITM BPSs for a significant period of time (12+ months)?

Love hear feedback on the above and any advice while I wait it out.

I did that on the last selloff from 880 to 550. I rolled out a year to the 900 level. While those would have recovered by now, I used the proceeds from weekly BPS to slowly close out those positions each week because they tie up a ton of buying power - I found that closing them at a loss in order to sell more weeklies was more profitable.

Based on what I learned from that, with this selloff I progressively rolled down and out 1-2 weeks at a time. That left me with 950's for Jan 7, so I don't have to wait as long to get back in the weekly game. With big down moves like this, there tends to be a rebound and you'll want to be able to catch that rebound.

Your 1850/1800 position will act like a leap call spread. My not-advice would be to close out like 1 spread per week until you get to your ideal mix of leaps vs weeklies

 

[M3Rider]

My experience of the last few weeks was quite nerve-wracking.

First, I leveraged a bit early for Q4 P&D by selling 1100-1150 puts at about 1050-1100sp. Once SP started crashing, having additional bps put me in a margin call territory, so had to cut puts numbers and move them to 1/21/22 from mid-December.

That gave me a bit of margin to work with, but with SP continuing the downward spiral it was quickly evaporating and I had trouble rolling weekly bps down with not enough buying power. Sometimes had to do 2-5 at a time before I’d get enough margin back.

At one point had to sell 200 shares, do the rolls, then buy 200 shares back losing like 1500 on this sale, which I thought was a great deal in the environment where SP falls every second.

What I found is that SP was falling quicker than I was able to roll down with a credit.
100-width bps could get a decent $50 strike roll down, but not more and SP was going down by 100/week.

So, I got caught with my -950 ITM. Decided to move to Jan to reduce stress, since the push down was a concentrated effort during a short period of time, which had chances to continue near term.

At the start of the fall I moved 100k cash to another account. Then had the misfortune with closing my bought bcs early by closing short leg first and then bottom immediately fell out so my long leg lost all the profit from the spread and I couldn’t bring myself to sell it, so I let those 2 calls to exercise costing me $150k - I will get my dues back on this next year.

Now have
1/7 35x -900/800bps
1/7 14x -950/850bps
1/14 36x -950/850 bps
1/21 30x -1100/1080 bps (this was an attempt to save -1030/1010 bps that was nearly ATM and no good roll options; that week ended <1000, so this bps was a toast)

1/7 2x -1100put
1/21 11x -1150put
1/21 4x -1180put

Was going to leave it at that, but yesterday added
12/23 100x -1105cc @.35
12/23 50x -930/910bps @.25
4,750 for 2 days.

With taking a bunch of losses this year by rolling to next year I will prob only have 200k+ of estimated taxes to pay this year, which will bring my cash to nearly nothing.

Will prob chill this year, more fun next year.
Mostly, a successful year so far. I’m most happy about the Hertz fallout being in the rear view mirror. I can’t believe I spent so much money fixing it with the fall the followed, but it’s done.

Btw, Elon selling yesterday was a shock…
Almost seems like 11m+ tweet was intentionally misleading, wondering if he’s selling today.

 

[doddiozil]

Any help with rolling forward -1020c +1070c exp today? I can't find a single good roll

 

[LightngMcQueen]

Gotta say, you guys on this thread live in a different world. Many of your posts fly right over this noob's head. But I really want to learn some of these strategies in advance of retiring and focusing on income-generation with my TSLA shares.

I understand covered calls and have used that tactic effectively in the past.

I understand selling cash covered puts. I like this idea much better than CCs as I am a long time bull and expect SP to increase. However, most of my funds are in an IRA which does not allow margin. And as I run numbers, it seems to me that I am better off long TSLA shares rather than having idle cash set aside to cover short puts.

Would love to hear the experts' opinions on this.

Not an expert but IMO you are right. Theory is all on your side: PUTs are overpriced compared to CALLs and market underprices TSLA growth (as seen in forward price for long dated options)

I would read all the posts by @bxr140 earlier in that forum, and try to understand them before doing anything more active, his comments on The Wheel included.

My favourite quote from @bxr140 is: Sucker money sells theta. (MM's love them). Smart money sells volatility.

This short sentence is IMO the essence of option trading and something that most people do not understand. It forever changed my naive view of "selling options for income" that portrayed theta as "free money".

I mean no offence to anyone but for the sake of retirement security has to be said: The information in this thread is very entertaining but there are many posts that are incorrect from statistics / option pricing math perspective*. It is not necessarily bad - you can be successful golfer without understanding physics and you can be successful option trader without understanding option pricing, just by following "patterns" / intuition.
The down side though is that you have much higher chance of being "black swanned".

I do trade small numbers of options for profit and entertainment, but I would never say that there is a method to it that can be semi automatically followed.

* EDIT:
There are even more posts that are incorrect from CAPM / risk adjusted return point of view, e.g. it is not uncommon to see strategies that offer for example 3x higher return than HODL at risk level that is more than 3x grater than HODL. This is in contrast to simply leveraging up shares where you get equal (linear) increase in both reward and risk.
I am pretty sure that my option trading track record has much lower Sortino ratio than HODL and I think I am not alone.

 

[intelligator]

Just closed one of two remaining spreads that evolved from November panic rolls. The 12/31 930/800 is finally booked @ 90% ! The other is a Jan 14 920/820 that I will hang on to a few more points, it is now @ 65%. Contemplating closing and taking a new position.

Moved a single 12/31 1050 CC to 1/7 1080 for just over $5 credit, it's a learning experiment half @Drezil approach , using the shares i am long. Really trying to get comfortable with extrinsic value by not having a situation where I roll out with no immediate risk. Taking this one my way to learn from, I do realize now the benefit of a calendar call spread. Thank you for sharing that initial trade and the discussions that came out it.

 

[chiller]

Tried buying(!) a Dec31 1020/1100 bull call spread this morning @ 21.93. Closed it later for 31.03.
Closed Jan07 800/700 BPS at 90% profit, and then sold a Dec31 950/750 BPS for 5.00. Shouldn't really sell into strength, but I'm feeling very bullish.

 

[TheTalkingMule]

So let's try to get out in front of the hedgies while we have this moment to breath. (hopefully no one has too many call spreads in serious danger)

We saw this summers shenanigans take us from 730 down to 560 and then a slow rise to 760. All that shorting an manipulation quickly unwound once the traders got back from the Hamptons in September and volume increased. Once shenanigans became too expensive, hedgies needed to cover. Boom 1230 by end of October.

The market then spent time finding a comfortable SP and we settled around 1150 for Thanksgiving. All perfectly understandable.

Now December has been full of pushdown shenanigans. And why not? Elon is selling so there's tons of extra float to lube the pushdown. MM's will be compliant as it's mostly paying calls they want to avoid. Eventually FOMO for 4Q was gonna catch up and the slowest movers would need to scramble, which we're seeing now. All perfectly understandable.

I think hedgies loaded up on Elon's shares and are very happy to ride the wave to 1300+ on 4Q earnings numbers they know will move all the algos. Of course they will then be working in an environment where very few will be buying at 1350+, and......it's time to tank again. They try and push back all the way to $1000 on Omicron, inflation, FSD FUD, etc.

Sell the news is likely their plan. I don't see it working, but it makes sense if you need a big move one way or the other. If we start moving beyond 1200 before earnings, I would be careful with the BPS. -20% from 1350 may not be super safe.

 

[BornToFly]

Any help with rolling forward -1020c +1070c exp today? I can't find a single good roll

You can't find a good roll because the SP is past the mid-point of your spread. That is the problem with narrow spreads - you have to roll them early, or gamble on an SP reversal to prevent a big/max loss. If you had done a 1000/1300 you could still roll it no problem.

 

[Knightshade]

So let's try to get out in front of the hedgies while we have this moment to breath. (hopefully no one has too many call spreads in serious danger)

We saw this summers shenanigans take us from 730 down to 560

Not in a single week though.

Sell the news is likely their plan. I don't see it working, but it makes sense if you need a big move one way or the other. If we start moving beyond 1200 before earnings, I would be careful with the BPS. -20% from 1350 may not be super safe.

20% OTM from 1350 is 1080.

Even the recent big from-the-1200s drop was "only" a Friday to Friday of 1222->1033, a drop of roughly 15%- so even there 20% was still 'safe'

And if you include any decent spread width you're pushing needing a 25% drop to really be in trouble... has the stock ever had a 25% drop in a single week?


By all means be as cautious as you're comfortable with, and past performance is no indicator of future results and all... but 20% BPSes with decent spread width has seemed a pretty safe bet historically for those wishing to be conservative.



Now, THAT said... a big post-Q4-number spike might be a better time to harvest premiums on OTM calls if you believe it's gonna be sell the news.... (or dip into ICs I suppose and go both ways)

 

[BornToFly]

My favourite quote from @bxr140 is: Sucker money sells theta. (MM's love them). Smart money sells volatility.

This short sentence is IMO the essence of option trading and something that most people do not understand. It forever changed my naive view of "selling options for income" that portrayed theta as "free money".

I mean no offence to anyone but for the sake of retirement security has to be said: The information in this thread is very entertaining but there are many posts that are incorrect from statistics / option pricing math perspective*. It is not necessarily bad - you can be successful golfer without understanding physics and you can be successful option trader without understanding option pricing, just by following "patterns" / intuition.
The down side though is that you have much higher chance of being "black swanned".

I do trade small numbers of options for profit and entertainment, but I would never say that there is a method to it that can be semi automatically followed.

* EDIT:
There are even more posts that are incorrect from CAPM / risk adjusted return point of view, e.g. it is not uncommon to see strategies that offer for example 3x higher return than HODL at risk level that is more than 3x grater than HODL. This is in contrast to simply leveraging up shares where you get equal (linear) increase in both reward and risk.
I am pretty sure that my option trading track record has much lower Sortino ratio than HODL and I think I am not alone.

I disagree with you a little. By trading TSLA options, by definition, we are trading volatility (as opposed to trading other stocks). If you are mainly selling BPS, you can't always trade into a dropping SP and increasing Vega. Done right, Theta IS free money. Sell weeklies 20-30% OTM, every week, will earn you a good annual salary. Some weeks will be better because of volatility in your direction, others will be worse. But you average the volatility by playing every week.

 

[strago13]

Didnt think I would be updating this thread again this year. Made the following trades just now around 1060 to reposition myself for P&D in early Jan and the continued ascent back to 1200. With the shortened trading window (2 less trading days) and P&D coming, it made sense to be a bit more aggressive than normal.

BTC 890 1/7 Puts @ 6.45 (86%)
BTC 895 1/28 Puts @ 22.4 (67%)

STO 950 1/7 Puts for 14.22

 

[BornToFly]

Didnt think I would be updating this thread again this year. Made the following trades just now around 1060 to reposition myself for P&D in early Jan and the continued ascent back to 1200. With the shortened trading window (2 less trading days) and P&D coming, it made sense to be a bit more aggressive than normal.

BTC 890 1/7 Puts @ 6.45 (86%)
BTC 895 1/28 Puts @ 22.4 (67%)

STO 950 1/7 Puts for 14.22

Not-advice: BTO 500 1/7 Puts to cut your margin/cash requirements in half by making a spread, then double the # of 950 1/7s with equal number of purchased 500s. No problem rolling even with an SP drop to 800.

 

[LightngMcQueen]

I disagree with you a little. By trading TSLA options, by definition, we are trading volatility (as opposed to trading other stocks). If you are mainly selling BPS, you can't always trade into a dropping SP and increasing Vega. Done right, Theta IS free money. Sell weeklies 20-30% OTM, every week, will earn you a good annual salary. Some weeks will be better because of volatility in your direction, others will be worse. But you average the volatility by playing every week.

Let's step back from option and use the example another insurance contract. Say you pay me $1200 for car insurance for a year, after 6months you cancel (buy contract back) and I refund you $600 dollars keeping remaining $600.

So ... I got keep $600 of theta on that OTM car PUT option

Did I just earn $600? Would it work if I did it many times? Can I make selling car PUT options a recurring business? Eventually I will have to pay out the insurance to someone.

Of course it only will work if typical amount of loss less than $100 / month /car, that is Realized volatility.
If you get quoted for insurance at $100/mth that is Implied volatility or theta per month.

If you charge people $100 per month per car and on average pay out $95, you do make money - on average. For options Implied volatility is slightly higher than Realized volatility ... but only by small percentage and not all the the time.

Sometimes realized volatility is much higher than implied volatility - as we have all have experienced in the last 2 months , it is when those who sold insurance go broke.
So Free money is not Theta .. it is crumbles of Theta (eating xmas cookie now).

The reason we can make decent money from small variations in volatility is the insane leverage of options. That leverage goes both ways though.

 

[BornToFly]

My error for the day: I didn't close my 1100/1300 BCS on the dip this morning with >95% profit because I thought 100% profit was in the bag. Now I'm going to be sweating them out until the close today. STUPID!

 

[doddiozil]

You can't find a good roll because the SP is past the mid-point of your spread. That is the problem with narrow spreads - you have to roll them early, or gamble on an SP reversal to prevent a big/max loss. If you had done a 1000/1300 you could still roll it no problem.

I would also be able to roll easily if I simply increase the spread to $300 to next week. At least my long leg has value now as oppose to having a 1000/1300 and the 1300 would be worthless at this point.

 

[BornToFly]

I would also be able to roll easily if I simply increase the spread to $300 to next week. At least my long leg has value now as oppose to having a 1000/1300 and the 1300 would be worthless at this point.

If you have the ability to increase the width of your spread, then that is your solution. The problem I had when I started doing this was the fact that a 4X narrower spread let me do 4X as many contracts, and then I didn't have margin/cash to widen my spread when I got in trouble. But if you had the margin/cash to widen the spread, you would have made more money when you opened the position by buying a cheap 1300 instead of the more expensive 1070....

 

[BornToFly]

Let's step back from option and use the example another insurance contract. Say you pay me $1200 for car insurance for a year, after 6months you cancel (buy contract back) and I refund you $600 dollars keeping remaining $600.

So ... I got keep $600 of theta on that OTM car PUT option

Did I just earn $600? Would it work if I did it many times? Can I make selling car PUT options a recurring business? Eventually I will have to pay out the insurance to someone.

Of course it only will work if typical amount of loss less than $100 / month /car, that is Realized volatility.
If you get quoted for insurance at $100/mth that is Implied volatility or theta per month.

If you charge people $100 per month per car and on average pay out $95, you do make money - on average. For options Implied volatility is slightly higher than Realized volatility ... but only by small percentage and not all the the time.

Sometimes realized volatility is much higher than implied volatility - as we have all have experienced in the last 2 months , it is when those who sold insurance go broke.
So Free money is not Theta .. it is crumbles of Theta (eating xmas cookie now).

The reason we can make decent money from small variations in volatility is the insane leverage of options. That leverage goes both ways though.

Those who sold go broke only if they were too aggressive, or don't understand the charts and where TSLA is headed. I didn't panic on my 950/750s and 900/700s because I strongly believed the floor was around 900, I had wide spreads, and I knew that we always climb in December going into Q4 delivery numbers in January (and the selling was manipulation on top of Elon selling). But you do point out why most people can't do what we do and not lose money, and most people trade with too much emotion (fear of losing money), are too greedy (so a reversal eventually takes them out), and don't understand how this stock moves well enough.