Wiki Selling TSLA Options - Be the House

[Knightshade]

Depends on a slew of factors, and ones personal risk profile.

Gary Black IIRC sells 15% OTM calls, and only does weeklies... and doesn't sell certain weeks around volatile events....some folks here like 20% others are more aggressive....some trade MORE around volatile events.

If you're selling covered calls (no spreads) then your safety net (ie how you avoid assignment if the stock shoots up and you don't want to be assigned) is rolling up and out, with the thinking the stock can't KEEP shooting up week after week without a pullback... (and apart from much of 2020 that's largely true)


This does take more work than just selling a LEAP at a price you're ok selling at... not a MASSIVE investment in time, but more, and at least SOME work weekly. It also depends on your goals- are you fine just getting some extra $ if it doesn't hit your target in 2 years and selling at that price if it does? Maybe that extra work isn't worth it. Do you want to try maximizing weekly/ongoing gains rather than just get paid to set an exit point from the stock? Maybe that extra work IS worth it.


Other thing to consider, in the US at least all your $ from weekly CC premiums will be short term cap gains and taxed as such... Same is true for selling a LEAP, the premium is STILL short term for the seller even if it's more than a year old when closed- but you wouldn't incur the tax obligation until closed, whereas weeklies mean taxable events weekly.

 

[ZeApelido]

About to dip my toe into selling calls. Anyone here sell leaps? Seems to have people buying leaps and not many people selling them. Are shorter term call option selling a better deal in the long run?

I'm looking at selling those strike prices of 2250 or so expiring in June of next year and willing to put the entire lot on the line. Shares being called away at those strike prices = I am retiring anyways

My analysis playing with Black Scholes option pricing and simulating various price movements says:

1) You think the stock is about to rocket up any moment = Don't sell any calls

2) You think the stock might go up a bit, might stay flat, might go down a bit = Sell shorter term calls

3) You think the stock is at a local max and will drop 20 / 30% = Sell longer term calls (and close early when the drop happens).

Right now I think the stock is somewhere between 1 & 2. But if the stock pumps up to say $1500 with relatively high volatility, then I will sell longer dated calls (say 6 - 12 months out) on the expectation that there will be a >20% correction. I believe that will give higher profitability then selling weekly calls on the way down.

 

[Singuy]

Depends on a slew of factors, and ones personal risk profile.

Gary Black IIRC sells 15% OTM calls, and only does weeklies... and doesn't sell certain weeks around volatile events....some folks here like 20% others are more aggressive....some trade MORE around volatile events.

If you're selling covered calls (no spreads) then your safety net (ie how you avoid assignment if the stock shoots up and you don't want to be assigned) is rolling up and out, with the thinking the stock can't KEEP shooting up week after week without a pullback... (and apart from much of 2020 that's largely true)


This does take more work than just selling a LEAP at a price you're ok selling at... not a MASSIVE investment in time, but more, and at least SOME work weekly. It also depends on your goals- are you fine just getting some extra $ if it doesn't hit your target in 2 years and selling at that price if it does? Maybe that extra work isn't worth it. Do you want to try maximizing weekly/ongoing gains rather than just get paid to set an exit point from the stock? Maybe that extra work IS worth it.


Other thing to consider, in the US at least all your $ from weekly CC premiums will be short term cap gains and taxed as such... Same is true for selling a LEAP, the premium is STILL short term for the seller even if it's more than a year old when closed- but you wouldn't incur the tax obligation until closed, whereas weeklies mean taxable events weekly.

That tax bit is very helpful. I thought even for leaps tax obligations happen immediately.

So with that advantage one can sell LEAP, take massive premium, buy more Tesla, sell same leaps again for a little extra gains.

Sounds like short term requires more headache for me when I am trying to divest away from headaches..lol.

 

[Singuy]

My analysis playing with Black Scholes option pricing and simulating various price movements says:

1) You think the stock is about to rocket up any moment = Don't sell any calls

2) You think the stock might go up a bit, might stay flat, might go down a bit = Sell shorter term calls

3) You think the stock is at a local max and will drop 20 / 30% = Sell longer term calls (and close early when the drop happens).

Right now I think the stock is somewhere between 1 & 2. But if the stock pumps up to say $1500 with relatively high volatility, then I will sell longer dated calls (say 6 - 12 month

out) on the expectation that there will be a >20% correction. I believe that will give higher profitability then selling weekly calls on the way down.

Here the noob question, you can close your own sold calls anytime? I thought only the buyer of options can exercise anytime while you wait till expire.

 

[mongo]

Here the noob question, you can close your own sold calls anytime? I thought only the buyer of options can exercise anytime while you wait till expire.

You can Buy To Close (BTC) anytime during market hours (for the right bid price )

 

[traxila]

Here the noob question, you can close your own sold calls anytime? I thought only the buyer of options can exercise anytime while you wait till expire.

Anytime in both directions. Buyer would never exercise without time value having gone to near zero unless they want to give money away. Paying 50 for a 1000 call strike price and then exercising with the stock at 1025 is just not bright.

 

[BornToFly]

About to dip my toe into selling calls. Anyone here sell leaps? Seems to have people buying leaps and not many people selling them. Are shorter term call option selling a better deal in the long run?

I'm looking at selling those strike prices of 2250 or so expiring in June of next year and willing to put the entire lot on the line. Shares being called away at those strike prices = I am retiring anyways

All of my biggest losses selling options have been with covered calls or call spreads. Multiple times (I'm a slow learner) I have sold CC Leaps for strikes that I said I would be ok selling my shares at. Then the SP out performs my wildest dreams and I end up buying them back at a loss to keep my shares. I have CC on 2/3 of my shares for 2000 strike with Jan 2024 exp. I plan to roll them for a higher strike in a year. Even though $2000/share would make me crazy rich, I don't want to leave money on the table. It turns out that the more money you have, the more money you want to spend.... Who knew?....

 

[mongo]

Anytime in both directions. Buyer would never exercise without time value having gone to near zero unless they want to give money away. Paying 50 for a 1000 call strike price and then exercising with the stock at 1025 is just not bright.

For US:
Unless they want to start the clock on long term capital gains for the shares.
That's not the scenario you mentioned; however, due to random assigment of contracts, one could have a short call position immediately exercised, it just wouldn't have been done by the purchaser of that call.

Alice buys a call in the past
Bob buys your call (same strike/ expiration) this morning
Alice exercises the call they have and you get assigned: original option price is added to basis, and long term clock starts on the shares.
If Alice sold the option instead and it was <12 months ago, the value increase would be taxed now at the short term rate. Even at long term rates, the tax reduces the purchasing power. If time value is less than taxes on gains, direct execution is better.

 

[corduroy]

It's always interesting when the long term vs weekly conversation comes up. I only sell weeklies because of all the benefits previously stated, and I've ran the numbers myself. But I keep getting intrigued by some longer plays.

For example, Jan 23 20x 1000/-1100 BPS

| Options Profit Calculator

Calculator shows projected profit and loss over time.

opcalc.com

This trade would bring in $120,140 credit with a max risk of $79,860. With that margin tied up, it would be the equivalent of $2.30 per week which is right around the my benchmark for weekly BPS. Not bad.

I'm still trying to wrap my head around the credit being higher than max risk. It setting off my "too good to be true" and "no such thing as free money" alarms.

 

[UltradoomY]

It's always interesting when the long term vs weekly conversation comes up. I only sell weeklies because of all the benefits previously stated, and I've ran the numbers myself. But I keep getting intrigued by some longer plays.

For example, Jan 23 20x 1000/-1100 BPS

| Options Profit Calculator

Calculator shows projected profit and loss over time.

opcalc.com

This trade would bring in $120,140 credit with a max risk of $79,860. With that margin tied up, it would be the equivalent of $2.30 per week which is right around the my benchmark for weekly BPS. Not bad.

I'm still trying to wrap my head around the credit being higher than max risk. It setting off my "too good to be true" and "no such thing as free money" alarms.

Max risk is $200k - so the credit of $120k plus the additional risk of $80k = the max loss of $200k
So if you spend the credit and it is ITM - you owe the $200k
Not that you would let it go to expiration or not manage it but your broker will reserve the full amount in their calculations.
You could always buy another 100 TSLA or some DITM leaps with the money to write CC's / LCC's with too but I'm not telling you how to spend your money or give advice!

 

[ReddyLeaf]

Short vs long options: Don’t forget the delta (or approx. probability of ITM). The options pricing model takes all this stuff into account. Using @BornToFly ’s example: Jan2024 c2000s are 0.4 delta (~40% chance of being ITM). That same delta is c1085-c1090 for 1/28/22 (after earnings). Anybody planning to sell those? Not me, no way no how. So, be careful when going out to longer expiring options. Know your risks, why you’re doing it, be prepared reverse the trade, etc.

FWIW, I have also sold some long dated calls (Sept22 c1300s), as part of trying to save poorly timed CCs. This was a desperation move, otherwise I would have lost shares at $900, which I imagine is similar to BornToFly’s reason. I’m still trying to claw back the CCs and even might buyback another one this week if the SP drops to 950s (though with so much time value left it doesn’t make sense). Still lots of time to earn enough weekly premiums on my other CCs and CSPs.
Edit: RE premiums. Example trades -p1050s 1/28 pay $55 (~5%), Jun22’s pay $162 (15%), Jan23’s pay $247 (23.5%), Jan24’s pay $350 (33%). The premiums, while greater dollar value upfront, are a much smaller percentage earnings per week, the farther out in time. Yes, it’s less work to sell LEAPs, but less returns as well. As with everything, everyone must make their own choices, hopefully with enough information to understand the implications. I’m still learning and making my own mistakes (multiple times per week, so that I can learn faster, hopefully being paid to learn, as @adiggs has said).

For my guess about this week: MaxPain Thread

 

[jeewee3000]

It's always interesting when the long term vs weekly conversation comes up. I only sell weeklies because of all the benefits previously stated, and I've ran the numbers myself. But I keep getting intrigued by some longer plays.

For example, Jan 23 20x 1000/-1100 BPS

| Options Profit Calculator

Calculator shows projected profit and loss over time.

opcalc.com

This trade would bring in $120,140 credit with a max risk of $79,860. With that margin tied up, it would be the equivalent of $2.30 per week which is right around the my benchmark for weekly BPS. Not bad.

I'm still trying to wrap my head around the credit being higher than max risk. It setting off my "too good to be true" and "no such thing as free money" alarms.

As @UltradoomY said, the max risk is indeed $200,000 (difference between strikes = $100 x 100 shares per contract x 20 BPS spreads sold).

The trade nets you around 60% return on capital at risk in one year/52 weeks, with (IMO) relatively high chance of success. So it's a good trade, albeit not the most efficient use of capital.

PROS: very little maintenance required, just start checking the SP in the final weeks before expiry. In case SP is below $1000, keep some dry powder ready to widen the spread for rolling.

CONS: 60% RoC is good but not great compared to what (bi)weekly BPS selling can get you, even at relatively safe strikes. The moment you get 1.5% per week (which is manageable on average) you greatly exceed the 60% yearly return (also taking into account compounding interest).

Also, shorter term spread selling is 'safer' in the sense that you can adapt more to the stock price. Let's say by April 2022 World War III breaks out you will be stuck with your sold spread for some years, having to roll it year after year.
With weeklies you are more nimble and/or can sell further OTM to get similar or greater returns.

There is no right and wrong strategy. There is however not a 100% fail-safe strategy.

IF I were to look into longer term BPS, I'd most likely sell them just after the stock price has been beaten down (for example below $1000 at least) and at pretty conservative strikes (example -900/+800p, they would net you 46% RoC instead of 60% in one year, AND the likelihood of success is IMO much greater). 46% still vastly outperforms any index, ETF or savings account.

Personally I'm sticking with shorter term BPS: more returns, more action. (it's fun too , another PRO for short term)

Not advice.

 

[juanmedina]

Selling call Leaps requires good timing. Like others have say you have to sell it at AH with really high IV and they can be really profitable if they are done right. I think the best time to sell them is when people on the other thread start to think that the stock is going to the moon, they talk about squeezes and that they stock will never go down. You have to be patient with them incase you sell them to soon and you have to wait for the SP to turn around. IMO IV in the 90+ range is the key to being successful with call Leaps.

 

[Tyler34]

Ok folks, need some advice. My core tesla position is 100strike leaps that expire Friday and a much smaller position in just shares. My goal is to exercise them to avoid the huge tax burden of just closing them, but that would require dipping into about 300k of margin. I could sell the other long term shares to fund that 300k which would incur much less taxes. Part of the dilemma is my monthly expenses for a home build are going to start ramping up come April-May. Ive been withdrawing from IBKR account using it as a loan for a home build and selling puts and put spreads to cover the current monthly withdrawals

Would you all do:

1. Sell ~300shares to cover the 300k needed. Continue selling bi-weekly puts at my current rate.
2. Sell 300-600shares to cover the 300k and pad my cash reserves allowing me to start selling more bi-weekly puts than I was before.
3. Sell 500-600shares to cover the 300k and fund the purchase of 650 strike leaps to replace sold shares. Continue selling bi-weekly puts at my current rate.
4. Not sell anything, go negative 300k. Continue selling bi-weekly puts at my current rate.

 

[LightngMcQueen]

So this brings up a question I had recently. If you go through the OptionAlpha video courses, one of their videos describes your "edge" as an options trader, namely, that IV tends to overestimate actual volatility and therefore options tend to be overpriced and therefore it's better to sell them than to buy them.

Or I guess another way to phrase this: where is our "high frequency trading" equivalent for options? Why isn't the market flooded with more options sellers, bringing prices down and removing this inefficiency?

I personally agree with your thinking.

1. The volatility pricing inefficiency - the difference between implied and realized volatility is small and is not constant in time. There is money to be made but less than it may appear:
Here is good explanation of the theory and expected returns:
volatility-risk-premium-effect

2. Volatility mispricing maybe smaller portion of high frequency traders' income than spread. Cost of spread as % of option transaction can be huuge.

3. Many so called "safe trades" here disregard tail risk, ie they are relatively safe over limited time frame of one or two years, same strategies, if used for decades, approach high probability of 100% wipeout. In contrast it is extremely uncommon to have 100% wipeout by simply going long on stock.

--
EDIT: options are fun though ... and learning experience, so I will not deny I enjoy this vice in a limited dose, especially that it appears to be very profitable

 

[ReddyLeaf]

Ok folks, need some advice…….My goal is to exercise them to avoid the huge tax burden of just closing them, but that would require dipping into about 300k of margin.

Not an expert here, but if you have the margin, I would let them exercise and then sell weekly CCs at 10-20% OTM against them. If you combine that with selling puts at or near the same strike, you can potentially generate 1-2%/wk. The good news is that one of those will expire worthless, while the other can be rolled forward. Another option is to sell, take the cash to pay taxes and with the residual buy 1/3-1/2x something like Jan2024 +c500s and maybe sell weekly 10-20% OTM puts with any extra. Great position to be in. Congratulations.

 

[bkp_duke]

Was in main thread, but bears repeating here.

Row of Tesla Model Y's outside of Giga Texas charging. Presumably made in TX, but not yet confirmed by anyone.

https://twitter.com/x/status/1483206573291937793

 

[Knightshade]

Ok folks, need some advice. My core tesla position is 100strike leaps that expire Friday and a much smaller position in just shares. My goal is to exercise them to avoid the huge tax burden of just closing them, but that would require dipping into about 300k of margin. I could sell the other long term shares to fund that 300k which would incur much less taxes. Part of the dilemma is my monthly expenses for a home build are going to start ramping up come April-May. Ive been withdrawing from IBKR account using it as a loan for a home build and selling puts and put spreads to cover the current monthly withdrawals

Would you all do:

1. Sell ~300shares to cover the 300k needed. Continue selling bi-weekly puts at my current rate.
2. Sell 300-600shares to cover the 300k and pad my cash reserves allowing me to start selling more bi-weekly puts than I was before.
3. Sell 500-600shares to cover the 300k and fund the purchase of 650 strike leaps to replace sold shares. Continue selling bi-weekly puts at my current rate.
4. Not sell anything, go negative 300k. Continue selling bi-weekly puts at my current rate.

Maybe dumb question but why wouldn't you get a mortgage for building the house? Borrowing is still (historically) very cheap, and I'd much rather pay a 3% mortgage loan while making massively better returns on the cash staying in my brokerage accounts.

 

[Tyler34]

Maybe dumb question but why wouldn't you get a mortgage for building the house? Borrowing is still (historically) very cheap, and I'd much rather pay a 3% mortgage loan while making massively better returns on the cash staying in my brokerage accounts.

I am and I am paying that loan borrowing from my account at ~1% interest. Selling puts to bring the margin balance back to positive.

 

[EVCollies]

Was in main thread, but bears bulls repeating here.

Row of Tesla Model Y's outside of Giga Texas charging. Presumably made in TX, but not yet confirmed by anyone.

https://twitter.com/x/status/1483206573291937793

FTFY