Wiki Selling TSLA Options - Be the House

[dc_h]

I want to be sure that people saw the Edit I added to the previous post, because this is SO important.

The margin problem with ITM BPS is different from selling naked Puts. If you sell a naked Put, and the SP drops and you get a margin call because the Put is requiring more margin, (and your shares are giving you less margin because the SP has dropped), you can resolve the margin call by buying the naked Put at a loss. As explained above, with a fully in the money BPS, buying back the spread at a loss does not help your margin at all. The only things you can do are: 1)Bring more money into the account. 2) Sell your shares to increase your margin. 3)Sell CC against your shares for income. 4) Turn it into an iron condor (but the call side will generate very little income if the BPS is at full loss).

So if you are selling BPS in a non-cash account (with TSLA shares as your collateral), make sure you leave a lot of Margin available. Don't use much of it.

I had a couple of bad weeks last year and was stuck with losing BPS. I sold very aggressive CC's and BCS's. I felt even if they were max loss, I would have premium rich sales to make up for the lost BPS. The share price didn't recover, but I sold at the money CC and BCS and got about 25% of my losses back. Not advise, and at this point, we may recover all our 2022 stock losses this week, even if our options losses can't be recovered so easily.
For this week, I'm still not liking the CC premiums around 1100, which is around where I'm comfortable. Big call walls at 1000, 1050 and 1100. Probably a lot of work to move past 1000 this week.

 

[GeoX750]

We're not out of the woods yet - hitting resistance right here. But I think 850 is locked in as the floor now that we're back in the channel. I converted a few of my rolled put spreads to IC's today. I'll convert more if we test the medium-term downwards trendline at 1020ish, and will close some if we re-test 850-860ish.

What a relief to have a big up day though haha

View attachment 762668

What is your take today's volume compared to recent past ? Heavier volume is a good signal of a true rebound.

 

[InTheShadows]

So was today the 3rd day for the 3 day rule or is it tomorrow?

 

[dl003]

So was today the 3rd day for the 3 day rule or is it tomorrow?

the rule only applies to stocks that miss estimates. For TSLA, I suggested Friday was peak call slaughtering.

 

[FlamingPIG]

Need not advice on CC and roll:
I'm selling 10% aggressive and 90% safe CC
a. 5X +10-15% CC weekly
b. 45X +25% CC weekly

If 5X 10-15% goes bad, I can roll it indefinite with little credit until BTC or let it assign at a happy price? (Be careful with early assignment, yes.)

On 45X +25% CC, these are my core shares. I do NOT ever want these assigned (unless shares 2X in less than 6 months). What are some not advice for these to reduce the assign probability to <1%.

 

[Zhelko Dimic]

Decision time!

This day saved my bacon. I've given back almost everything I made in the last 6 months to close out most of my BPS.

I can close the remaining 850/1050s for Friday now and free up a lot of margin. I'm thinking of selling 1200 strike CC for Jan 23 on 1/3 of my shares to do two things:
1) Give me cash to live off of for the rest of the year, and give me more non-Margin buying power to help cover my remaining Dec. BPS.
2) Potentially sell 1/3 of my shares from those CC in Jan (if the stock is over 1200) so I'm trading with cash instead of margin next year.

The problem I'm having mentally is I hate the thought of selling my shares at 1200 next year if the stock is at 1500....

But taking losses because I'm trading with TSLA share margin and getting margin calls is not productive!!!

Couple years ago I sold couple (2 or 3) $560 calls when TSLA was under $500.
Pre-split.
I was ABSOLUTELY sure I'd be ok if shares were taken from me.
And, they were taken away from me.
I cashed in 10-15K in time premiums, plus 110-168K on selling shares.
That would be worth $1-$1.5M today (1000 or 1500 shares post split).

I've made my piece with this event, but it's not a great feeling.
So when selling CC leaps pls. MAKE SURE that's the price you can live with.

 

[Zhelko Dimic]

I want to be sure that people saw the Edit I added to the previous post, because this is SO important.

The margin problem with ITM BPS is different from selling naked Puts. If you sell a naked Put, and the SP drops and you get a margin call because the Put is requiring more margin, (and your shares are giving you less margin because the SP has dropped), you can resolve the margin call by buying the naked Put at a loss. As explained above, with a fully in the money BPS, buying back the spread at a loss does not help your margin at all. The only things you can do are: 1)Bring more money into the account. 2) Sell your shares to increase your margin. 3)Sell CC against your shares for income. 4) Turn it into an iron condor (but the call side will generate very little income if the BPS is at full loss).

So if you are selling BPS in a non-cash account (with TSLA shares as your collateral), make sure you leave a lot of Margin available. Don't use much of it.

Said another way, I was always more comfortable opening one naked put, instead of 10 put spread contracts, eventhough they may require the same margin.
Of course, income is likely lower.

That's why I sell in the money naked puts for a longer period and "hope" for the best. Some intrinsic value, some value that accrues if TSLA appreciates, and if it doesn't, I roll it again. Different strategy though... It's being opportunistic, slight leverage, but no certainty about income. I don't think there is certainty about income anyway - it works until it doesn't, and then it can hurt...

I did close three of those puts today, and left three running.
I'm starting to be scared of the next 6 months.
This is first time ever I'm bringing down number of open puts voluntarily (not forced by margin)...

 

[BornToFly]

Well, I am truly exhausted now. I've had a hard time sleeping for the last 5 days thank to the market selling like crazy despite amazing earnings. I had generated $8.1M since October, and gave it all back in the last 5 days, even though I still have 400 BPS open. Luckily, I think..., they are all in December - 800/1100 and 850/1150. According to the margin calculator, I'm ok on margin now even with the SP getting to 700. Hopefully Putin behaves and we don't have any other disasters....

I had told myself I was not going to have positions open the week of earnings, but the crash after P&D and subsequent slow leak enticed me to roll until 1/28, and then to 2/4. I also stayed closer to the money after the P&D bump knowing that the earnings report was going to be amazing, and figured incorrectly that we would not see sub-1100 again, so I got a little greedy. In an attempt to double my normal weekly earnings during what I thought was the safe period before earnings, I flew too close to the sun and instead of making a little more money I ended up losing a whole lot. I didn't realize that closing a fully ITM BPS would not improve the margin situation any. If this had happened before I had made the $8M nest egg, I would have really been in trouble. Had the SP not jumped 10% today and lifted spreads out of full losses, allowing me to close 300 positions with some margin improvement, I would have lost a lot of core shares. Hopefully now I can get some sleep.

Going forward, I will not trade during earnings week. I will use far less margin, and possibly avoid BPS all together. If I sell 1/4 or 1/3 of my shares in January 2023 from my CCs, I will be able to use cash to trade without margin concerns. Hopefully that will help prevent having massive losses again. I thought I was pretty good trader until the last 1-2 weeks while making money hand over fist. Now I've been humbled and will hopefully be even more careful in the future.

 

[WattsHappening]

Need not advice on CC and roll:
I'm selling 10% aggressive and 90% safe CC
a. 5X +10-15% CC weekly
b. 45X +25% CC weekly

If 5X 10-15% goes bad, I can roll it indefinite with little credit until BTC or let it assign at a happy price? (Be careful with early assignment, yes.)

On 45X +25% CC, these are my core shares. I do NOT ever want these assigned (unless shares 2X in less than 6 months). What are some not advice for these to reduce the assign probability to <1%.

I would think 25% OTM weeklies are pretty safe. Other than during the stock split, I can't think there were many other times when the SP was up 25%+ in a week. And my guess is even at the next stock split, it won't happen again like the last time (traders will have learned from last time). As market cap increases, those kinds of % moves should become more infrequent. Worst case scenario is you can always BTC at a loss if a freak event causes that kind of SP move.

I'm not good with all the data with deltas and all the other Greek letters. I go more by feel. I expect others who are much more knowledgeable could chime in with the 1% probability question. One thing you can do is try to time your writes for up days. I know many here write CCs on Monday morning for the coming Friday as SP has more often than not outperformed on Mondays.

All of my CCs are like your 10% of shares you mentioned. When I sell CCs, I go weekly or two weeks max like many others here. And I also don't write CCs against all my shares. I write it on a fraction of my shares. I find the strike price and premium I'm good with (typically 10-15% OTM, just like you). Even if SP spikes and the calls get ITM, I'm a very happy camper as my core shares have gained in value.

I'm trying to learn now so I am ready for retirement, when I expect managing weekly option plays on TSLA shares will be my main source of income (and a lot of fun as a bonus!).

 

[MP3Mike]

I had generated $8.1M since October, and gave it all back in the last 5 days,

And the most painful part of this, if it was in a taxable account, is you may have to pay a large tax on the money you earned last year in the next couple months even though you lost it all this year. (And, especially if you are more conservative going forward, it could take a long time to use up that accumulated loss.)

I didn't realize that closing a fully ITM BPS would not improve the margin situation any.

That is why I was glad that someone pointed out the option of rolling a BPS out and up, with possibly wider/fewer contracts. Yes, it tied things up longer, but it reduced margin usage and maximum loss, while increasing the chance of coming out with just a flesh wound instead of an amputation.

I'm not out of the woods yet, but I'm starting to see the breadcrumbs to follow to get out.

 

[ChefBoyardee]

What is your take today's volume compared to recent past ? Heavier volume is a good signal of a true rebound.

Tbh I pay more attention to price levels than volume, but yeah the high volume on both Friday and today is good to see.

The main things I’m looking at are the trend line / channel, pennant, similarities to last May, and macro sentiment.

I’m thinking we’re going to bounce around within the pennant for a couple months while people figure out how to price in inflation / recession risk

 

[samppa]

Rolled half of my -1100/+800 02/04 bps to -1110/+730 02/11 bps for $12 credit. Was getting a bit worried about early assignment.

Gonna roll the other half too, but wanted to wait another day, if sp rises more I should get a better roll. Plenty of margin available.

 

[OrthoSurg]

Well, I am truly exhausted now. I've had a hard time sleeping for the last 5 days thank to the market selling like crazy despite amazing earnings. I had generated $8.1M since October, and gave it all back in the last 5 days, even though I still have 400 BPS open. Luckily, I think..., they are all in December - 800/1100 and 850/1150. According to the margin calculator, I'm ok on margin now even with the SP getting to 700. Hopefully Putin behaves and we don't have any other disasters....

I had told myself I was not going to have positions open the week of earnings, but the crash after P&D and subsequent slow leak enticed me to roll until 1/28, and then to 2/4. I also stayed closer to the money after the P&D bump knowing that the earnings report was going to be amazing, and figured incorrectly that we would not see sub-1100 again, so I got a little greedy. In an attempt to double my normal weekly earnings during what I thought was the safe period before earnings, I flew too close to the sun and instead of making a little more money I ended up losing a whole lot. I didn't realize that closing a fully ITM BPS would not improve the margin situation any. If this had happened before I had made the $8M nest egg, I would have really been in trouble. Had the SP not jumped 10% today and lifted spreads out of full losses, allowing me to close 300 positions with some margin improvement, I would have lost a lot of core shares. Hopefully now I can get some sleep.

Going forward, I will not trade during earnings week. I will use far less margin, and possibly avoid BPS all together. If I sell 1/4 or 1/3 of my shares in January 2023 from my CCs, I will be able to use cash to trade without margin concerns. Hopefully that will help prevent having massive losses again. I thought I was pretty good trader until the last 1-2 weeks while making money hand over fist. Now I've been humbled and will hopefully be even more careful in the future.

I thought about transitioning to BPS when my funds arrive at IBKR. After reading your post I might stay to naked Puts. After the Hertz week, I already took the decision to stay with CCs instead of BCS.

What helped me to sleep better was the fact I went skiing this Saturday with a guy I trained with who was my junior resident. He has been working for 5 years, has no cash set aside, just bought a 3M house, all his income is going into renovation, cars and expensive travels. He had 2 brand new pair of skis and had hard time anytime there were muggles. At the end of the day, when he asked if he should incorporate as a physician, I told his that he must have at least 40k/50k left in his corp at the end of the year to cover for the corp maintenance fees/taxes production, etc. He told me it’s not worth it then, he only set 6k of yearly savings aside in his TFSA. Then he asked what part of my Tesla had to be repaired because I arrived with a Nissan rogue from Hertz rental offered by Tesla, he then asked me how well I was doing financially and I realized I couldn’t complain of a 7 numbers collapse in my portfolio in front of his situation. I guess we are lucky to have these « rich people » problems to deal with on the first place because a majority will never be able to have significant money to invest. However, sometimes I am a bit jealous of some friend who is strictly into real estate and doesn’t have those crazy portfolio fluctuation totally dependant on the feeling of wallstreet traders.

The more I gain experience with options and the more I tend to focus on capital preservation from selling 25% OTM puts and CCs for income generation. But first I have to clear my underwater puts to have enough margin security in case anything happen. Will aim at 50% matin available at all time instead of 30%. I am getting more and more conservative every day. I guess that’s the consequence of starting to trade options in a period of extreme volatility.

 

[intelligator]

Widened and rolled slightly lower my remaining $1060/$960 BPS from 2/4 to 2/11 at $1050/$900 for $15 credit. (sorry for the earlier misprint)

Hopefully this is a good middle ground solution as I wait out the chance to close these and not one of these ongoing life lessons that seem to be raining down with regularity in 2022!

Looking for more opportunities today to free more margin. Last week I rolled out, down and wide to 4/14 900/600 to get out of way. That same spread can be rolled nearer and UP to 2/11 1020/720 at a credit of $45 $21, sitting similar to where the above trade ended. The spread could be rolled at midway, say slightly above 900, should we need to. IF the price trend continues, this spread too could likely be closed, freeing 150k of margin weeks earlier.

With no certainty ever of anything sticking, is this a silly thought OR simply wait the April expire?

EDIT: $21 credit, not $45 ...

 

[jeewee3000]

Just caught op with this thread, and I mainly see a lot of pain caused by attempts to squeeze out as much as possible premium just before the ER.

I'm guilty as well, so this is not an attack or anything. I'm only trying to analyse where I (and some others) went wrong in order to learn.

I'm in a cash account that does not provide me any margin from my stock portfolio. Therefore when I have let's say $100.000 cash and I sell a $100-wide BPS my 'available cash' is dropped to $90.000 (plus the acquired premium).

My greatest error is believing there is such a thing as safe spreads. The instance a certain spread creates decent premium, it means there is risk of ending up ITM.

Pre-ER I was already using 70% of my cash for BPS (which were in the -1000 to -1150 short strike range) and I thought "let's collect some easy money with the rest of my available cash with -850/+750, no way we go below 850". This turned out very ugly since I had (too) little cash left available to manage my underwater BPS.

In the end I converted yet another 100 shares to LEAPS+cash and used the cash for widening/rolling out and up. Since I have positions expiring 2/4, 2/11 and 3/11 I did not want to put more eggs in the same basket and I rolled some out to Mar 2023 and Jan 2024 for credit.

This credit is now held onto by me in order to save whatever still needs to be saved in the coming weeks.

I hereby pledge to first close out some (hopefully many) BPS in the coming weeks BEFORE entering new positions.

One thing I did that I think will turn out to be a good move: yesterday on the green day I sold 2/4 1000cc's since I have BPS expiring that same day with a -1000p short strike. My reasoning is:
1) either we end over $1000 on friday in which case I can close my (worthless) BPS and roll my cc's. This gives me more breathing room (i.e. available cash).
2) or we end below $1000 in which case I use the premium received for my cc's to manage the BPS positions.

Any little bit helps in survival mode.

As I mentioned before: I'm in capital growth mode and I don't want to buy back 100% underwater BPS. As @BornToFly realized recently, buying back a 100% underwater BPS equals flushing that money down the drain. If you can widen the spread and roll it out and/or up so you receive a credit for the roll (at the cost of using up more of your available cash/margin (i.e. opportunity cost)) you can save the position entirely. Thing is that you want to pick a strike and expiration that will 99,9% surely make your BPS end up worthless. This is why I rolled some (not many) BPS out so far, just in case this turns out to be the beginning of a 12 month bear market.

The time I have some of my cash "locked in" is time for me to ponder my mistakes and learn. I'm young and have plenty of years of investing/trading left. I'd rather put my growth on 'hold' for a year rather then facing the pressure of rebuilding from scratch. I'm really starting to like the far OTM wide spreads. (at least $200 but more like $300-$400, this gives you plenty of reaction time and opportunities in case of a sudden crash/rally).

Good luck to all. Let's hope the SP recovers some ground in the coming weeks (or at least doesn't drop below $900 again).

 

[dc_h]

3 day rule in affect after all?

 

[EVCollies]

Opened a few 2/4 BPS 800/600 @2, nice to have something with delta < .6!

 

[bkp_duke]

And the most painful part of this, if it was in a taxable account, is you may have to pay a large tax on the money you earned last year in the next couple months even though you lost it all this year. (And, especially if you are more conservative going forward, it could take a long time to use up that accumulated loss.)

This is exactly the position I'm in. Taxes on a 6-figure gain last year . . . currently with a 6-figure loss for this year.

 

[ChefBoyardee]

This is exactly the position I'm in. Taxes on a 6-figure gain last year . . . currently with a 6-figure loss for this year.

Same. That's by far the worst part for me. Everyone, promise to set aside your tax money from your gains as soon as you get it lol.

 

[BornToFly]

Rolled half of my -1100/+800 02/04 bps to -1110/+730 02/11 bps for $12 credit. Was getting a bit worried about early assignment.

Gonna roll the other half too, but wanted to wait another day, if sp rises more I should get a better roll. Plenty of margin available.

Make sure you have plenty of margin available if the stock drops like it has the last two years (during the first part of the year). I'm good down to SP of 700, and I'm pretty nervous. If we get below 700, I will have to start selling shares at 700, which I REALLY don't want to do. That is why I loaded up on as much cash as possible by selling Jan 23 CC at 1200 strike. I would rather have to sell my shares at 1200 than at 700.