Wiki Selling TSLA Options - Be the House

[vikings123]

Results are out. Q4 revenue of $137.4B slightly misses a $137.68B consensus. GAAP EPS is at $27.75, far above a $3.61 consensus with the help of an $11.8B gain related to Amazon's investment in Rivian.

Wall Street is dumb

Tesla: Our EPS beat could have been higher without the one time tax hit due to Elon's options exercise(we are not even going to talk about it)

Wall Street: Punish them...

Amazon: We padded our numbers by showing a one time EPS bump at the expense of retail investors

WallStreet: We love it, Let's reward them.

 

[TheTalkingMule]

Well AMZN may have singlehandedly ended this tech slump. Earnings $27.75 vs $3.5 expected.

Folks should be able to do all the BPS rolling/closing they like. TSLA up about 2% AH.

 

[BornToFly]

Hopefully the folks shorting TSLA were also shorting Amazon, and their AMZN losses will force them to cover their TSLA positions too....

 

[OrthoSurg]

Looking at the charts of SHOPify, AMZN, FB. Mega caps dropping 25% in one day or SNAP dropping 25% pre earnings then increasing 50% after hours. It’s impossible to trader safely BPS or BCS safely in the short term without blowing out one side or the other when the stock drops -20% like TSLA pre-earnings and -10% the day after a earnings beat.

Are market makers trying to blow out account of small retail option traders? After the CEO of IBKR say openly retails are increasingly doing vertical spreads, I would not be surprised hedge funds find a way to capitalize against retail.

 

[generalenthu]

I can do margin secured puts....But one $1100 put eats $110,000 in margin, versus the $11,000 currently in use on the $110 wide spread.

So just picking a round number say there's 10 spreads right now.... if one was aiming for 5 non-spread $1100 puts at the end that'd require $550,000 in margin or cash backing.

Selling all 10 long puts only raises 25k. Rolling the -1025s to May 1100s raises another 62.5k. Releasing the spread margin gets you 110k.

That's only 197.5k out of the 550k needed for backing the 5 $1100s.

(If I've messed up the math somehow and it's far more doable than this looks please let me know)

You should not need 550k for 5x 1100 puts unless you're doing cash secured puts. Or you're doing this in an IRA.

IN which case, you can buy 650 puts. That will effectively get your margin back, after paying for the puts. (Guesstimate on 650)

 

[UnknownSoldier]

BPS is way too stressful in this market. Maybe I'll try running the wheel for awhile, it's a lot safer these days.

 

[Knightshade]

You should not need 550k for 5x 1100 puts unless you're doing cash secured puts. Or you're doing this in an IRA.

IN which case, you can buy 650 puts. That will effectively get your margin back, after paying for the puts. (Guesstimate on 650)

Hrm, you're right- sadly Merrill Edge does not offer a margin calculator to figure it out though.


Looks like in general the margin requirement would be (for this example) 20% of the underlying price minus the OTM amount plus the option premium.

Unclear if it treats OTM amount as $0 (since it's not OTM) or if this becomes a PLUS the ITM amount.

If it's $0 then it'd be $30,500 per contract with SP at 900 and short put at $1100. ($180 plus $125 premium times 100 shares).

If it's plus the ITM amount- and I suspect it'd make sense that it is... then that's $50,500.

Would need $252,500 margin for 5 of em.... so still 50-something grand short, but a lot better than 300k short from my original flawed math.



ML sucking as it does and having no ability to do complex tickets online or in the app I expect I'll need to call and talk to someone tomorrow to see what's possible... but very much appreciate the suggestion.

 

[mrmtb]

BPS is way too stressful in this market. Maybe I'll try running the wheel for awhile, it's a lot safer these days.

Yeah I’ve been taking it easy with the big movers. SHOP was very tempting today but I’m going to restrain myself lol. Still selling stuff on lower priced stocks and indices though.

 

[generalenthu]

Hrm, you're right- sadly Merrill Edge does not offer a margin calculator to figure it out though.


Looks like in general the margin requirement would be (for this example) 20% of the underlying price minus the OTM amount plus the option premium.

Unclear if it treats OTM amount as $0 (since it's not OTM) or if this becomes a PLUS the ITM amount.

If it's $0 then it'd be $30,500 per contract with SP at 900 and short put at $1100. ($180 plus $125 premium times 100 shares).

If it's plus the ITM amount- and I suspect it'd make sense that it is... then that's $50,500.

Would need $252,500 margin for 5 of em.... so still 50-something grand short, but a lot better than 300k short from my original flawed math.



ML sucking as it does and having no ability to do complex tickets online or in the app I expect I'll need to call and talk to someone tomorrow to see what's possible... but very much appreciate the suggestion.

You could always consider more itm puts for fewer contracts, and generally that sort of a deeper itm ratio roll uses lesser margin in my experience with IBKR.

Obviously going with a single short 1600 put or something like that is also an option. But that could be early exercised unless you have a few months to expiry.

In your situation, what I'd do is warehouse the exposure in 3 or so 1200 puts 6 months out. Then when the time is right and there's more macro clarity, take one put at a time, flip them to a handful of bps and grind them out.

 

[JustMe]

Perspective

If you are reading this, you survived the month from H E double hockey sticks. You’re still here, I’m glad. Good on you.

I’ve really appreciating the many posts about the lessons learned, trading strategies honed, and strategies for where to go from here. I’m glad to see folks not panicking but being measured and seeking not advice here. It’s helped me for sure.

I do have two bits of real advice though.

First, don’t try to recoup losses quickly by entering risky trades. That’s a quick way to dig the hole deeper. We took the elevator down and the surest way back up is steadily climbing the stairs.

Second, I’ve seen so many posts in the other thread confidently predicting how TSLA will move in the next few days or even hours based on all kinds of “indicators”. Really?? So my advice is to look at the daily chart as a reality check when you’re tempted to step a little closer for that juicy premium because you’re hearing that TSLA will be $x by next month or whatever.

I personally *think* we will trade sideways for the rest of the quarter, but the daily chart is compelling me to trade as if TSLA could move $200 in either direction over the next couple of weeks.

Good luck , friends

 

[Knightshade]

You could always consider more itm puts for fewer contracts, and generally that sort of a deeper itm ratio roll uses lesser margin in my experience with IBKR.

Obviously going with a single short 1600 put or something like that is also an option. But that could be early exercised unless you have a few months to expiry.

In your situation, what I'd do is warehouse the exposure in 3 or so 1200 puts 6 months out. Then when the time is right and there's more macro clarity, take one put at a time, flip them to a handful of bps and grind them out.

And I screwed the math up again...I was using the NET premium from the roll, I suspect the margin calc uses the FULL premium from the new position.

So then it'd be quite a bit more than I thought.

For example July $1200 would be $180 underlying 20% plus $309 ITM plus $330 premium, so $81,900 per contract margin needed.

So going back to the using 10 spreads for easy math-
Selling all 10 long puts only raises 25k. Releasing the spread margin on all 10 gets you 110k. NET credit on 10 new $1200 July puts is 220k.

Which adds up to 355k. But margin needed for 10 of those $1200 Julys is $819,000.

If I only sold 5 of them I'd need 409.5k margin. But I'd also:
Raise 110k less in new net credit premium
Have to BTC the remaining 5 original short puts at 64k.

Meaning I'm needing 409.5k new backing, but only raising 181k.


Dropping new contracts to only 3 would drop needed backing to ~246k. But I'd raise 44k less premium and have to BTC 2 more contracts at 25.6k, so now I'm only raising about 111.4k.


So either I'm still badly misunderstanding some math, or this doesn't appear to be a solution as I'm perpetually short more than half the $ needed?



EDIT- Just for completeness I did the math (I think?) on the one $1600 put you suggested.

I net $58,000 credit (full premium is $709). Backing needed is $180 plus $709 (ITM) plus $709) premium... which leaves you needing $1598 to back a $1600 put.

Which kind of makes sense with how insanely DITM that is.

But doesn't seem to help much, I'd need 159.8k to back that, and 198k to BTC the 9 other short puts, and only net 58k credit plus 25k selling the long puts.

 

[M3Rider]

Watched a bunch of stuff today. What I kinda liked the most was Cory’s vid

where he said the market always tries to hurt the most people (I thought HFs and MMs, but whatever). Anyway, a lot of people are bearish, so maybe an opposite move is warranted. He was pretty bullish there and considered today’s move as a bear trap.

Amazon kinda increases bullishness, but under a closer look it’s a miss on earnings and guidance and a BS reaction, so don’t really know if it can be considered a bullish sign. So, overall another day in a string of events making no sense. Considering no acute economic crisis and the FED somewhat backing off from its hawkishness , it seems to me that maybe the bear market is not an inevitability. I’m not gonna go all bullish and pull the stops, but feeling a bit more optimistic that maybe a doomsday scenario will not play out.

I keep playing with some bps and far OTM CCs and opened/closed multiple times this week, which is not normal for me, but scaled down risk a lot, which makes me feel comfortable for now.

 

[jeewee3000]

Unfortunately I've joined the "your sold option has been exercised early"-club.

I still had a 2/4 -1120p/+920p open that I was planning to roll today (since I thought AMZN would beat and we might see a green day, increasing my rolling potential), but the 1120p was exercised and I now hold 100 extra TSLA.

Normally I wouldn't mind this at all, but the cash used was partly backing spreads so I'm in the hole.

My broker called me on the phone to warn me (I hadn't noticed yet, it happened overnight (outside of US market hours, which I didn't know is possible)) and they fortunately were nice about it. They saw it was in the US markets, not EU, so they gave me half an hour after US market open to fix the situation.

I've looked at the possibilities and I think I'll just sell the 100 shares I was assigned (and sell the 920 put that now sits by itself). Then my cash balance is fine again and I can think without a time constraint.

EDIT AND QUESTION:
I've been pondering this some more and I could do two things:

A) the above (sell 100 TSLA and the 920p)
B) exercise my 920p

Am I correct in thinking that B forfeits my time value? So A is better?

 

[Runarbt]

Unfortunately I've joined the "your sold option has been exercised early"-club.

I still had a 2/4 -1120p/+920p open that I was planning to roll today (since I thought AMZN would beat and we might see a green day, increasing my rolling potential), but the 1120p was exercised and I now hold 100 extra TSLA.

Normally I wouldn't mind this at all, but the cash used was partly backing spreads so I'm in the hole.

My broker called me on the phone to warn me (I hadn't noticed yet, it happened overnight (outside of US market hours, which I didn't know is possible)) and they fortunately were nice about it. They saw it was in the US markets, not EU, so they gave me half an hour after US market open to fix the situation.

I've looked at the possibilities and I think I'll just sell the 100 shares I was assigned (and sell the 920 put that now sits by itself). Then my cash balance is fine again and I can think without a time constraint.

EDIT AND QUESTION:
I've been pondering this some more and I could do two things:

A) the above (sell 100 TSLA and the 920p)
B) exercise my 920p

Am I correct in thinking that B forfeits my time value? So A is better?

Yes, I'd think so. Exercise the 920p forfeits any remainig time value.

 

[Yoona]

Second, I’ve seen so many posts in the other thread confidently predicting how TSLA will move in the next few days or even hours based on all kinds of “indicators”. Really?? So my advice is to look at the daily chart as a reality check when you’re tempted to step a little closer for that juicy premium because you’re hearing that TSLA will be $x by next month or whatever.

absolutely agree... no offense to anyone, but I found that the less i read the other thread, the more successful i get... i look for hard numbers and facts from art/curt/accountant/papafox (and the max pain site); i ignore everything else.

 

[CrunchyJello]

absolutely agree... no offense to anyone, but I found that the less i read the other thread, the more successful i get... i look for hard numbers and facts from art/curt/accountant/papafox (and the max pain site); i ignore everything else.

…the other thread?

 

[corduroy]

Unfortunately I've joined the "your sold option has been exercised early"-club.

I still had a 2/4 -1120p/+920p open that I was planning to roll today (since I thought AMZN would beat and we might see a green day, increasing my rolling potential), but the 1120p was exercised and I now hold 100 extra TSLA.

Normally I wouldn't mind this at all, but the cash used was partly backing spreads so I'm in the hole.

My broker called me on the phone to warn me (I hadn't noticed yet, it happened overnight (outside of US market hours, which I didn't know is possible)) and they fortunately were nice about it. They saw it was in the US markets, not EU, so they gave me half an hour after US market open to fix the situation.

I've looked at the possibilities and I think I'll just sell the 100 shares I was assigned (and sell the 920 put that now sits by itself). Then my cash balance is fine again and I can think without a time constraint.

EDIT AND QUESTION:
I've been pondering this some more and I could do two things:

A) the above (sell 100 TSLA and the 920p)
B) exercise my 920p

Am I correct in thinking that B forfeits my time value? So A is better?

Really curious what you ended up doing and how it turned out.

 

[jeewee3000]

Really curious what you ended up doing and how it turned out.

Well I did A: I sold the 920p right upon open to try to take advantage of the maximum theta left and inflated prices due to higher volume, which went OK.

But then the stock dropped like a rock and I wasn't fast enough to market order at similar pricing. I gave it a few minutes since I thought it would've taken $900 again, but it didn't at the time. So I messed up and sold at $885.

In short: would've been better off either exercising my 920 put (no risk of receiving less for my shares) or push myself to market order instantly in order to prevent a gap between TSLA SP upon closing both positions.

Oh wel, we're talking hundreds of dollars lost on this error, not thousands or more. Live and learn.

 

[Knightshade]

So one more I'm trying to dodge a little max loss thought for the stuff expiring today (-1025/+915) since I didn't get any early assignment overnight.


Max loss is $110/sh given the spread.

For around half that I can roll to -900/+800 really almost any date from mid-april through at least mid-october

Of course I risk then losing the $100/sh max of the new spread on top of the ~$55/sh I lost rolling.

And if this is the legit start of a bear market, that's a real risk.

I can go further down for not a TON more but it requires going to the farish end of the range..... -800/+700 for mid-Oct costs about $62/sh net right now.... which has a short not just 20% down from current, but 50% down from ATH.

Though it locks the margin away for ~8.5 months. Then again taking full loss now the margin is gone anyway since it covers the full loss $.

 

[vwman111]

You could always consider more itm puts for fewer contracts, and generally that sort of a deeper itm ratio roll uses lesser margin in my experience with IBKR.

Obviously going with a single short 1600 put or something like that is also an option. But that could be early exercised unless you have a few months to expiry.

In your situation, what I'd do is warehouse the exposure in 3 or so 1200 puts 6 months out. Then when the time is right and there's more macro clarity, take one put at a time, flip them to a handful of bps and grind them out.

I'm sorry if i missed an earlier more detailed explanation, what is meant by warehousing the exposure? Like others, i continue to have deep ITM spreads that i end up rolling on a weekly basis which costs margin by always needing to widen the spread to roll. Is there a better solution by rolling out further to wait things out? I was under the impression that once deep ITM, rolling out wasn't any less expensive.