Wiki Selling TSLA Options - Be the House

[ChefBoyardee]

So I could be wrong with this prediction (3rd blue line), but look at the similarities to the last two big selloffs. TSLA rallies away from the channel, and then drops right back in, where it then grinds higher in the lower portion of the channel until the next breakout. Macros are worse than last time, but TSLA's business is stronger - That might even things out.

 

[JustMe]

…the other thread?

the main investor’s round table thread

You’ll see folks over there refer to this thread as “the other thread”

 

[jeewee3000]

the main investor’s round table thread

You’ll see folks over there refer to this thread as “the other thread”

You just ruined the joke.

 

[generalenthu]

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.

I think there is a disconnect with the math I am quoting, as I use portfolio margin on IBKR vs what Fidelity is quoting you for margin need. it looks like you need full cash backing for your short positions. At least thats what I am getting from the numbers I am seeing from you. (e.g. need 1598 in margin for a 1600 put).

If it is essentially behaving like a cash account, the best option in my opinion is to roll them to a 650/1200 spread at 5x. Unfortunately I am a bit lost on how fidelity is doing margin. I dont use fidelity.

 

[TheTalkingMule]

So I could be wrong with this prediction (3rd blue line), but look at the similarities to the last two big selloffs. TSLA rallies away from the channel, and then drops right back in, where it then grinds higher in the lower portion of the channel until the next breakout. Macros are worse than last time, but TSLA's business is stronger - That might even things out.

That's the tension we're in right now and why I keep posting forward PE scenarios for this summer and December. It's hard to make a case for TSLA to be as low as $800 given performance and conservative 2022 guidance, and it's nearly impossible once 1Q earnings are out. All sides know this, so we just sit here and posture as SP take little steps up.

Not too long ago everything was theoretical, so you couldn't refute the bear case as easily. The difference now is earnings. There is no bull case for a forward PE of 50 when annual growth is 80-90%. No one would listen to the "logic" of that case.

So we wait for the spring to unload.

I've widened and rolled a few BPS to next week. And if I can't roll them another week for credit, I'll widen a hair more and roll them to May 20th to catch 1Q earnings. If the whole world is on fire May 18th.....I'll figure it out then.

The only thing I'm doing "wrong" is I likely should have closed out these positions, eaten the max loss, and opened new weekly BPS positions from these deeper(safer) lows. I'm new to this and totally frazzled, so I'm fine taking a break from options trading thru May and waiting for the world to catch up to my positions.

 

[Knightshade]

I think there is a disconnect with the math I am quoting, as I use portfolio margin on IBKR vs what Fidelity is quoting you for margin need. it looks like you need full cash backing for your short positions. At least thats what I am getting from the numbers I am seeing from you. (e.g. need 1598 in margin for a 1600 put).

If it is essentially behaving like a cash account, the best option in my opinion is to roll them to a 650/1200 spread at 5x. Unfortunately I am a bit lost on how fidelity is doing margin. I dont use fidelity.

It's not a cash account, it's margin (and it's Merrill Edge BTW)

But standard rules for short put margin needed is: the greatest of the following calculations times the number of contracts times the multiplier (usually 100):

20% of the underlying price minus the out of money amount plus the option premium
10% of the strike price plus the option premium
$2.50


That first one is what's in play here since it's far far larger than the others on ITM puts.

So the deeper ITM the put, the more margin it's going to eat....until it's nearly 1:1 for very deep ITM.


Stock at $900 and selling a $1200 put that'd be $180 (20%) plus $300 ITM amount, plus full (not net credit amount) of the premium which is $350 for 6 months out as of this post.

So $830 margin needed per share on the $1200 short put for August.

Margin if it was just an ATM put would be only $180+$158= $338/sh.

In a cash account these would be $1200/sh and $900/sh respectively.


This isn't broker specific, it's the standard REG-T rules for margin requirements.

Portfolio margin works differently from my reading, so that might explain the difference.

 

[generalenthu]

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.

Let me give a hypothetical example:

Pre earnings, johnny was bullish and wrote 20x 900 strike puts, with stock at 940 with 3 days to expiration.
post earnings, the stock drops to 840, leaving his puts deep in the money to the extent of 60 per. Margin utilization is now uncomfortably high and a buy back needs about 60 per share.

instead of coming up with the 60 per share, it is possible to move the 900 puts to which are in the money by 60$ to half the number of 960 contracts ($120 in the money)

What this does is generally release the margin, reduce your theta, but increases the break even price. Now Johnny has more downside protection. He wont would be able to hold on to the position even if the stock goes to 600, whereas with the previous 20x 900 puts, he might have got margin called at 700.

Johnny is sure that the fair value is much above 960, though in the short term price may go a good bit lower. So it is a better trade off to wait out the volatility with deeper in the money puts.

While I used a naked puts example, the math works reasonably similar with very wide (300 to 400) bps. This is useless with a 50 wide spread. and there is a spectrum of usefulness in between.

edit: Per Knightshade's post above some of this math may be different for RegT margin accounts which seems to be a bit punitive. I am getting at this from a Portfollio Margin perspective.

 

[generalenthu]

It's not a cash account, it's margin (and it's Merrill Edge BTW)

But standard rules for short put margin needed is: the greatest of the following calculations times the number of contracts times the multiplier (usually 100):

20% of the underlying price minus the out of money amount plus the option premium
10% of the strike price plus the option premium
$2.50


That first one is what's in play here since it's far far larger than the others on ITM puts.

So the deeper ITM the put, the more margin it's going to eat....until it's nearly 1:1 for very deep ITM.


Stock at $900 and selling a $1200 put that'd be $180 (20%) plus $300 ITM amount, plus full (not net credit amount) of the premium which is $350 for 6 months out as of this post.

So $830 margin needed per share on the $1200 short put for August.

Margin if it was just an ATM put would be only $180+$158= $338/sh.

In a cash account these would be $1200/sh and $900/sh respectively.


This isn't broker specific, it's the standard REG-T rules for margin requirements.

Portfolio margin works differently from my reading, so that might explain the difference.

Ah, I see. Thanks for the clarification. Yes, the flexibility is a bit less with reg T margin. And I suppose, even if youre buying protective puts, with the calculation above it may or may not be getting back enough margin. I am not sure. But worth trying if you can get someone to talk at the other end.

 

[vwman111]

Let me give a hypothetical example:

Pre earnings, johnny was bullish and wrote 20x 900 strike puts, with stock at 940 with 3 days to expiration.
post earnings, the stock drops to 840, leaving his puts deep in the money to the extent of 60 per. Margin utilization is now uncomfortably high and a buy back needs about 60 per share.

instead of coming up with the 60 per share, it is possible to move the 900 puts to which are in the money by 60$ to half the number of 960 contracts ($120 in the money)

What this does is generally release the margin, reduce your theta, but increases the break even price. Now Johnny has more downside protection. He wont be able to hold on to the position even if the stock goes to 600, whereas with the previous 20x 900 puts, he might have got margin called at 700.

Johnny is sure that the fair value is much above 960, though in the short term price may go a good bit lower. So it is a better trade off to wait out the volatility with deeper in the money puts.

While I used a naked puts example, the math works reasonably similar with very wide (300 to 400) bps. This is useless with a 50 wide spread. and there is a spectrum of usefulness in between.

edit: Per Knightshade's post above some of this math may be different for RegT margin accounts which seems to be a bit punitive. I am getting at this from a Portfollio Margin perspective.

How did you know my name was Johnny? And when i see it written down i realize how bad of a trader i am.

Thank you for the explanation!

 

[Zhelko Dimic]

It's not a cash account, it's margin (and it's Merrill Edge BTW)

But standard rules for short put margin needed is: the greatest of the following calculations times the number of contracts times the multiplier (usually 100):

20% of the underlying price minus the out of money amount plus the option premium
10% of the strike price plus the option premium
$2.50


That first one is what's in play here since it's far far larger than the others on ITM puts.

So the deeper ITM the put, the more margin it's going to eat....until it's nearly 1:1 for very deep ITM.


Stock at $900 and selling a $1200 put that'd be $180 (20%) plus $300 ITM amount, plus full (not net credit amount) of the premium which is $350 for 6 months out as of this post.

So $830 margin needed per share on the $1200 short put for August.

Margin if it was just an ATM put would be only $180+$158= $338/sh.

In a cash account these would be $1200/sh and $900/sh respectively.


This isn't broker specific, it's the standard REG-T rules for margin requirements.

Portfolio margin works differently from my reading, so that might explain the difference.

I don't get difference btw. portfolio portfolio/risk/Reg-T margin, never heard of it in Canada, so I could be wrong and the rest is useless... With that disclosed, I do hope it's useful...

With 50% requirement, my $1400 July puts require 98K margin to hold. But 51K is the put premium, so my real exposure is around 47K, i.e. around 50% of current price.
With 20% req., if based on current price, like it should be, it would be even less, so one deep ITM call can offset few spreads. My math is that such put requires only 1.8x of your current spreads, and raises 5x of the cost, so you should be able to replace 100 spreads with 100*1.8/5=36

And this would be my suggestion, lower your number of contracts, maybe go further and deeper, $1600 at Dec, I'm guessing you can do less than 1/5 of the contracts. And then you can keep rolling them until TSLA. crosses 1600 or whatever. Be careful that every drop of $1 in TSLA with 20% req. will mean that your margin req. increases $0.8! So calculate to survive maybe another $200 drop, to be safe?

 

[Zhelko Dimic]

20% of the underlying price minus the out of money amount plus the option premium

You're calculating in the money value here twice, as premium already contains that value...
For me, it's 50% of current price + option premium if ITM
If not ITM, it's 50% of the strike + option premium

 

[Knightshade]

You're calculating in the money value here twice, as premium already contains that value...
For me, it's 50% of current price + option premium if ITM
If not ITM, it's 50% of the strike + option premium

I'm not counting it twice.

OTM/ITM amount is a different number than the premium on the option.

US Rules appear to treat these are different things....and use both plus the 20% of underlying to determine margin requirements.

If it's OTM you get to subtract that amount (but still have to add the full premium).

So for example selling an $800 put you get to knock $100 -off- the margin, it'd be 20% of SP ($180) plus the current full premium ($122 for October), minus $100 OTM= $202 margin needed.



What was unclear was--- since you for sure get to subtract OTM amount from margin needed- do you also add ITM amount? Logically (and also using basic math) it seems you should, but since ML doesn't even HAVE a margin calculator I couldn't say for sure.



Anybody in the US with a REG T (not Portfolio or IRA) margin account and a broker with a real margin calculator want to solve this for sure?

 

[ReddyLeaf]

Ok, I lied. Decided to roll -900p to 2/11 for $23 cr, right before the SP took off from 905 to 915 around 12:30. Also closed out -c95X’s for $0.10-$0.15, and somehow managed to “time” selling next week’s CCs (probably a mistake, but paired with the -900p). STO 2/11 -c955s for $13.25-$14.60. Waiting until Wednesday for my most vulnerable account. BTW, not advice, but selling options on Wednesday (idea stolen from @Yoona ) really really really improves theta decay. I chose wisely this week and could have left both puts and calls to expire worthless. Now, if I can just remember to follow my own advice and wait. -I hate waiting. Inigo Montoya

 

[MikeC]

...selling options on Wednesday (idea stolen from @Yoona ) really really really improves theta decay.

Theta decay is even better when you sell Friday morning. Sold a 2/4 -p900 for $9 this morning with plan to roll or wheel if it ends up ITM and already at 80%.

 

[ReddyLeaf]

Theta decay is even better when you sell Friday morning. Sold a 2/4 -p900 for $9 this morning with plan to roll or wheel if it ends up ITM and already at 80%.

Yes, amazing week. I only got $15.xx for mine earlier in the week. Same with calls, got more on Thursday than on Wednesday.

 

[Right_Said_Fred]

Was trying to sell 10 calls for next week and accidently sold 20. I first placed an order for 10 x c1040 for $3.00 and it didn't fill because SP dropped under 900. So I placed another order for 10 x c1030 for $3.20. That one was immediately executed but I had not taken the other one out of the order book yet and before I could act it was executed too on a quick 5 point uptick.

I don't really mind, although the timing was off, since we are now 25 points higher. Despite of that the c1030 is still hovering around $3.00, with the c1040 around $3.80.

Let's see how it goes. I took the position to challenge the stock a bit, as I'm also short 20 x p1030. It's more or less a short straddle now.

The 5 x -c1030 for this week, which I also sold for $3.00, will expire worthless.

 

[Yoona]

2/18 -p850 prem:

View attachment 764395

tempting at $9.30/wk or even just daytrading it @50% - someone stop meeeeeeeeeeee

closed the quick bet; 21% in one day

 

[M3Rider]

I bought 50 shares @884 today with options premium money for the last couple of weeks. Was considering how to best position myself given all the bps I rolled. Buying them out is expensive, better to wait for time value to go away. Collecting cash would be the best to buy them if needed when the time comes, but shares give me 50% of value back as margin, so 2nd best thing and still improve my margin in a bear market. Leaps are enticing, but add 0 to margin, so will just keep what I have and not increase for now.


Sold today 2/11 30bps -800/700 @5 and
2/18 10x IC -750/650/-1250/1350 @5

Not selling CCs today, don’t want to risk shares at low strikes.

 

[Yoona]

i closed all my pending positions, nothing open in acct, will be cash only this weekend for the 1st time

i.don't.know.why.i.did.that.

starting fresh on monday... put prems will be lower and i lost theta and that's ok

acct grew 13.43% the last 2 weeks so maybe this new 'strategy' is working: stay 5-7 DTE, BTC 80%, add daytrading as gravy

i am going to see if i can repeat this success in the next 2 weeks

 

[UnknownSoldier]

I sincerely hope that the bear market is over. All tech earnings is done, so now it's just up to the boomer stonks to not take a huge dump on themselves and kill the S&P 500.