I've been going through last year's investments/trades and here's a rough analysis of the contribution to profit per type...
Seems to be one big loser there!
Seems to be one big loser there!
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
You have to be careful with that kind of data. In a market where the indexes only went up over the last year, of course profit would easily come from Sold weekly put and Bought leap call. But I think a couple of users can attest to the last 1 month they gave back a large portion of those profits from last year from selling puts.
Sure - you need to pick your instrument based on the market conditions as you judge it at that time. Obviously if you sell calls against a continually rising stock then you're going to get burned, but last year I think it was pretty balanced in terms of drops and pops. What I need to look at is the SP when the trade was open and the closing price at expiry, try to see if it was pure chance that all those sold calls lost out, or whether it was poor judgement on my side...
What I have noticed is that I have the habit to sell ATM, more often than not one week's gains are given back the week after. I'm trying to educate myself to move away from this straddle approach to OTM strangles, smaller gains, but more consistent
My gut feeling is that (as of now) a $7 premium as of Monday for a put and a call, would mostly result in both expiring end of that week... I have no proof of this though, but I'm going to try it out
Did you 'lose' money on the sold calls, versus just making less than you could have? That can be true of all the other position types, unless perfectly selected.
Also, does that include returns on the sale of stock? Assuming the strike was not less than the original purchase price, it should be hard to end up with a loss.
Edit: unless they were naked calls...
NOT-ADVICE.
Like really for real - this is how I'm taking a bunch of leverage out of my portfolio and aiming for my own adequate level of income (based in historical life style). Its putting together familiar elements into something new for me, and I'm certain I'll be tweaking from here.
The larger approach / change to my strategy might be interesting for others as well.
My context is that I'm looking for dividend / income type of results. The thing that I sorted out over the last week is that to achieve a desirable outcome (generating actual living expenses worth of income) I need to achieve $2/share weekly results from my call and put sales. Last year and front of this year I've been using leverage (via share replacement calls and put spreads primarily) to get significantly better results. As well as significant bad results on occasion. I need to take out that level of volatility. While I'm at it, it'd be nice if I could reduce my daily effort somewhat, and I think I'll get that as a side effect.
Also part of my context is that in the end, excess results will go somewhat into lifestyle. Mostly the extra good results become more $$ to give away to worthy causes. While I look forward to giving away a lot of money, taking on significant levels of risk and leverage to get it isn't a good use of stomach acid.
I get to $2/week this way:
Given a little over $1M portfolio (net of taxes due, or in a retirement account), using today's share prices I can put that into 700 shares and have cash left over to support 5 naked puts. I think of this as having 12 total positions. At $2/week I'm getting $2500/week or $10k/month. The most important element here is that all of the positions are fully owned - no margin or other leverage involved.
I use the $1M portfolio and $10k/month as round numbers to make the math easy to work in one's head. If this is as good of a result as I get ($2/contract, 12 positions) for all weeks of the year, then that works out to a 12% return for the year. That might sound wimpy compared to some of the results we were seeing, but if you can find a 12% dividend anywhere else please let me know. This level of result makes this well worth my time.
I would like to do better, and I need to do better on some trades so that extra can offset losses that come along. These 12 positions are all positions that I can roll forever if desired. And the random net credit on each of those rolls can easily average out to $2/week, so even a roll when far ITM can yield the target weekly income.
The biggest risk I see are big and fast moves in opposite directions, happening back to back (to back, to back, ..). Big moves aren't $50 or even $100 per week. It's that level of move for 3+ weeks in a row. Even 3 $50 weeks in a row isn't a problem - 3 $100 weeks in a row in the same direction, with no or slow regression - that is the sort of scale one of those moves will need to be to become a problem. Followed by just enough time to get a little comfortable at the new level, before turning around for $300 in a short time (and back, and forth, ..).
I've seen these circumstances a couple of times now and I have a much more experienced and informed idea of how I'll react and handle them.
The most visible risk I can see is the opportunity cost of the shares taking off and my call strikes being unable to roll far enough, fast enough to keep up. I.e. - the $920 shares I bought today - maybe I roll the cc strike to 1100 before losing contact with the 1300 share price. Boohoo - my income strategy picked up an extra $180/share along with the cc credits, while missing out on the incremental $200. Yeah I'd like to get that extra $200, but this is income generation, not a portfolio growth focus. From that income perspective this is an extra 90 weeks of income. And in other circumstances of more sideways trading this will do marvelously.
I'm going heavier into share ownership than put sales - I want the extra exposure to moves up which I consider inevitable for Tesla, even if the next big leg up is 2 or 6 years away. As long as the week to week changes in the share price are slow enough (in my testing last night I could still get a $5 move in the strike price when $100 ITM (VERY IV dependent), or a $30 strike improvement for $75 ITM. For risk minimization reasons, and given the very low weekly credits I need to reach, any rolls for time will always be max strike (or max strike minus 1) when ITM. Well - or rolling to the ATM strike; that bit is more flexible
And since these are paired with winning sales on the other side, I also have the choice of taking the winning and larger credits from the other side to buy extra strike improvements while still achieving the $2/position weekly income.
The really big risk I see over time will be strike to strike changes when taking assignment. Those can be in my favor or against. Those that go against can also be large enough to easily wipe out months or more of income, so the extra credits over and above the small weekly income target are important. I am, in effect, improving my break even with all of the extra credits to prepare for any negative strike to strike changes.
Bigger picture management will start looking like the wheel. When the share price is relatively low as it is now more shares than puts is desirable. I'm going about 2:1. If the share price keeps going down, then more and more shares are desirable, thus taking assignment on some of the puts that go ITM (cash into shares).
As the share price goes up, and particularly as it approaches ATH territory, then the share count can start going down (taking assignment on the calls). I figure I might draw down as low as 1:1, but those are details I'll figure out later - not something I need to know now.
Oh yeah - and as cash accumulates, additional put and call sales can be supported, further improving income over the minimum!
12% dividend?
QYLD comes pretty close, lol.
No, just options, yeah I did allow some exercises last year, but not factoring those in - I'm just trying to see if there's anything in the historical to help guide for better choices in the future
The "sold weekly calls" includes costs to close ITM CC to keep possession of shares, right? In other words, those costs exceeded collected premiums due to the 4Q SP spike, and I'm guessing you sold weeklies only during parts of the year?
Little questions here, how do you calculate time value left on an option.
For my -p925 18/2 puts if I go on optionprofitscalculator option chain I see they are still worth 19.58 with a stock price of 922 so the extrinsic value is 16.58? I am hesitating to pulling the trigger to roll to next week today or tomorrow but I don’t want risk assignment.
For my -p925 18/2 puts if I go on optionprofitscalculator option chain I see they are still worth 19.58 with a stock price of 922 so the extrinsic value is 16.58? I am hesitating to pulling the trigger to roll to next week today or tomorrow but I don’t want risk assignment.
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You answered your own question. Time value is precisely that extrinsic value.
is there any threshold of time value left that makes you roll asap?
This is my first time going into an expiration date with an already ITM option that I am tempted to wait till Friday to see the ultimate SP action.
My problem is my strike price being exactly at max pain. My reason is telling me to roll to next week for improved strike price. My gambling side is telling me to wait till Friday and risk assignment.
chiller
Member
I believe someone here wrote that assignment happens after market close so you can not get assigned during the trading day? Would be nice if any one can confirm this.
You can definitely get assigned during the trading day.
Don't want to gloat, but now this spread went +50%.
I'm aiming for 65% profit. No clue what to do next. It's Wednesday so maybe a Feb25 900/850bps.
Assignment will depend on the extrinsic value left, and what percentage that is of the profit for the buyer of the Put. If the Put is $200 ITM, they might exercise it with $1 of extrinsic left (0.5%). If it is $20 ITM, they probably won't until there is almost no extrinsic left.
I'm feeling good now about my IC for Friday, with short legs at 750 and 1,000. I'm glad I didn't panic yesterday on the BCS. I'm waiting to see what happens later this morning to see if I can open a few more positions for a little more gravy with 2 DTE.
jeewee3000
Active Member
+1
To add to this: early assignment risk increases the further a short call/put is ITM, since the amount of theta left on these is much smaller than on options close to the money. Therefore the option buyer has little to no incentive to wait much longer before collecting his shares/cash.
(This is the same reason why rolling for strike improvent becomes harder and harder the more you get ITM).
NOT-ADVICE.
Like really for real - this is how I'm taking a bunch of leverage out of my portfolio and aiming for my own adequate level of income (based in historical life style). Its putting together familiar elements into something new for me, and I'm certain I'll be tweaking from here.
The larger approach / change to my strategy might be interesting for others as well.
My context is that I'm looking for dividend / income type of results. The thing that I sorted out over the last week is that to achieve a desirable outcome (generating actual living expenses worth of income) I need to achieve $2/share weekly results from my call and put sales. Last year and front of this year I've been using leverage (via share replacement calls and put spreads primarily) to get significantly better results. As well as significant bad results on occasion. I need to take out that level of volatility. While I'm at it, it'd be nice if I could reduce my daily effort somewhat, and I think I'll get that as a side effect.
Also part of my context is that in the end, excess results will go somewhat into lifestyle. Mostly the extra good results become more $$ to give away to worthy causes. While I look forward to giving away a lot of money, taking on significant levels of risk and leverage to get it isn't a good use of stomach acid.
I get to $2/week this way:
Given a little over $1M portfolio (net of taxes due, or in a retirement account), using today's share prices I can put that into 700 shares and have cash left over to support 5 naked puts. I think of this as having 12 total positions. At $2/week I'm getting $2500/week or $10k/month. The most important element here is that all of the positions are fully owned - no margin or other leverage involved.
I use the $1M portfolio and $10k/month as round numbers to make the math easy to work in one's head. If this is as good of a result as I get ($2/contract, 12 positions) for all weeks of the year, then that works out to a 12% return for the year. That might sound wimpy compared to some of the results we were seeing, but if you can find a 12% dividend anywhere else please let me know. This level of result makes this well worth my time.
I would like to do better, and I need to do better on some trades so that extra can offset losses that come along. These 12 positions are all positions that I can roll forever if desired. And the random net credit on each of those rolls can easily average out to $2/week, so even a roll when far ITM can yield the target weekly income.
The biggest risk I see are big and fast moves in opposite directions, happening back to back (to back, to back, ..). Big moves aren't $50 or even $100 per week. It's that level of move for 3+ weeks in a row. Even 3 $50 weeks in a row isn't a problem - 3 $100 weeks in a row in the same direction, with no or slow regression - that is the sort of scale one of those moves will need to be to become a problem. Followed by just enough time to get a little comfortable at the new level, before turning around for $300 in a short time (and back, and forth, ..).
I've seen these circumstances a couple of times now and I have a much more experienced and informed idea of how I'll react and handle them.
The most visible risk I can see is the opportunity cost of the shares taking off and my call strikes being unable to roll far enough, fast enough to keep up. I.e. - the $920 shares I bought today - maybe I roll the cc strike to 1100 before losing contact with the 1300 share price. Boohoo - my income strategy picked up an extra $180/share along with the cc credits, while missing out on the incremental $200. Yeah I'd like to get that extra $200, but this is income generation, not a portfolio growth focus. From that income perspective this is an extra 90 weeks of income. And in other circumstances of more sideways trading this will do marvelously.
I'm going heavier into share ownership than put sales - I want the extra exposure to moves up which I consider inevitable for Tesla, even if the next big leg up is 2 or 6 years away. As long as the week to week changes in the share price are slow enough (in my testing last night I could still get a $5 move in the strike price when $100 ITM (VERY IV dependent), or a $30 strike improvement for $75 ITM. For risk minimization reasons, and given the very low weekly credits I need to reach, any rolls for time will always be max strike (or max strike minus 1) when ITM. Well - or rolling to the ATM strike; that bit is more flexible
And since these are paired with winning sales on the other side, I also have the choice of taking the winning and larger credits from the other side to buy extra strike improvements while still achieving the $2/position weekly income.
The really big risk I see over time will be strike to strike changes when taking assignment. Those can be in my favor or against. Those that go against can also be large enough to easily wipe out months or more of income, so the extra credits over and above the small weekly income target are important. I am, in effect, improving my break even with all of the extra credits to prepare for any negative strike to strike changes.
Bigger picture management will start looking like the wheel. When the share price is relatively low as it is now more shares than puts is desirable. I'm going about 2:1. If the share price keeps going down, then more and more shares are desirable, thus taking assignment on some of the puts that go ITM (cash into shares).
As the share price goes up, and particularly as it approaches ATH territory, then the share count can start going down (taking assignment on the calls). I figure I might draw down as low as 1:1, but those are details I'll figure out later - not something I need to know now.
Oh yeah - and as cash accumulates, additional put and call sales can be supported, further improving income over the minimum!
I am also looking at the $2 per week per contract. The $1275 and $1300 January 23 calls paid $196 and $207 per week yesterday with a 40% upside but maybe it makes more sense to go to March and save on taxes by going with a long term capital gain trade
.Income from Selling options is always taxed as short term gains in the US, even if they are more than a year out. I learned that the hard way before reading it in the tax code.I am also looking at the $2 per week per contract. The $1275 and $1300 January 23 calls paid $196 and $207 per week yesterday with a 40% upside but maybe it makes more sense to go to March and save on taxes by going with a long term capital gain trade
ChefBoyardee
Member
This is also good to factor in when deciding whether to allocate money to cash-secured puts vs Leaps or shares.
Multiply the weekly gains by .65 (roughly the difference between 50% and 20% tax rates on your gain)
Similarly, if a goal is effective margin use, factor in the margin your broker gives you from shares, adjusted for how much of that margin you use, and add that in. This might be something like 1 + (.5 margin * .3 usage), or 1.15
So if shares appreciate 50% annually, make that 57.5%
And if your cash-secured puts return 50% annually, make that 32.5%
--
This is why I'm starting to lean more towards 100% stock and Leaps, while using a safe percentage of my margin for premium selling rather than holding cash. You could always make like 300% returns with puts, which would be the winner, but the additional risk + the tax headwind may not be worth it
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