Wiki Selling TSLA Options - Be the House

[Oil4AsphaultOnly]

I don't think you need a margin account to sell spreads. I am able to do so in my IRA account, which does not allow margin. But I do need full cash coverage.

Your other point makes sense to me. I'm shocked to find out (queue Casablanca movie) Fidelity can close out the trade when you are fully cash covered. Don't understand that.

I have that in my schwab IRA as well, and although it isn't a full margin account (need to have enough shares/cash to cover early exercises), I still needed to apply for "IRA margin and Spread trading" (aka level 2 options). So still a sort-of-margin.

 

[Oil4AsphaultOnly]

I understand. I was just saying that because if people forget that or don't know it they can think they are safe at the close and the next day be informed they've been wiped out

Well, technically you won't be "wiped out". You'll just find yourself with extra shares the next day (on "margin loan" and potentially in a margin call) and need to "fix" it. If you're lucky and the stock opens up, then you get to sell the shares at a profit. If you're unlucky and the stock opens down, then you'll have to liquidate the new shares for a realized loss (to pay off the margin loan) and hopefully still have some cash left. And if your spread was so narrow that you get wiped out from this, then you really have no business trading with margin.

 

[Oil4AsphaultOnly]

Ah, now I get what you are saying. Correct, it was in margin account, and no there was not enough cash to back 30 puts (I wish!).

What I found interesting, and what others have mentioned in the past, is that this happened EXACTLY 1 hour (to the second) before close.

I'm not that upset, just a learning experience. I could have closed the trade for a profit earlier in the day on the run up, and on several subsequent mini-spikes we saw on the general down-trend.

The time of closing the position shouldn't matter. They can't early close your position (during market hours) unless you've run out of margin. I've checked Fidelity's margin FAQ (Trading FAQs: Margin - Fidelity), and they have 5 different levels of margin calls (all of them permit Fidelity to force close a position to satisfy the margin requirements):

House	Account margin equity falls below Fidelity’s requirement.
Exchange	Account margin equity falls below exchange requirements.
Federal	Equity is insufficient to satisfy the 50% initial requirement on an opening transaction.
Day trade	A day trade exceeds your account’s day trade buying power.
Day trade minimum equity	Margin equity falls below the $25,000 pattern day trader equity requirement.

I'm guessing you fell into one of these when TSLA dropped below 1005?

 

[bkp_duke]

The time of closing the position shouldn't matter. They can't early close your position (during market hours) unless you've run out of margin. I've checked Fidelity's margin FAQ (Trading FAQs: Margin - Fidelity), and they have 5 different levels of margin calls (all of them permit Fidelity to force close a position to satisfy the margin requirements):

House	Account margin equity falls below Fidelity’s requirement.
Exchange	Account margin equity falls below exchange requirements.
Federal	Equity is insufficient to satisfy the 50% initial requirement on an opening transaction.
Day trade	A day trade exceeds your account’s day trade buying power.
Day trade minimum equity	Margin equity falls below the $25,000 pattern day trader equity requirement.

I'm guessing you fell into one of these when TSLA dropped below 1005?

Not even close. I had plenty of equity/margin available. The BPS was backed by 2X cash. Literally the position could run to zero, and I would have had plenty of cash left with no margin calls.

I'm guessing it had to have been early execution of the short put, and they closed the long put automatically with it. Again, the timing was just very suspect to me.

 

[adiggs]

Not even close. I had plenty of equity/margin available. The BPS was backed by 2X cash. Literally the position could run to zero, and I would have had plenty of cash left with no margin calls.

I'm guessing it had to have been early execution of the short put, and they closed the long put automatically with it. Again, the timing was just very suspect to me.

Also remember that as the spread approaches expiration, the insurance option also approaches 0. And does so much faster than the short option. I guess that's something else to consider - I've never take a spread that close to expiration.

This is probably another reason to aim to be a fair distance OTM as expiration approaches, or to roll proactively.

Thanks for reporting on what happened here - this is the sort of detail that the only way I know to find out about, is to do it. Or for me - you share and I learn

 

[MP3Mike]

Was well aware of that, it was the timing of this one (on the hour, by the second) that I found suspicious.

Yeah, with most brokers the risk management is a automated scheduled process. I've been told that E*TRADE is one of, if not the only, broker that stills has risk management handled by actual people vs. automated systems. (And when they closed mine out it was much closer to the end of the day than yours.)

Not even close. I had plenty of equity/margin available. The BPS was backed by 2X cash. Literally the position could run to zero, and I would have had plenty of cash left with no margin calls.

So you had double the cash that would have been necessary to accept assignment of the short leg? Because what they are looking at is that you might do nothing and they risk the short leg going in the money and getting assigned while the long leg expires worthless because you didn't execute it. For example if the ending price was 995 and only the short leg was in the money, such that the long leg wouldn't execute automatically. (Maybe you had something come up in your life and you weren't watching/managing your positions.)

Did you have double the cash necessary to buy back the short leg while leaving the long leg in play?

Note: They also told me that if I have a position that is close to the money that I am monitoring I can contact the risk department and let them know, and that they might take that into account and give me more time to deal with it before they step in.

 

[bkp_duke]

Looking at the week ahead wrt earnings, the fear index (https://www.cnn.com/markets/fear-and-greed), and the VIX up.

Might not enter a position on Monday and may wait to see how things go with MSFT and GOOG reporting after hours on Tues. FB (Meta) on Wed and AMZN on Thurs also could be big land mines.

What are everyone's thoughts on next week with how macros and earnings of these companies might affect TSLA?

 

[Yoona]

Looking at the week ahead wrt earnings, the fear index (https://www.cnn.com/markets/fear-and-greed), and the VIX up.

Might not enter a position on Monday and may wait to see how things go with MSFT and GOOG reporting after hours on Tues. FB (Meta) on Wed and AMZN on Thurs also could be big land mines.

What are everyone's thoughts on next week with how macros and earnings of these companies might affect TSLA?

i am business as usual - IC/CC 3-4 DTE + daytrade 30 DTE + buy/write CC + daytrade stocks

just finished doing my taxes... 700+ trading transactions last year and paid $180k in fees!

 

[riverFox]

i am business as usual - IC/CC 3-4 DTE + daytrade 30 DTE + buy/write CC + daytrade stocks

just finished doing my taxes... 700+ trading transactions last year and paid $180k in fees!

No pain no gainz!!!

 

[ninpb]

i am business as usual - IC/CC 3-4 DTE + daytrade 30 DTE + buy/write CC + daytrade stocks

just finished doing my taxes... 700+ trading transactions last year and paid $180k in fees!

Puts, calls, spreads, all of the above for 30 DTE?

 

[samppa]

I read that the recent $SNAP results showed less ad revenue and I think the assumption is that GOOGL will be hit too, but I think Google's business and diversity is far wider than SNAP and those folks shorting now ahead of earnings newt week could be in for a shock, at least I hope so...

I happen to be holding 5x 5/20 -p2700's, will use weekly call premiums from selling against Jan 24 c3000 LEAPS to roll them down, $30-$50 each week. Hopefully the SP rises a bit to expire them at some point... I'll be damned if I use existing cash to buy those out - got burned every time doing that, patience is key, Google is one of the most stable and profitable companies out there, no debt, piles of cash and a dominant market position, so I think it's all a game right now. Split coming up too...

If GOOGL earnings disappoint next week, prepare for more pain..

 

[Yoona]

Puts, calls, spreads, all of the above for 30 DTE?

30+ DTE and ATM
i can't get this to work, so i gave up

30+ DTE and 20% OTM
this gives time for the position to fix itself in case bet was wrong

 

[AquaY]

i am business as usual - IC/CC 3-4 DTE + daytrade 30 DTE + buy/write CC + daytrade stocks

just finished doing my taxes... 700+ trading transactions last year and paid $180k in fees!

$180k in fees?
Don't they have discount brokers in Canada?
I did 1377 transactions last year and i was bummed i paid $11,114 in fees.
I know its what you earn that matters but $180k. Wow.

 

[mrmtb]

$180k in fees?
Don't they have discount brokers in Canada?
I did 1377 transactions last year and i was bummed i paid $11,114 in fees.
I know its what you earn that matters but $180k. Wow.

Maybe he means taxes? What the hell are you guys paying per trade?

I'm on track to make more than 1500 trades this year and I got my fees down to $.50 per options trade on TDA

 

[AquaY]

Maybe he means taxes? What the hell are you guys paying per trade?

I'm on track to make more than 1500 trades this year and I got my fees down to $.50 per options trade on TDA

I pay total .45 per contract with etrade

 

[Oil4AsphaultOnly]

Maybe he means taxes? What the hell are you guys paying per trade?

I'm on track to make more than 1500 trades this year and I got my fees down to $.50 per options trade on TDA

If you trade ~20 spreads (40 options each) per trade, then it would cost you $20 to open and $20 to close a position. 1500 trades of 20 spreads at a time would total $30k in fees.

Edit: trade 100 spreads at a time and you'd incur $150k in trading fees. It REALLY adds up with spreads!

 

[mrmtb]

If you trade ~20 spreads (40 options each) per trade, then it would cost you $20 to open and $20 to close a position. 1500 trades of 20 spreads at a time would total $30k in fees.

Yeah sorry, wasn't following. Thanks. I just woke up haha

 

[Buckminster]

I haven't watched yet:

 

[Buckminster]

I haven't watched yet:

Don't bother...

 

[TheTalkingMule]

If GOOGL earnings disappoint next week, prepare for more pain..

I was staring at the 1Q TSLA earnings estimate wondering how the hell it doesn get crushed. Don't know anywhere near as much about GOOG, but just logically.....this looks crazy conservative to me.

They've been growing earning y-o-y by like 80%, and PE has been compressed down to 21.32.

Might buy a few Friday calls if all is the same or worse Tuesday.