Wiki Selling TSLA Options - Be the House

[Yoona]

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not advice, just showing what's out there, use at own risk appetite

 

[BornToFly]

On the news last night they were saying that economic indicators are now show a slowing of the economy. I am hopeful that this means that at the Fed Meeting next week they will say that fewer rate hikes are needed now, and that the market will rebound.

 

[mongo]

A couple of minor learning's for me yesterday and today, or more accurately reinforcement of stuff I've already been doing.

The first is my increasing shift back to market orders - yesterday was an instance of why I've started using market orders once I've decided that I want a position. I put in a $12 limit order to sell 760 strike puts for 5/6. They were around $11.90 at the time and I figured they were likely to fill. When I looked about an hour later the shares had taken off and those puts were worth about $7. At this moment the options are worth $3.80 - I've missed out on earning $8 trying to nick an extra dime on the entry.

These situations are rarely this extreme, but I've seen this enough that I am increasingly using market orders. Once I decided I wanted to sell the 760s (selling puts on a big downward move) and felt they were still a good risk (my opinion - very unlikely to reach 760 by next Friday), then just enter. Reinforcement learning - the value here is that I knew this at the time and that I was risking a miss on the fill. The possibility that this would happen is something I knew, and something I will (even more) do in the future - use a market order, when bid/ask is small, rather than chasing the share price (good or bad; rarely good).

My 'rule' (strong guidance): Use a market order when the bid/ask is small. A $0.20 wide b/a spread is reasonably common; with effort I can often get a fill at the midpoint - an improvement of $0.10 over a market order. Sometimes the market order does a bit better, but I'm hunting for 10 cents there. In this case my desire to get that extra 0.10 has cost me $8 in one day. The $8 in one day is the wrong way to think about this, but $8 over this week and next, when my standard is to earn $2/contract/week, is crazy to have tried to nick the extra dime.

What about in the money limit orders instead? Still executes like a market order, but protects against the possibility that volume dries up and market pricing is way off what you expected.
(Read anecdote about that happening)

 

[vikings123]

I see that two other people tried to explain it, but not clearly enough, IMH, so I will try....

Imagine stock at 1050. You have $100,000 in cash. You can sell 1 naked Put for $1,000 strike, OR 10 spreads that are 100 wide (Buy 900, sell 1000).
If the SP drops to 900 - with the naked Put, you own 100 shares that have a paper loss of 10% and can recover. With the spreads, you lost $100,000 and own nothing. So why do spreads at all? Because you make more money, but the risk is HUGE.

Great example and precisely why spreads are very high risk.

BPS can also work but IMHO sizing and disciple is very important, don't use up all your margin especially in today's macro + China headwinds. The other lesson learned for me is take small wins when you can. Over a course of 20 trading days in a month these small wins can add up and reduce the impact of SP crashing or taking off.

 

[adiggs]

NOT-ADVICE
One of the most valuable bits I get out of the thread is hearing what different people are thinking about for the market and share price over the very short term - the next 1-2 days, up to 1-2 weeks. Sometimes going out to a "larger trend" that could reach out over the current quarter.

Not because anybody knows what will happen, but because everybody sees different things, and sees them differently.

In that spirit, my view on the remainder of the quarter is unchanged, even after the couple of strong down days we've seen. I expect the share price to be lower than higher over May. The primary rationale is that the next news with strong short term impact I expect will be Q2 production. And positioning won't really start happening until June. Over the month of May, we'll be away from the recent great earnings, and far enough away from the next great production report, that the Tesla Story won't hold much mind share.

That leaves the Macro Story in control (Ukraine war, inflation, recession, interest rates, Twitter). Add in some help from people that can and do manipulate the share price downwards when the time is right, and I see 800s in May more likely than 1000s.

I expect a return to the 1050 to 1150 range in June, as people start getting ready for the production report.


The other observation here - as deeply knowledgeable Tesla investors with a long term buy and hold mentality, or at least a belief that Tesla is dramatically higher in 5 years than today, its easy to mix long term buy and hold thinking, with 3-12 DTE option mentality. Or at least it is to me. Just because I think Tesla is worth $1200 today and why can't the market see it!?!, doesn't mean we're going to see $1200 this week or next. Nor does that belief inoculate us from seeing $700 this week or next.

By 2025, I think $1200 is so far in the rear view mirror its funny. But mixing that view with the necessary short term view can be disastrous.

I'm doing better about splitting these two ways of thinking about things, but I can be better.

 

[stealthyc]

BPS can also work but IMHO sizing and disciple is very important, don't use up all your margin especially in today's macro + China headwinds.

I highlighted the important part, regardless of macro or anything.

 

[BornToFly]

NOT-ADVICE
One of the most valuable bits I get out of the thread is hearing what different people are thinking about for the market and share price over the very short term - the next 1-2 days, up to 1-2 weeks. Sometimes going out to a "larger trend" that could reach out over the current quarter.

Not because anybody knows what will happen, but because everybody sees different things, and sees them differently.

In that spirit, my view on the remainder of the quarter is unchanged, even after the couple of strong down days we've seen. I expect the share price to be lower than higher over May. The primary rationale is that the next news with strong short term impact I expect will be Q2 production. And positioning won't really start happening until June. Over the month of May, we'll be away from the recent great earnings, and far enough away from the next great production report, that the Tesla Story won't hold much mind share.

That leaves the Macro Story in control (Ukraine war, inflation, recession, interest rates, Twitter). Add in some help from people that can and do manipulate the share price downwards when the time is right, and I see 800s in May more likely than 1000s.

I expect a return to the 1050 to 1150 range in June, as people start getting ready for the production report.


The other observation here - as deeply knowledgeable Tesla investors with a long term buy and hold mentality, or at least a belief that Tesla is dramatically higher in 5 years than today, its easy to mix long term buy and hold thinking, with 3-12 DTE option mentality. Or at least it is to me. Just because I think Tesla is worth $1200 today and why can't the market see it!?!, doesn't mean we're going to see $1200 this week or next. Nor does that belief inoculate us from seeing $700 this week or next.

By 2025, I think $1200 is so far in the rear view mirror its funny. But mixing that view with the necessary short term view can be disastrous.

I'm doing better about splitting these two ways of thinking about things, but I can be better.

I have the same thoughts. Based on previous years, May/June period can be the low. I'm tempted to blow money on July 15th 700 Puts to protect myself from a margin call should we go lower than 700. I don't want to do it, because I feel like that is throwing money away, but it could save my bacon. I haven't decided yet....

 

[adiggs]

What about in the money limit orders instead? Still executes like a market order, but protects against the possibility that volume dries up and market pricing is way off what you expected.
(Read anecdote about that happening)

I think that I don't know what you mean - tell me more!


Worth adding on my market orders notion - I don't use market orders in low volume or routinely high volatility situations. So I really, really avoid market orders on open. I also don't use market orders when buying high DTE options, such as the June '24 500s I purchased recently. But the bid/ask on those is more like $10 than $0.10.

Those are extremes - I've found that volume is good, my purchase volume is small enough, that on this week / next week type options, I'm losing more than gaining by picking up bid/ask pennies. I also invest a lot of incremental energy to do worse on the fills - the incremental time and energy by itself is worth not mucking about with it.


Worth noting as well - market orders don't apply to spreads. Unless you enter as 2 trades - so buy the insurance puts as a market order, and then sell the short puts as a market order (or limit orders of course). Spreads require a limit price (and I've never seen my spread get a transaction price improvement; h'mm...).

 

[strago13]

I will also add onto my situation. With this latest event, I had to roll ALL of my puts to Jan 2024. Not happy about that as I had a pretty good plan to get back out of the mess from January. That obviously hasn't happened.

Biggest lesson for me is being patient. Every move I make to try and "fix" my situation could make things worse than it is right now. I have had 2 instances of this happen and I am carrying an extra contract because of it.

If I do nothing, I am confident my Jan 2024 900 puts will expire worthless unless we're in WW3 or something crazy. If I buy these contracts out now, I have effectively broken even for all of my trading since September.

If I try to "fix" it by pulling some forward, it could create more of a mess (happened twice already).

At this point, I am leaning towards just sitting tight until after Q3 earnings and a bunch of theta has decayed off the contracts. This has a few benefits but it means no income in the interim.

I am deathly scared of getting margin called or losing what I have given how the last 5 months have gone. So sit tight it is.

 

[ninpb]

I'm doing +20% OTM weekly BPS without using margin, only cash. It might be low returns, but it's still equivalent to my CSP goals when I first got started last year. I had to switch because I dipped into CSP funds buying a few LEAPS in January.

I hope everyone with BPS that needs it get's a face-ripping Shanghai open surprise or something over the weekend. I know it doesn't make it any better, but I am learning from everybody's challenges and am grateful.

 

[mongo]

I think that I don't know what you mean - tell me more!


Worth adding on my market orders notion - I don't use market orders in low volume or routinely high volatility situations. So I really, really avoid market orders on open. I also don't use market orders when buying high DTE options, such as the June '24 500s I purchased recently. But the bid/ask on those is more like $10 than $0.10.

Those are extremes - I've found that volume is good, my purchase volume is small enough, that on this week / next week type options, I'm losing more than gaining by picking up bid/ask pennies. I also invest a lot of incremental energy to do worse on the fills - the incremental time and energy by itself is worth not mucking about with it.


Worth noting as well - market orders don't apply to spreads. Unless you enter as 2 trades - so buy the insurance puts as a market order, and then sell the short puts as a market order (or limit orders of course). Spreads require a limit price (and I've never seen my spread get a transaction price improvement; h'mm...).

Sounds like you already have the corner cases covered. I was speaking of setting limit buy above the current price or sell below the current to achieve (theoretically) guaranteed execution while preventing a wildly different price than I wanted.
Mostly for single legs orders. With buy/ask spread on options, probably just end up chasing executable midpoint anyway.

 

[ReddyLeaf]

I will also add onto my situation. With this latest event, I had to roll ALL of my puts to Jan 2024. Not happy about that as I had a pretty good plan to get back out of the mess from January. That obviously hasn't happened.

Biggest lesson for me is being patient. Every move I make to try and "fix" my situation could make things worse than it is right now. I have had 2 instances of this happen and I am carrying an extra contract because of it.

If I do nothing, I am confident my Jan 2024 900 puts will expire worthless unless we're in WW3 or something crazy. If I buy these contracts out now, I have effectively broken even for all of my trading since September.

If I try to "fix" it by pulling some forward, it could create more of a mess (happened twice already).

At this point, I am leaning towards just sitting tight until after Q3 earnings and a bunch of theta has decayed off the contracts. This has a few benefits but it means no income in the interim.

I am deathly scared of getting margin called or losing what I have given how the last 5 months have gone. So sit tight it is.

Exactly my situation as well. Earlier this year I had to push all my 1100&1000 puts to September or January (two accounts) as well. I’ve been slowly pulling them back as I build up enough cash from my weekly CCs. This week’s Twitter dump forced me to roll everything this week to 5/20. The problem with those longer options is less weekly premiums (e.g., ~$5/wk vs $20/wk ATM). I really want them into the weeklies for the extra premiums, but that requires better timing and constant monitoring and sometimes life gets in the way.

 

[OrthoSurg]

Why would the spreads be worse?

Because I could have opened 10x more contracts with the same margin requirement. Once you have crossed your midpoint with BPS you can’t roll out without a credit or without widening your spread without having to pay a debit. I kept all my TSLA shares but loss all my ARKK, ARKG, Bitcoin, Etherum and all the crap I didn’t care about.

 

[adiggs]

Sounds like you already have the corner cases covered. I was speaking of setting limit buy above the current price or sell below the current to achieve (theoretically) guaranteed execution while preventing a wildly different price than I wanted.
Mostly for single legs orders. With buy/ask spread on options, probably just end up chasing executable midpoint anyway.

I see what you're getting at.

 

[doddiozil]

I see that two other people tried to explain it, but not clearly enough, IMH, so I will try....

Imagine stock at 1050. You have $100,000 in cash. You can sell 1 naked Put for $1,000 strike, OR 10 spreads that are 100 wide (Buy 900, sell 1000).
If the SP drops to 900 - with the naked Put, you own 100 shares that have a paper loss of 10% and can recover. With the spreads, you lost $100,000 and own nothing. So why do spreads at all? Because you make more money, but the risk is HUGE.

This is a great summary and was some how not understood by us all while insane gains were being made in 2021 that later evaporated

 

[BornToFly]

If Gary is correct, we will know when the annual meeting is very soon (by Monday). Might help us next week?

https://twitter.com/x/status/1520071293961396225

 

[MP3Mike]

If Gary is correct, we will know when the annual meeting is very soon (by Monday). Might help us next week?

https://twitter.com/x/status/1520071293961396225

By Monday or by end of day Monday? 120 days is 4/30, i.e. tomorrow, so I assume that they need file it by the end of the day Monday. (5:30 PM EST)

 

[BornToFly]

Same for me. Looks like I have to fold things if we don't rebound heavily (think like 1050 until next Friday). Have a meeting today to discuss the details and implications of bankruptcy..

Please keep us posted. Your knowledge of the Greeks, math, etc., has always been impressive and I greatly value your knowledge here. I can only assume you got a little too aggressive, which can lead to a problem with no solution. Fingers crossed for you.

 

[ReddyLeaf]

I don’t normally “day trade” because everything is in an IRA, but I copied one of @adiggs methods today (edit: take profits at 50%). Sold 5/6 -c1005s in one account for $11.00 near the $930 AM peak. I assumed that I was done until next week. Later I noticed the big dump below $900, so logged back in and then bought the same number of +c1000s for $4.70, effectively locking in a bit more than 50% gain, and inadvertently creating a very tight call spread. Something to keep in the repertoire for the future. Thanks to all for the learning on this thread (and especially lots of good thoughts going out to everyone having trouble with BPS and BCS troubles). Keep some dry powder or margin for these inevitable $100/day crushes (+ & -).

 

[Drezil]

Please keep us posted. Your knowledge of the Greeks, math, etc., has always been impressive and I greatly value your knowledge here. I can only assume you got a little too aggressive, which can lead to a problem with no solution. Fingers crossed for you.

Well.. I would take a bailout, though