Wiki Selling TSLA Options - Be the House

[CHGolferJim]

Is rolling a covered call best done when the price is decreasing? Looking to bump out Sep 1200 to December 1400 slight credit or debit. As price increases, i am noticing that net credit/debit stays about the same with the consequence of a pricier option if I have to at some point BTC. Thinking that the same net credit/debit could be had when price declines, leaving a smaller footprint to manage if needed thereafter. When I rolled to Sep 1200, it was a get out of the way moment; I wasn't paying attention to that aspect.

In my experience, covered call roll terms are better when SP is down, but I can’t say that’s true in ALL cases. In general, the amount of credit and/or strike price improvement declines as the price rises. Maybe others will know if it varies whether you’re ITM or OTM.

 

[MP3Mike]

So in a weird turn of events I got another margin maintenance requirement change from E*TRADE today. Here is what I got yesterday:

And here is what I just got:

So I'm back to 40% like it has been forever. But why does it say it changed from 25% when it was 55%? Maybe these are manually typed up and they fat fingered it? (Notice the formatting is different between the two notices...)

This leaves me a little more breathing room, until they do it again. (But this was likely the result of the early assignment which really messed my account up.)

Heck, I could even buy back the shares I sold today at a lower price, but that would tighten up the margin some...

 

[mongo]

So in a weird turn of events I got another margin maintenance requirement change from E*TRADE today. Here is what I got yesterday:

View attachment 798976

And here is what I just got:

View attachment 798977

So I'm back to 40% like it has been forever. But why does it say it changed from 25% when it was 55%? Maybe these are manually typed up and they fat fingered it? (Notice the formatting is different between the two notices...)

This leaves me a little more breathing room, until they do it again. (But this was likely the result of the early assignment which really messed my account up.)

Heck, I could even buy back the shares I sold today at a lower price, but that would tighten up the margin some...

I could see that being a 10 key entry typo (+/-3).

Anyone else on Etrade to compare?

 

[BornToFly]

So in a weird turn of events I got another margin maintenance requirement change from E*TRADE today. Here is what I got yesterday:

View attachment 798976

And here is what I just got:

View attachment 798977

So I'm back to 40% like it has been forever. But why does it say it changed from 25% when it was 55%? Maybe these are manually typed up and they fat fingered it? (Notice the formatting is different between the two notices...)

This leaves me a little more breathing room, until they do it again. (But this was likely the result of the early assignment which really messed my account up.)

Heck, I could even buy back the shares I sold today at a lower price, but that would tighten up the margin some...

Are they trying to give you a heart attack?

I would wait until you see how next week plays out. If the SP climbs and you get out of the 5/6 BPSs, then sell an aggressive Put to get your shares back. What you don't want to do is buy them back at 870, and then sell them again at 750 because you need more margin again if the market keeps tanking.

 

[MP3Mike]

Are they trying to give you a heart attack?

That is certainly what happened when I saw the subject of the alert/email. What now are they upping it to 60, or 65%? Then I opened it and felt a wave of relief.

 

[Zhelko Dimic]

Surprisingly good premiums for 720/600 BPS next week.

Scary to hear that...

 

[willow_hiller]

Maybe a really basic question for you all, but how do you decide when to exit a position? Do you have a percentage/dollar gain in mind, or always play things by ear?

After holding nothing stock for so long, my default mode is "wait and see," but with options there are obviously time limits in play. And the increased leverage means positions can go from mildly profitable to underwater in a matter of minutes...

I could have closed out a position for about 40% profit today, and I'm kicking myself for not doing so, but only in retrospect. In the moment it felt like I could easily end up +100%, but now I'm feeling like I got too greedy.

 

[Zhelko Dimic]

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.

I want to present alternatives to spreads and alternative to maximizing opportunity.
We know that puts pay better than spreads PER UNIT, but much less overall PER MARGIN used, so I feel key is to think in terms of units. It helps me to think of overall exposure if SP drops 20 or 30% or 50%; whatever I think is the worst case scenario, as I deal with longer term options.
Then I size position based on that exposure.

In your case, here are few ways one can approach it:
1. instead of 10, you COULD sell 1 spread! It is less money, yes, but it's a lot less stress too.
2. You could sell two, or three, seems like a better balance to using as much margin as one put would require, i.e. leave lots of margin in place...
3. Or hybrid approach, you could sell 2-3 wider spreads (1000-500), as @adiggs was explaining.
4. And finally, instead of spread, one could sell 1 or 2 or 3 puts, and convert them into wide spreads with low protective leg ($500?), ONLY if position turns against you and margin starts to wane. You could do this with nearer date protective long leg, if so inclined, to lower price of insurance you pay. Yes, you will need to pay insurance if position turns, and in the end position may be losing, but it's unlikely you'd get wiped out.

The main thing is leave plenty of margin available, to NOT be forced into unwanted moves... Yes, this will decrease income

 

[JustMe]

Maybe a really basic question for you all, but how do you decide when to exit a position? Do you have a percentage/dollar gain in mind, or always play things by ear?

After holding nothing stock for so long, my default mode is "wait and see," but with options there are obviously time limits in play. And the increased leverage means positions can go from mildly profitable to underwater in a matter of minutes...

I could have closed out a position for about 40% profit today, and I'm kicking myself for not doing so, but only in retrospect. In the moment it felt like I could easily end up +100%, but now I'm feeling like I got too greedy.

I try to close positions when I sense conviction being replaced by hope. I definitely have to work to control greed and have the strength to take a small loss before it grows to a big loss

It’s not always easy to trade dispassionately, especially on volatile days. But emotional trading can be very costly.

 

[Yoona]

Over each of the last 6 weeks we've had about a +/-5% day somewhere between Monday and Wednesday. In each of those scenarios, if you would've written BCS (on an up day) or BPS (on a down day) between the closing price and respective high or low that day, with 5 or less DTE, you could have made money being no more than 5% from your closest strike. I also went back to October and this seems to hold true, but I'd challenge someone to find a week where this didn't actually work.

I had the same conclusion but from another point of view.

In the last 60 Fridays, 98.3% of the time, the Fri Close is somewhere near INSIDE the Mon High and Mon Low. In other words, the Mon High/Low is 98.3% accurate in predicting safe IC range (yellow is between red and green).

not advice, use data at own risk appetite, past performance is not guarantee of future outcome

 

[kabin]

Is rolling a covered call best done when the price is decreasing? Looking to bump out Sep 1200 to December 1400 slight credit or debit. As price increases, i am noticing that net credit/debit stays about the same with the consequence of a pricier option if I have to at some point BTC. Thinking that the same net credit/debit could be had when price declines, leaving a smaller footprint to manage if needed thereafter. When I rolled to Sep 1200, it was a get out of the way moment; I wasn't paying attention to that aspect.

Good question. Some platforms let you analyze trades so you can compare the delta, gamma, break evens, etc. That might be the easiest way to compare as there's so many variables.

In normal markets when the option is deep in the money with less gamma risk I like to roll when the SP increases as I'm not losing as much in the front month and I can pickup extra premium in the back month.

When the market is in free fall and it feels like it will continue you pretty much need to keep rolling down to maintain some delta hedging and capture the increased premium from rising volatity. Option hedging gets more challenging when the markets are volatile. You can overthink it and roll too much or too little. It's a catch 22 and the house wins more often than not.

 

[intelligator]

Maybe a really basic question for you all, but how do you decide when to exit a position? Do you have a percentage/dollar gain in mind, or always play things by ear?

After holding nothing stock for so long, my default mode is "wait and see," but with options there are obviously time limits in play. And the increased leverage means positions can go from mildly profitable to underwater in a matter of minutes...

I could have closed out a position for about 40% profit today, and I'm kicking myself for not doing so, but only in retrospect. In the moment it felt like I could easily end up +100%, but now I'm feeling like I got too greedy.

Don't know if there should be a hard rule or if this approach might work for you. Learning from others and my own experience of facing the unexpected, the past two months I've slowly shifted away from rolling position to avoid assignment, instead I am more often closing positions early. Rolling ties up margin, which I've been steadily building cash to reduce leaning on the convenience of broker loans and the reality of a margin call. If I do roll, it's to next week at minimal credit. Trading 3-4 DTE makes it easier as I'm usually in the storm when opening; the line of sight is better with regards to macros, MM dirty deeds, what might brew rest of week. This week, I opened my positions Tuesday, followed the daily MM tactics, somewhat called a 875 close for Friday. Gut feel based on earnings reports surprises/upsets for the coming week said to close Thursday at what was nearly 70%. A technical glitch with broker platform prevented that but that didn't stop me from placing the market orders which got filled at 55% or so... the hundreds I could have otherwise locked in didn't matter, I'd already made up my mind to get out. Some would say I left 45% on the table. I view it as +55% is better than having to contemplate a Friday close at break-even or slight-loss or the possibility of cornering myself into a tough to get out of spot as I've done with a few bad rolls. I'll do it if I absolutely need to, will avoid when possible. Aside from two CC rolls I am trying to better position and not selling a couple long calls when I should have (that's somewhat of the driver to take profit early) , following this thought process I've come out green on all BCS and BPS by bailing out, closing early.

 

[Max Plaid]

Weekend ramble... none of it advice, just things I've observed as of late...

Too much conviction on the direction of the $TSLA SP, or that it "has to be" this value, or that value by a certain date. This is a very dangerous thinking IMO. There're zero guarantees where $TSLA will be trading next week, in a month or this time next year. Tesla as a company might be knocking it out of the park, but sure looks to me that macro takes precedence and from where I'm sitting the economic outlook is bleak, to say the least

TSLA stock split, to the moon! Nope

TSLA massive earnings beat, ATH incoming! Nope

It's a world of pain, most of the time

I've become very risk-averse. I reduced my LEAP exposure dramatically and always assume that all my short trades will go ITM, then what will I do, what's the strategy?

In my case, the consistently losing approach is to buy back a losing position and reopen ATM... every time I have done this, the SP has reversed and wiped me out in the opposite direction. Each time I act on fear, mostly because I had too many contracts, now I have less at risk, I don't stress as much, plus I've learned to close positions out early, I like 80% profits, but if 50% presents itself within 24 hours, I'll normally take that too - another opportunity will arise

Imagine if you took +50% from every single trade you made, would add up pretty fast

And every time I closed out an ITM position, after a couple of weeks, if I had just rolled, been patient, would have gone OTM - fear is the mind-killer

If covered calls go ITM, then I will sell the LEAPS/shares, cancel out the losses and the SP will come back down, will buy back in again, not 100% guaranteed, but very, very likely

Where do we go from here? I have no clue... my gut feeling is that the indexes are close to bottoming-out, maybe another 10% on the $QQQ, but maybe it goes 30% further down from here, then what? I'm very cautious with writing puts, they're all fully cash-covered. I did buy 10x 5/20 +p900's end of March, which have been a great comfort to me, providing some downside insurance and helping me sleep at night. I do write against those (making a calendar spread), so will have recuperated my initial premiums, but likely capped the gains I otherwise would have made, but still a good situation

Just think about risk-management a bit more, folks...

 

[corduroy]

I had the same conclusion but from another point of view.

In the last 60 Fridays, 98.3% of the time, the Fri Close is somewhere near INSIDE the Mon High and Mon Low. In other words, the Mon High/Low is 98.3% accurate in predicting safe IC range (yellow is between red and green).

View attachment 799019

not advice, use data at own risk appetite, past performance is not guarantee of future outcome

I am loving your insights (and mad data analysis skillz), please keep them coming!

Interesting, that this week was one of the rare time this didn't work: Monday range $1,008-$975, Friday close $870

 

[Discoducky]

I could see that being a 10 key entry typo (+/-3).

Anyone else on Etrade to compare?

I've received nothing despite having a margin account. I'm at 40% as well. No changes

 

[strago13]

I could see that being a 10 key entry typo (+/-3).

Anyone else on Etrade to compare?

I am on eTrade and my margin requirement has not changed from 40%. Ever since I opened the margin account it has been at 40%.

EDIT: One other thing I am going to do is roll the RSU's I get through my through my employer into eTrade . With Morgan Stanley buying eTrade, I am hoping this will help with available margin and concentration issues.

 

[samppa]

Weekend ramble... none of it advice, just things I've observed as of late...

Too much conviction on the direction of the $TSLA SP, or that it "has to be" this value, or that value by a certain date. This is a very dangerous thinking IMO. There're zero guarantees where $TSLA will be trading next week, in a month or this time next year. Tesla as a company might be knocking it out of the park, but sure looks to me that macro takes precedence and from where I'm sitting the economic outlook is bleak, to say the least

TSLA stock split, to the moon! Nope

TSLA massive earnings beat, ATH incoming! Nope

It's a world of pain, most of the time

I've become very risk-averse. I reduced my LEAP exposure dramatically and always assume that all my short trades will go ITM, then what will I do, what's the strategy?

In my case, the consistently losing approach is to buy back a losing position and reopen ATM... every time I have done this, the SP has reversed and wiped me out in the opposite direction. Each time I act on fear, mostly because I had too many contracts, now I have less at risk, I don't stress as much, plus I've learned to close positions out early, I like 80% profits, but if 50% presents itself within 24 hours, I'll normally take that too - another opportunity will arise

Imagine if you took +50% from every single trade you made, would add up pretty fast

And every time I closed out an ITM position, after a couple of weeks, if I had just rolled, been patient, would have gone OTM - fear is the mind-killer

If covered calls go ITM, then I will sell the LEAPS/shares, cancel out the losses and the SP will come back down, will buy back in again, not 100% guaranteed, but very, very likely

Where do we go from here? I have no clue... my gut feeling is that the indexes are close to bottoming-out, maybe another 10% on the $QQQ, but maybe it goes 30% further down from here, then what? I'm very cautious with writing puts, they're all fully cash-covered. I did buy 10x 5/20 +p900's end of March, which have been a great comfort to me, providing some downside insurance and helping me sleep at night. I do write against those (making a calendar spread), so will have recuperated my initial premiums, but likely capped the gains I otherwise would have made, but still a good situation

Just think about risk-management a bit more, folks...

Interesting about those bought puts.. I've been thinking on similar lines.
So instead of cash/margin covered puts, buy a long term put and sell short term against that. This I think is called a diagonal put spread.
Anybody done similar spreads? or would it be just a way to kill all the profit, since the long put may expire otm?

what strikes would one choose?

 

[Max Plaid]

Interesting about those bought puts.. I've been thinking on similar lines.
So instead of cash/margin covered puts, buy a long term put and sell short term against that. This I think is called a diagonal put spread.
Anybody done similar spreads? or would it be just a way to kill all the profit, since the long put may expire otm?

what strikes would one choose?

Trick is to buy the puts when the SP is high after a run, same way you'd look to buy LEAPS after a dump (so to speak). In my case the driver was less for selling diagonals, more for insurance

 

[dl003]

My heart goes out to people who were taken by surprised this week. We all were and I hope this drama doesnt rear its ugly head again in the foreseeable future.

I know that I might be among the juniors when it comes to option trading, but it would bug me if I didnt remind myself out loud and others every once in a while: the market goes up on stairs but down on an elevator. Thats the reason I dont bet big on short puts / spreads. Theres just no time or room to react when it starts drilling hard.

Im also concerned about potentially souring relationship between some of us and Elon. Time and time again we are reminded of the fact that he has zero regards for traders, even for those who are most bullish on his vision. I hope things work out in the end for everyone and we’ll see how it goes on Monday. Cheers!

 

[CyberBro]

My heart goes out to people who were taken by surprised this week. We all were and I hope this drama doesnt rear its ugly head again in the foreseeable future.

I know that I might be among the juniors when it comes to option trading, but it would bug me if I didnt remind myself out loud and others every once in a while: the market goes up on stairs but down on an elevator. Thats the reason I dont bet big on short puts / spreads. Theres just no time or room to react when it starts drilling hard.

Im also concerned about potentially souring relationship between some of us and Elon. Time and time again we are reminded of the fact that he has zero regards for traders, even for those who are most bullish on his vision. I hope things work out in the end for everyone and we’ll see how it goes on Monday. Cheers!

jesus christ i sold weekly 800p on monday when tesla was at 950, damn thing almost went ITM cause of elon.