Wiki Selling TSLA Options - Be the House

[adiggs]

The inflation numbers will rule the market for a while. That and rampant overshooting, speculation and manipulation.

Along with corresponding interest rate changes, ancillary knockon economy effects (housing market for example slowing due to >5% interest rates vs. 3% interest rates recently available), and the Fed starting to shrink its balance sheet. I throw all of this together as Macro Story.

For TSLA I expect these to rule during the middle month of the quarter, with the Tesla Story more dominant in the first and third month of the quarter (anticipating, and then reacting, to production and financial results).

 

[bkp_duke]

The dynamic that I don't see priced into the market yet, much less Tesla, is the Fed beginning to reduce the balance sheet.

THey said $45B/month, for 3 months, to get things started. For the Fed to reduce its balance sheet by $45B, that requires the private sector to purchase that $45B. That $45B will come out of the universe of cash available to buy stuff in the stock market.

Three months at $45B is around $135B, with (I expect) almost all of that coming out of financial assets. Mostly the bond market initially, but it'll spread out to the rest of the market.

Then $90B per month for as long as needed. From other stuff I've read I expect the balance sheet to shrink down to $6T from $9T. That'll mean something like 30 months of $90B/month rolling off from the Fed balance sheet, and needing to be absorbed by the financial market.

As a poitn of comparison the Fed expanded the balance sheet from about $3T to $9T in the pandemic response, and as part of this massive growth in the stick market. A bunch of that is being pulled back. I don't know how big the impact will be on that withdrawal of cash / liquidity, but I'm confident it won't be small. As a reference point, the period in that big Fed balance sheet expansion corresponds, roughly, to TSLA growing from $90 to $900.


I also expect Tesla to be a relative winner in this process, as people become more choosy about what they use their cash on. Still Tesla down to 600 from 900 (down 33%) is outperformance when the market is down 50% (I made up the numbers to illustrate the idea).

JPOW was asked about this yesterday. He said the FOMC considers this to be about the equivalent in and of itself as a 25 bps hike, but over the course of an entire year.

Basically, to the FOMC, they think they are going to unwind it so slowly that it's a "nothingburger" already priced in to the markets.

 

[adiggs]

JPOW was asked about this yesterday. He said the FOMC considers this to be about the equivalent in and of itself as a 25 bps hike, but over the course of an entire year.

Basically, to the FOMC, they think they are going to unwind it so slowly that it's a "nothingburger" already priced in to the markets.

Good info. I think he's wrong (your mileage may vary - I would tend to value his opinion over mine though ).


I think the balance sheet shrinking will have a more immediate impact on the financial markets and a slower translation into the economy. Maybe that's what he's thinking, as we also know that interest rate increases translate into the economy more slowly. After all the Fed mandate is full employment, with inflation under control. In theory financial market consequences are irrelevant beyond their impact on employment and inflation.

As I understand it, targets are 4% employment (maybe 5%), inflation at 2%, with 'neutral' interest rates around 2.5%. Neutral in this context means neither stimulative nor a drag on the economy.

In today's world, that means the Fed CONTINUES to be in a stimulative stance to the market, and has a ways to go to neutral. At the current rates, even after the 0.5% increase, I would say that not only is the position stimulative, it is strongly stimulative. We've just become so accustomed to ~0% interest rates that we don't realize just how strongly stimulative the current position actually is.

 

[john tanglewoo]

JPOW was asked about this yesterday. He said the FOMC considers this to be about the equivalent in and of itself as a 25 bps hike, but over the course of an entire year.

Basically, to the FOMC, they think they are going to unwind it so slowly that it's a "nothingburger" already priced in to the markets.

You watch MeetKevin?

 

[mongo]

The dynamic that I don't see priced into the market yet, much less Tesla, is the Fed beginning to reduce the balance sheet.

THey said $45B/month, for 3 months, to get things started. For the Fed to reduce its balance sheet by $45B, that requires the private sector to purchase that $45B. That $45B will come out of the universe of cash available to buy stuff in the stock market.

Is purchasing needed as regards the Federal Reserce? I read this as letting bonds mature without repurchase.
On the other side of the equation, if the Treasury wants to maintain sales of the bonds, that will require public purchase.

Fed raises key rate by a half-point in bid to tame inflation

Starting June 1, the Fed said it would allow up to $48 billion in bonds to mature without replacing them for three months, then shift to $95 billion by September. At September's pace, its balance sheet would shrink by about $1 trillion a year. The balance sheet more than doubled after the pandemic recession hit as the Fed bought trillions in bonds to try to hold down long-term borrowing rates.

 

[Drezil]

Oh, one thing i also did as an experiment:
Opened a VIX 5/17 35/40 Bear Call Spread. 12 days for things to quiet down. We spiked to 40 intraday (ending on 35 or so) on the war-declaration in ukraine this year. So i consider this "safe". Only a "small" bet. 730/4270 max gain/loss, but ~14% ROIC in 12 days.
Compare: the "Fed-Fear" was VIX @28, dumped to 25 after the FOMC. Todays drop had the VIX-heights at 32.50.

 

[mrmtb]

Ok, bottom is in. The MMs got below the $880 target, so stopped the pressure. I just wish I had more cash. Burned too much on the way down, but did pick up some shares at $884.20.

I'm still not convinced any of this is helpful... tracking max pain, MMs, etc. Oh wow, it says TSLA will close below 990... yeah, we know.

I'd be interested to see some backtesting

 

[adiggs]

Is purchasing needed as regards the Federal Reserce? I read this as letting bonds mature without repurchase.
On the other side of the equation, if the Treasury wants to maintain sales of the bonds, that will require public purchase.

Fed raises key rate by a half-point in bid to tame inflation

Yes it is.

Most of these bonds are rolled over (good approximation - all of them), or replacements purchased as the old ones mature. So strictly speaking no purchase of the expiring bonds is needed by the private sector. Rather the private sector will be funding the rollover of that debt.

As a simplistic balance sheet analysis, either the federal government shrinks the debt by $45B to match the Fed balance sheet reduction (less money borrowed), or the private sector reduces it's cash available to own stuff by $45B by owning federal government debt. If we accept the previous numbers as true, then there is $3T worth of this shift from Fed ownership of US government debt to private sector ownership of that US government debt.


In TSLA terms, the addition of $6T worth of assets to the system leading up to now corresponds with a $90 to $900 rise in the share price. That isn't 100% associated with the addition of the $6T worth of assets, but it also isn't independent / 100% unrelated.


My only point in this part of the discussion - this is something I'm keeping an eye on and that I consider to be a strong headwind to share price increase, and I see very little consideration of this in any context. On the board here, in the financial media - anywhere. I believe that this can create some seeming black swans that hurt us to the downside, that really won't be black swans. They will be manifestations of the monthly drain of liquidity from the private sector.

 

[bkp_duke]

You watch MeetKevin?

Sorry, can't stomach the guy.

 

[ReddyLeaf]

I'm still not convinced any of this is helpful... tracking max pain, MMs, etc. Oh wow, it says TSLA will close below 990... yeah, we know.

I'd be interested to see some backtesting

Well, I agree with your assertion. It’s probably more my own personal entertainment than statistically useful information. Unfortunately, I don’t have the time/data to confirm or back test. It sure seems like I “guess” wrong more times than I guess right. For example, yesterday (certain that we would close below $900), I waited and didn’t trade, but could have bought the MMD and sold the post FOMC bounce. Today, I did buyback during what I thought was a MMD, but was instead a massive full day 10% drop, thereby leaving $1000s on the table, and forcing me out until next week (certainly not selling CCs today). Unfortunately, we’ve seen this before, up/down Wednesday followed by massive drops on “roll Thursday”, so I can only blame myself for not trading better. Oh well, made some cash this week, bought some shares, live to trade next week. Definitely better than the alternative.

 

[doddiozil]

$TSLA low today was -9.999%... you can't make this up

 

[MP3Mike]

$TSLA low today was -9.999%... you can't make this up

Yep, 35 cents from triggering the uptick rule...

 

[TheTalkingMule]

Yes it is.

Most of these bonds are rolled over (good approximation - all of them), or replacements purchased as the old ones mature. So strictly speaking no purchase of the expiring bonds is needed by the private sector. Rather the private sector will be funding the rollover of that debt.

As a simplistic balance sheet analysis, either the federal government shrinks the debt by $45B to match the Fed balance sheet reduction (less money borrowed), or the private sector reduces it's cash available to own stuff by $45B by owning federal government debt. If we accept the previous numbers as true, then there is $3T worth of this shift from Fed ownership of US government debt to private sector ownership of that US government debt.


In TSLA terms, the addition of $6T worth of assets to the system leading up to now corresponds with a $90 to $900 rise in the share price. That isn't 100% associated with the addition of the $6T worth of assets, but it also isn't independent / 100% unrelated.


My only point in this part of the discussion - this is something I'm keeping an eye on and that I consider to be a strong headwind to share price increase, and I see very little consideration of this in any context. On the board here, in the financial media - anywhere. I believe that this can create some seeming black swans that hurt us to the downside, that really won't be black swans. They will be manifestations of the monthly drain of liquidity from the private sector.

I like to think of these "drains" against a backdrop of the transition from constant fossil fuel refinance to renewables and storage technology finance.

You think the Fed unloading $45B is a lot.....well think of how jarring it's going to be for banks used to pulling huge fees from fossil fuel extraction finance now being forced to switch to finance that's much more massive, but is only a one-time thing.

The whole world is flipping upside down, the Fed selling is only a small blip IMO. You have to remember one of the main disruptions is decentralization of everything. Information. Energy. And it's all increasingly fueled by zero marginal cost wind and solar. That should keep markets MUCH more stable once we get past this volatile reopening period.

We're rapidly moving on from peak scarcity, but it's still a peak!

 

[vikings123]

$TSLA low today was -9.999%... you can't make this up

Yep I noticed that too. I guess it gives the MMs optionality especially with tomorrow being options expiry day.

 

[Max Plaid]

$TSLA low today was -9.999%... you can't make this up

But that's exactly the point, this is all made up... Wall Street and Hedges invoke this volatility to steal from retail and pension funds - those that get out with some profits are the lucky ones, seriously...

Thus I'm expecting a strong rebound tomorrow to shake out the puts, let's see, eh? Not advice, I know nothing, as evidenced by my losses

I did manage to use yesterdays pop and today's dip to roll down 5x $GOOGL 5/6 -p2400's to 5/13 -p2300's for a net +$5 and some realised gains - that's a pretty decent result, especially as these were -p2700's last week, but didn't expect them to go ATM almost immediately though

I also sold 10x naked $TSLA 5/13 -p830's, and 70x $AAPL 6/17 -p150's to straddle the 70x -c150's that I sold a couple of months ago - that trade beginning to look quite smart now, but looks even better with some puts hedging it

I have $TSLA -p925's to deal with this week, tried to roll today, but didn't quite make it, will be interesting to see if they get exercised as the extrinsic was pretty much gone... the -c950's I expect to expire, and I'm thinking to write -c900's for next week... and I have 10x GOOGL -p2400's looking like expiring tomorrow that I'll rewrite for next week. All puts are cash-covered, I couldn't imagine the stress if I were using margin in this market

I miss the good old days when I just had 3000 $TSLA shares, hard work this diversification lark

Stay safe out there!

 

[M3Rider]

Thus I'm expecting a strong rebound tomorrow to shake out the puts, let's see, eh? Not advice, I know nothing, as evidenced by my losses

I’m mostly staying low-risk and away since the start of the war, which I misjudged the probability of by thinking Putin has some common sense. Well, I was mistaken.

Seeing you guys hoping for strong rebounds and bull runs has me amazed too.

You just saw what market thinks of QT and rates hikes.

I’m a full bear now as I mentioned earlier, in agreement with @defnotES2, he’s been right all along.

The sign of the bottom, per him, is tears. Or Nasdaq 10k-11k.

Hasn’t happened yet with ppl calling for buying the dip and staying positive.

Personally, I sold 2024 calls against most my shares @1600 strike when Elon dumped shares to get enough cash to pay my puts obligations I rolled 6-12-24 months away when Elon exercised his calls last year and screwed some of us. I consider my 6 months rolls a lost cause at this point, so will likely take a 20% loss on those 1000-1100 spreads and kick the can down the road another 12-24mo in July.
I got so desperate in thinking about this downturn that I decided to give away most of growth to prevent continuous margin calls on those puts.

So. Strong rebound tomorrow. Maybe 1-2% and then back to bear market drops next week, methinks.

Stop losses and margin calls are very near which can take us down another 10% by Tuesday-Wednesday. Not in TSLA, but in other stocks, which will cause selling across the board. Then bounces and then some more slow bleeding?

That’s my negative overview. TSLA bottom? Don’t know. Anywhere between 600-800 maybe? I know I couldn’t survive this without selling calls and raising significant cash. Would have to take some major losses that would prob halve my acct value.

Still considering if I’m ok closing some of these calls if we fall another 15-20% or not.
Don’t want to lose too much after a quick rebound and don’t want to expose myself to margin calls if the bear market continues another 6-12 months.

Anyway, stay safe guys, don’t over leverage.

 

[BornToFly]

NOT-ADVICE
I consider the 780 strike to be safe. That being said it seems like my disasters frequently start by rolling my strike price, chasing after the shares to pick up a bit extra. Most of the time the rolls after the share price work well; occasionally the shares reverse aggressively and the chase after the share price goes badly for me. My personal rule as a result - don't do that (rolling OTM position closer to the money within the same expiration).

I know what your saying, but I'm learning that the beauty of starting 20% OTM with 5 DTE, is that with a couple days to go, I can roll one or both sides in a little closer and make additional money safely off the volatility. I'm still staying far away, as I've almost been burned by 10% moves in the final two days of the week.

 

[CyberBro]

just sold a couple of the 5/13 $700p today and only got about $300 a piece. usually I open on a Wednesday and close the following Wednesday because I find its not worth it to hold the last 2 days for the last few bucks. I'd rather close it and reopen for the next following week and usually those last 2 days by Friday the premium on the new contracts would have burned more than the ones I closed initially.

 

[CyberBro]

I know what your saying, but I'm learning that the beauty of starting 20% OTM with 5 DTE, is that with a couple days to go, I can roll one or both sides in a little closer and make additional money safely off the volatility. I'm still staying far away, as I've almost been burned by 10% moves in the final two days of the week.

I don't even really trust those % OTM metrics. I would rather sell the strikes based on support & resistance levels

 

[Max Plaid]

I’m mostly staying low-risk and away since the start of the war, which I misjudged the probability of by thinking Putin has some common sense. Well, I was mistaken.

Seeing you guys hoping for strong rebounds and bull runs has me amazed too.

You just saw what market thinks of QT and rates hikes.

I’m a full bear now as I mentioned earlier, in agreement with @defnotES2, he’s been right all along.

The sign of the bottom, per him, is tears. Or Nasdaq 10k-11k.

Hasn’t happened yet with ppl calling for buying the dip and staying positive.

Personally, I sold 2024 calls against most my shares @1600 strike when Elon dumped shares to get enough cash to pay my puts obligations I rolled 6-12-24 months away when Elon exercised his calls last year and screwed some of us. I consider my 6 months rolls a lost cause at this point, so will likely take a 20% loss on those 1000-1100 spreads and kick the can down the road another 12-24mo in July.
I got so desperate in thinking about this downturn that I decided to give away most of growth to prevent continuous margin calls on those puts.

So. Strong rebound tomorrow. Maybe 1-2% and then back to bear market drops next week, methinks.

Stop losses and margin calls are very near which can take us down another 10% by Tuesday-Wednesday. Not in TSLA, but in other stocks, which will cause selling across the board. Then bounces and then some more slow bleeding?

That’s my negative overview. TSLA bottom? Don’t know. Anywhere between 600-800 maybe? I know I couldn’t survive this without selling calls and raising significant cash. Would have to take some major losses that would prob halve my acct value.

Still considering if I’m ok closing some of these calls if we fall another 15-20% or not.
Don’t want to lose too much after a quick rebound and don’t want to expose myself to margin calls if the bear market continues another 6-12 months.

Anyway, stay safe guys, don’t over leverage.

Yeah, I'm also in bear mode, when I say "strong rebound", I just mean on the day, not a trend-reversal, of course I'm guessing like the rest of us