Wiki Selling TSLA Options - Be the House

[MP3Mike]

The walls are closing in...

I had some 5/20 860 CCs that I bought back too early today, I just didn't see the drop going this far today.

I, also, had some 6/3 1100 Puts assigned today. I rolled the remaining 1000/1100 BPSs to 6/17 where there is more open interest so there is a lesser chance of getting assigned, but now E*TRADE has raised the margin maintenance from 40 to 55%. Making it much less likely that they will last that long. (Though I know they can roll it back just as quickly as they raise, I just don't know what it would take.)

My remaining positions are:

• 5/20 +550 Puts (for margin purposes)
• 5/20 810/860 BPSs
• 5/20 845/895 BPSs
• 5/27 550/870 BPSs
• 6/17 1000/1100 BPSs

I'm beginning to wish that I just closed everything out and took the loss instead of trying to save my positions a few weeks ago. I've only made things worse. (With the share price down ~$170 since then I will lose even more shares than I would have.)

I can only hope that max pain pulls the share price up somewhat from where we are now, but even that is looking more like $725 for the week at this point.

The end is getting near. I'm feeling that I should just give up everything but the 5/27 BPSs, which can likely be saved, while everything else seems like a lost cause. (Of course I know as soon as I close everything out things will reverse, or at least it feels like they are specifically targeting my account.)

The only other thought I have is to mix-and-match and try to save some of them by making 810/895s which would be more manageable should things start to recover, but I worry that the share price would continue to decline and make things even worse.

Anybody have some crystal ball predictions?

 

[bkp_duke]

@MP3Mike - prefacing by saying this is not advice, just my read on where things are going.

I think we are going to trade sideways (+/- 150 pts - yeah a wide range) for the next 2-3 months.

Why do I think that?
1) There is still a ton of fear in the market, but not "enough" for me to believe this is really the bottom. There are too many people saying each week they are "buying the dip". - NEGATIVE prognostic indicator
2) Lack of faith in the FED. The consensus appears to be that the Fed is behind the 8 ball and started QT too late to prevent at least tons of market pain (duh, right?), but possibly too late to prevent stagflation as well. - NEGATIVE prognostic indicator
3) Russia/Ukraine - I think in the next month we will see some serious counter-offensives and land reclamation by Ukraine. Things are not going well for Russia, and Ukraine has been putting them through a meat grinder, tearing up some of their best troops and equipment. They will want to take the fight to the next level to take back territory. This will be seen by the markets as hopefully the "beginning of the end". - POSITIVE prognostic indicator
4) China - bit of a wildcard here. I had expected the lockdowns to have been fully lifted by now, but they are going much slower than I expected. In the end, as things lift, and we have confirmation of increased production AND deliveries (and it we will need deliveries), it will impact positively. - POSITIVE prognostic indicator, but delayed.
5) Twitter / Elon - mixed bag here. He's really alienating some people, but I think he's also growing his customer base in the process to people that would have never considered a Tesla in the first place. And we all know if you can just get someone to SIT and DRIVE a Tesla, it's a sale. Lots of people that would normally not have done that in the past, thinking he was ultra-left (in their eyes), will now give things a second look. - NEUTRAL / UNCLEAR
6) Oil prices - this is hurting a lot of people and driving inflation as much as anything, IMO. TSLA is going to get dragged down with everything else immediately because there is little discrimination on the sell side. When things, however, stabilize and people realize that higher gas prices are here to stay, they will really take a harder look at EVs. No one else can produce EVs in sufficient quantities to meet demand, and when that happens, Tesla wins. short term, NEGATIVE. long term, VERY POSITIVE

I am, personally, staring at a trading account that is down 90% from Jan highs. I closed out those BPS's I had at that time for max loss, and it was one of the most painful lesions I've ever learned.

In another account, however, I had the funds to roll them down and out till Jan 23, and I have hope that by not taking max loss then that the overall position can be salvaged in the long term.

Again, not advice, but hope the thoughts spark something with you that you can use to your advantage.

 

[JustMe]

The walls are closing in...

I had some 5/20 860 CCs that I bought back too early today, I just didn't see the drop going this far today.

I, also, had some 6/3 1100 Puts assigned today. I rolled the remaining 1000/1100 BPSs to 6/17 where there is more open interest so there is a lesser chance of getting assigned, but now E*TRADE has raised the margin maintenance from 40 to 55%. Making it much less likely that they will last that long. (Though I know they can roll it back just as quickly as they raise, I just don't know what it would take.)

My remaining positions are:

• 5/20 +550 Puts (for margin purposes)
• 5/20 810/860 BPSs
• 5/20 845/895 BPSs
• 5/27 550/870 BPSs
• 6/17 1000/1100 BPSs

I'm beginning to wish that I just closed everything out and took the loss instead of trying to save my positions a few weeks ago. I've only made things worse. (With the share price down ~$170 since then I will lose even more shares than I would have.)

I can only hope that max pain pulls the share price up somewhat from where we are now, but even that is looking more like $725 for the week at this point.

The end is getting near. I'm feeling that I should just give up everything but the 5/27 BPSs, which can likely be saved, while everything else seems like a lost cause. (Of course I know as soon as I close everything out things will reverse, or at least it feels like they are specifically targeting my account.)

The only other thought I have is to mix-and-match and try to save some of them by making 810/895s which would be more manageable should things start to recover, but I worry that the share price would continue to decline and make things even worse.

Anybody have some crystal ball predictions?

I don’t have a prediction but if you sense another strongly down day you could try closing the short leg first and let the long leg gain value as the share price continues lower. This might be worth a try for your narrow spreads. The risk is bad timing and you do this just before a reversal.

 

[MikeC]

The walls are closing in...

I had some 5/20 860 CCs that I bought back too early today, I just didn't see the drop going this far today.

I, also, had some 6/3 1100 Puts assigned today. I rolled the remaining 1000/1100 BPSs to 6/17 where there is more open interest so there is a lesser chance of getting assigned, but now E*TRADE has raised the margin maintenance from 40 to 55%. Making it much less likely that they will last that long. (Though I know they can roll it back just as quickly as they raise, I just don't know what it would take.)

My remaining positions are:

• 5/20 +550 Puts (for margin purposes)
• 5/20 810/860 BPSs
• 5/20 845/895 BPSs
• 5/27 550/870 BPSs
• 6/17 1000/1100 BPSs

I'm beginning to wish that I just closed everything out and took the loss instead of trying to save my positions a few weeks ago. I've only made things worse. (With the share price down ~$170 since then I will lose even more shares than I would have.)

I can only hope that max pain pulls the share price up somewhat from where we are now, but even that is looking more like $725 for the week at this point.

The end is getting near. I'm feeling that I should just give up everything but the 5/27 BPSs, which can likely be saved, while everything else seems like a lost cause. (Of course I know as soon as I close everything out things will reverse, or at least it feels like they are specifically targeting my account.)

The only other thought I have is to mix-and-match and try to save some of them by making 810/895s which would be more manageable should things start to recover, but I worry that the share price would continue to decline and make things even worse.

Anybody have some crystal ball predictions?

If you are only going to be getting 45% margin from your shares, is it an option to go long calls to keep a similar delta and free up cash? I've been as wrong on the price action as anyone, but we're clearly in a low stage in the hype cycle right now. This is TSLA, we know it can snap back in an instant once macro shows signs of reversing.

 

[MP3Mike]

If you are only going to be getting 45% margin from your shares, is it an option to go long calls to keep a similar delta and free up cash? I've been as wrong on the price action as anyone, but we're clearly in a low stage in the hype cycle right now. This is TSLA, we know it can snap back in an instant once macro shows signs of reversing.

I suppose I could do something like that, but they don't pay that much.. Something to think about...

 

[EnzoXYZ]

Something I've migrated to in my 'assets under management' - I am aiming to maintain 30-50% of the account value as cash. My target at relatively high share prices is 50% cash. At these lower share price levels I find myself moving closer to 20-30% cash (buy when the price is low).

The idea is that as the share price goes down I want to be buying, pushing the cash % lower. As the share price goes up to higher levels I want to be selling some of those extra shares in order to bring cash % back up to 50%.

In an ideal world I'll be 50% cash the next time we go sailing off into ATH land. In reality I'll probably be below 50% cash when that happens and I'll be selling hyper aggressive cc as we go up until they get so far ITM that I want the cash to be selling puts with. Below ATH I'll gyrate between that roughly 30 and 50% cash level, hopefully earning some strike to strike improvements along with the option sale credits (sounds like the Wheel, doesn't it ).


The thinking and primary motivation, initially, was to get into 100% owned positions. Thus cash secured puts - not put spreads or margin backed puts. Share backed covered calls rather than max DTE, DITM, long calls. These positions are really easy to sleep with at night.


Using the 100% owned positions as the baseline I still want to be 50% cash. However I'm incorporating a light level of leverage - no more than 2x. On the share side that means buying max DTE, DITM, calls (June '24 500 strike calls when shares were low 900s). It seems like the share replacement calls are closer to 1.75x; i.e. buy 7 calls instead of 400 shares. I want the puchased calls to behave as closely to shares as possible.

On the put side that means I calculate the # of csp the cash will back, and then sell as many as 2x put spreads. The put spreads are really wide and still don't use all of the cash as backing; the rest is there to buy more shares if the opportunity arises, or to manage the put spreads. Either way, I hit my 2x leverage limit, and I don't go higher than that . I mostly go wide on the spreads in order to minimize how much I pay for the insurance side of the spread.


When I did the math on incomes for myself, I discovered that I don't really need any leverage, but the 2x leverage level is comfortable and provides incremental income that is meaningful in my family's life. I don't need to go higher, just to have a bigger pile to give away.

How about the quantity of options? Feel this maybe even more important.

All time high sell less BPS
All time low sell more BPS

 

[OrthoSurg]

The difference between this thread and the main investors' thread.

The main investor thread became locked, more useful like that.

I feel I can close my 1500 08/2022 CCs now being +95%

 

[BornToFly]

Futures are Red. Interesting tweet by Gary. There is just no rational explanation for this big a drop. This really sucks… Please make it stop. I can get out of my mess by selling Jun 2024 CC on all my shares for 1200 strikes. That would limit my future growth probably 3X….

https://twitter.com/x/status/1527024569462169602

 

[MrMoo]

Futures are Red. Interesting tweet by Gary. There is just no rational explanation for this big a drop. This really sucks… Please make it stop. I can get out of my mess by selling Jun 2024 CC on all my shares for 1200 strikes. That would limit my future growth probably 3X….

https://twitter.com/x/status/1527024569462169602

I'm actually at a loss myself. The only explanation I have is Nasdaq 16000 was too high to begin with. Which is why this feels like a really big drop. But in reality Nasdaq should of only been at maybe 13000 or 14000 then we should of started pricing in inflation / interest rate hikes from there. Now we are pricing in recession risks. China + Ukraine made things worse.

 

[adiggs]

How about the quantity of options? Feel this maybe even more important.

All time high sell less BPS
All time low sell more BPS

You might be right. I think that the mechanism I'm using to calculate the number of put spreads to sell, each time I sell them, will automatically adjust the number of spreads I'm selling - fewer at a high share price, and more at lower share price.

A made up example. Given a $1M account, 50% in cash, with shares at 1000 and selling the 900 strike put, I can sell 5 csp ($450k). So I sell 10 put spreads - probably 900/600s, but could also be 900/500s. Doesn't really matter - the insurance strike is chosen for cheapness.

Same setup but shares at 700 and selling 600 strike puts. I can sell 8 csp ($480k), so instead I sell 16 put spreads. Probably 600/400s but as above - driven more by cheap insurance put than the chosen spread width.

Same setup to the other side - I want to sell 1500 strike puts. I can sell 3 of those as csp, so instead sell 6 put spreads.


These changes in # of puts as share price goes up and down will be offset to some degree by my corresponding buys and sells of shares (leaps). Namely sell leaps at high share prices (more cash), and buy leaps at low share prices (less cash).

Extending the example - where I might be 50% cash at 1000 strike, I am 30% cash with shares at 700. So $300k cash. Selling 600 strike puts I can support 5 csp, and thus open 10 put spreads. If it were 50% cash instead then I'd be selling 8 csp or 16 put spreads. The transition from cash into leaps is restricting the number of put spreads I'm willing to open, because I'm busy turning that cash into shares (leaps).


The critical element here for how I've started doing things - I don't start with the spread width, and back into the number of spread that my cash will support. With $500k cash and a $200 wide spread I am able to sell 25 put spreads, or 100 spread that are $50 wide, whatever the short put strike chosen. Both of those represent significantly higher levels of leverage than I want to take on (probably ever again). Instead I'm selling more like 5- 20 put spreads depending on how high or low the share price is.

Instead I start with how many CSP (not margin backed) my cash will support, and use that to find the number of put spreads I'm willing to open.

 

[adiggs]

I'm actually at a loss myself. The only explanation I have is Nasdaq 16000 was too high to begin with. Which is why this feels like a really big drop. But in reality Nasdaq should of only been at maybe 13000 or 14000 then we should of started pricing in inflation / interest rate hikes from there. Now we are pricing in recession risks. China + Ukraine made things worse.

An additional explanation that I believe is still being priced into the market, and one of the negative impacts, is the QT (quantitative tightening - fancy term for "fed selling off bonds its been buying").

If this isn't clear to anybody please ask - the consequence of the Fed being a net seller of bonds is to take $$ out of the economy by way of the financial markets. Its exactly the reverse of QE (fancy term for "fed buying bonds, so private sector doesn't need to"). QE has been putting over $100B new money into circulation every month for most of 2 years. Its actually been more than that due to other stuff, but just QE by itself has been good for over $100B every month. Guess what happens when you have a lot more money, chasing approximately the same number of financial assets?

Inflation. At least among those financial assets (as opposed to the economic inflation we're seeing right now). Financial assets have been getting more expensive for a couple of years (prices going up) as more and more $$ is chasing approximately the same pool of assets. I figure this is one reason why new EV issues seemingly can't have too much money thrown at them.

Anyway - as some of that cash comes back out of the market, we'll see deflation (prices going down) among those financial assets. At some point market participants will become much more choosy about which ones to sell and which ones to keep, or even buy up more of, but the dynamic is there and its going to be there in the background for a couple of years.

Also worth noting that even in an overall down market, some will actually go up in price, some will be down yet outperform the market. And some will be down a lot more than the market. I expect Tesla to be in one of the first 2 camps as quarterly results and EPS keep getting better and better. But that also might not manifest until the back half of the year or even next year. TSLA is like that


Or as you say - NASDAQ 16000 was too high to begin with.

 

[MrMoo]

An additional explanation that I believe is still being priced into the market, and one of the negative impacts, is the QT (quantitative tightening - fancy term for "fed selling off bonds its been buying").

If this isn't clear to anybody please ask - the consequence of the Fed being a net seller of bonds is to take $$ out of the economy by way of the financial markets. Its exactly the reverse of QE (fancy term for "fed buying bonds, so private sector doesn't need to"). QE has been putting over $100B new money into circulation every month for most of 2 years. Its actually been more than that due to other stuff, but just QE by itself has been good for over $100B every month. Guess what happens when you have a lot more money, chasing approximately the same number of financial assets?

Inflation. At least among those financial assets (as opposed to the economic inflation we're seeing right now). Financial assets have been getting more expensive for a couple of years (prices going up) as more and more $$ is chasing approximately the same pool of assets. I figure this is one reason why new EV issues seemingly can't have too much money thrown at them.

Anyway - as some of that cash comes back out of the market, we'll see deflation (prices going down) among those financial assets. At some point market participants will become much more choosy about which ones to sell and which ones to keep, or even buy up more of, but the dynamic is there and its going to be there in the background for a couple of years.

Also worth noting that even in an overall down market, some will actually go up in price, some will be down yet outperform the market. And some will be down a lot more than the market. I expect Tesla to be in one of the first 2 camps as quarterly results and EPS keep getting better and better. But that also might not manifest until the back half of the year or even next year. TSLA is like that


Or as you say - NASDAQ 16000 was too high to begin with.

I have been thinking about QT. I'm trying to figure out where all the cash has gone. Stock market is down $7 trillion from the start of the year. Hedge funds who got out early are 50-70% cash. There is a lot of cash on the sidelines ready to buy. It's just a matter of what is the effect of the QT on the available cash in the system. We will eventually find a bottom as the funds get back in, but if money gets taken out of the system it will most likely mean there is no chance of a V shape recovery.

Anyway the whole QT thing is too difficult to figure out so i'll let someone whos far smarter than me theorize on it.

 

[Oil4AsphaultOnly]

I have been thinking about QT. I'm trying to figure out where all the cash has gone. Stock market is down $7 trillion from the start of the year. Hedge funds who got out early are 50-70% cash. There is a lot of cash on the sidelines ready to buy. It's just a matter of what is the effect of the QT on the available cash in the system. We will eventually find a bottom as the funds get back in, but if money gets taken out of the system it will most likely mean there is no chance of a V shape recovery.

Anyway the whole QT thing is too difficult to figure out so i'll let someone whos far smarter than me theorize on it.

I'm also in the "don't know" camp , but I think collaboratively, we can probably deduce some likely scenarios.

So let's start with the immediate impact of QT. If the Fed isn't buying bonds (US Treasury or corporate?) anymore, then does that drop the price of the bonds (low demand)? I guess I don't even know what (who's bonds) the Feds were buying during QE? Anybody?

 

[adiggs]

I'm also in the "don't know" camp , but I think collaboratively, we can probably deduce some likely scenarios.

So let's start with the immediate impact of QT. If the Fed isn't buying bonds (US Treasury or corporate?) anymore, then does that drop the price of the bonds (low demand)? I guess I don't even know what (who's bonds) the Feds were buying during QE? Anybody?

Fed has been primarily buying US Treasures ($80B/month) and mortgage backed securities ($40B). On the mortgage side that has kept rates low by having such a high volume buyer available, whether other buyers show up or not.

In both cases, as a result, the Fed has been displacing private sector lenders (bond buyers) to the tune of $120B per month. That private sector money that would have gone to buying US Treasuries and mortgage backed securities, have instead been going into other stuff - almost entirely financial assets.


When the Fed stopped buying as they had been, that was the first kind of tightening - that $120B of private sector money, each month, being displaced into other financial assets is no longer displaced, and is instead going into US Treasuries and mortgage backed securities.


The next round - QT - the Fed is going to start shrinking its balance sheet. To do so, some amount of balance sheet won't be replaced, leaving the private sector to continue providing the $120B plus the additional $$ for the shrinking balance sheet. If the Fed shrinks its balance sheet by $80B per month, then that is effectively $200B less per month available for other financial assets.

The Fed has the ability to manufacture new $$ - you and I (private sector more generally) does not. Fed -was- injecting $120B of new money into the system before. It has stopped adding more $$, and is now starting to take money out of the system.


That money, I believe, was mostly in financial assets (bonds, stock, real estate; crazier stuff like art, ..). That pool of financial assets was reasonably constant. Example - TSLA was ~1B shares two years ago, and is ~1B shares today.


More money to buy a reasonably constant pool of assets = higher and higher prices for those assets.

Less money to buy a reasonably constant pool of assets = lower and lower prices for those assets.

These are, of course aggregates, and aggregate stuff shows up differently at the individual item level. Some will do better than average, some worse. Some will increase in absolute terms - lots will decrease in absolute terms.


I expect TSLA to be an outperformer. That might still mean a decrease in absolute terms. At the very least its a headwind / drag on the share price. The degree of that drag is the open question.

 

[CyberBro]

i took my $3500 loss from puts i sold last week. i won't be selling puts anymore but will start selling just short dated weekly calls. market is too damn bearish to be selling puts right now. with elon's twitter bullshit and 200 dollar weekly swings shits crazy

 

[Oil4AsphaultOnly]

Fed has been primarily buying US Treasures ($80B/month) and mortgage backed securities ($40B). On the mortgage side that has kept rates low by having such a high volume buyer available, whether other buyers show up or not.

In both cases, as a result, the Fed has been displacing private sector lenders (bond buyers) to the tune of $120B per month. That private sector money that would have gone to buying US Treasuries and mortgage backed securities, have instead been going into other stuff - almost entirely financial assets.


When the Fed stopped buying as they had been, that was the first kind of tightening - that $120B of private sector money, each month, being displaced into other financial assets is no longer displaced, and is instead going into US Treasuries and mortgage backed securities.


The next round - QT - the Fed is going to start shrinking its balance sheet. To do so, some amount of balance sheet won't be replaced, leaving the private sector to continue providing the $120B plus the additional $$ for the shrinking balance sheet. If the Fed shrinks its balance sheet by $80B per month, then that is effectively $200B less per month available for other financial assets.

The Fed has the ability to manufacture new $$ - you and I (private sector more generally) does not. Fed -was- injecting $120B of new money into the system before. It has stopped adding more $$, and is now starting to take money out of the system.


That money, I believe, was mostly in financial assets (bonds, stock, real estate; crazier stuff like art, ..). That pool of financial assets was reasonably constant. Example - TSLA was ~1B shares two years ago, and is ~1B shares today.


More money to buy a reasonably constant pool of assets = higher and higher prices for those assets.

Less money to buy a reasonably constant pool of assets = lower and lower prices for those assets.

These are, of course aggregates, and aggregate stuff shows up differently at the individual item level. Some will do better than average, some worse. Some will increase in absolute terms - lots will decrease in absolute terms.


I expect TSLA to be an outperformer. That might still mean a decrease in absolute terms. At the very least its a headwind / drag on the share price. The degree of that drag is the open question.

What does "shrinking its balance sheet" translate to? What "balance sheet" won't be replaced? Treasury bonds? or something else?

 

[saniflash]

What does "shrinking its balance sheet" translate to? What "balance sheet" won't be replaced? Treasury bonds? or something else?

He's referring to the Fed's balance sheet, which now on the asset side has a lot of bonds which the Fed will eventually sell off. It will then "destroy" the money it received from the market in exchange for the bonds. This shrinks its balance sheet, as its inventory of bonds goes down, and its cash balance decreases as well.

Might I add that the lower the demand (= the higher the supply) for bonds, their prices will decrease and thus the interest (expressed in % return on the original investment) they're paying increases. This makes bonds relatively more attractive compared to stocks, and this mechanic will suck money out of the stock market back into the bond market, which should have a negative effect on stock prices.

 

[AquaY]

Futures are Red. Interesting tweet by Gary. There is just no rational explanation for this big a drop. This really sucks… Please make it stop. I can get out of my mess by selling Jun 2024 CC on all my shares for 1200 strikes. That would limit my future growth probably 3X….

https://twitter.com/x/status/1527024569462169602

Seems completely rational to me.
inflation is at levels unseen for 40 years, we are either in a recession or about to be.
the fed was not only slow to react they were doing the wrong thing for about a year.
whether that was politics or incompetence is irrelevant but the market drop and it’s continued trajectory has some rational to it.

hopefully we bottom out soon but I try to not trade on hope

 

[Chenkers]

I was exercised on 5 x JUN03 1030 Puts today (out of market hours here in Australia). This was on IBKR and I was on TWS at the time, so saw the 500 new shares magically appear at the same time as the bulletin. These were half of the 10x 980/1030 BPS I had been rolling along cheaply for a while. I had just put in an order to move them to JUN17 where they would be safer but not to be.

I spent some time on the phone with IB and thought some of what I learnt may be relevant to others that use IBKR. This happened on a margin account and the exercise resulted in a negative cash balance in that account. Being a margin account I could have left it like that with the extra 500 shares and 5x980P+. However I decided to exercise the 5x980P+ and was able to use an option to exercise immediately (even after hours) so the change was immediately reflected in my account. I was just down the total $25k difference between the strike prices.

I also have another cash only account and spent some time querying what would happen in that case. I was informed by the trading desk that exercise would happen after hours and show up in my account similar to the margin account. However as the cash account cannot maintain a negative cash balance I would only have until market open to be able to exercise the remaining P+ to rectify the account. If the exercised share value was greater than the account NLQ and I didn't exercise the P+ before market open, then the whole account would be liquidated. So if you have a cash account carrying DITM spreads then make sure you check it well before market hours each day.

 

[bubb]

Also assigned on all my 6/3 1050P overnight, guess someone needed cash and it was my turn