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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
For the BW, so let's say you grab 100 shares Tuesday morning @$750 then immediately sell a 3rd June -c750 against them for $30 (last Friday's closing price, so just example, of course), two main scenarios:
- Friday close is >$750, you let the shares go for a net $780 netting 4% ROIC
- Friday close is <$750, you keep the shares, but their effective cost-price is reduced to $720
In the second case, that would mean you could then write -c720 calls, worst case being that you then keep all the premiums from that trade
You can do the same though buying DITM long-dated LEAPS with a very high Delta, for less capital outlay, no? In fact June 24 c750 strikes are $300, you could by 2x of those for less than the cost of 100x $TSLA, but only write against half of the contracts, with a Delta of 0.71, holding 2x the number of contracts versus selling 1x would mean you'd net 1.42x the LEAP value compared with the stock - right? Now that seems interesting
Also something I've been thinking about, just writing against half my LEAPS, then if calls do go ITM, the underlying LEAPS and the unallocated contracts will rise in total value faster than the covered calls, always wielding a profitable scenario to the upside
I don't know, it's late here, but sounds like a good idea to me, but WTF do I know, shoot it down...
- Friday close is >$750, you let the shares go for a net $780 netting 4% ROIC
- Friday close is <$750, you keep the shares, but their effective cost-price is reduced to $720
In the second case, that would mean you could then write -c720 calls, worst case being that you then keep all the premiums from that trade
You can do the same though buying DITM long-dated LEAPS with a very high Delta, for less capital outlay, no? In fact June 24 c750 strikes are $300, you could by 2x of those for less than the cost of 100x $TSLA, but only write against half of the contracts, with a Delta of 0.71, holding 2x the number of contracts versus selling 1x would mean you'd net 1.42x the LEAP value compared with the stock - right? Now that seems interesting
Also something I've been thinking about, just writing against half my LEAPS, then if calls do go ITM, the underlying LEAPS and the unallocated contracts will rise in total value faster than the covered calls, always wielding a profitable scenario to the upside
I don't know, it's late here, but sounds like a good idea to me, but WTF do I know, shoot it down...
Yes you can. And I've thought about it.
The challenge I see, and am not yet willing to work through in reality, is that the two options evolve in time differently. The short call, when it gets close to expiration, can easily see its delta go to something very high. The main problem being its delta can easily get higher than the DITM leap (at which point the short call is losing money faster than the long call is gaining money as the shares continue going up).
That can be mitigated by going even deeper ITM. I think I've seen 3 leaps for cost of 200 shares getting me into the .95 delta range, so having the short call delta go above the long call delta is hard (and not much more no matter what). At the 7 leaps for 400 shares (1.75 instead of 1.50) the delta is about .90. At 2.0 leaps per 100 shares you're down closer to .85 or .80 delta. That leap delta will go up as its goes deeper and deeper ITM.
The other problem is that IV changes affect the two different, as well as IV changing differently.
So I'm sticking to shares in b-w in my initial efforts. Shares will always have delta 1.0, no IV, no theta, and thus the only thing I need to consider as the position evolves is the short call and the price I buy the shares at. Incorporating leaps will add some leverage, but will also add complexity that in particularly annoying circumstances will reduce the gains in a particular trade. Of course at times it'll work in one's favor, but I plan for the negative.
I'm pretty sure the buy-write scenario is incorrect. You've forgotten that you've collected $10,800 for the 660c. So a closing SP of $660, Liquidation P/L is +$800.
As a matter of fact, SP going down to $652 can still be liquidated for a profit (despite not being forced to).
With closing SP of $600, the liquidation P/L is -$5200.
I'm not a big fan of the buy write on TSLA. Because TSLA is such a volatile stock it almost always feel like crap.
You either have an explosive move to the upside in which case not writing would of been better case in point When we went from 780 to 1100 a few months ago
You buy and write a CC, collect the premium then proceed to get wrecked by an explosive move to the downside, case in point when we went from 1000 after earnings to 580 at the bottom.
You stay flat while everything else around you runs up. Case in point 2021 when SPY and QQQ ran up and we traded between 580-630 for half a year. The call will burn theta but your underlying shares (I assume you own more than just 100 shares) don't move at all.
There's almost never a scenario where the market trades down and we stay flat.
You are better off doing a married put purchase. That way your gains on the way down are a lot more than the premium from a CC and if you have no gains then in most cases you bought the bottom. Which is great too.
You either have an explosive move to the upside in which case not writing would of been better case in point When we went from 780 to 1100 a few months ago
You buy and write a CC, collect the premium then proceed to get wrecked by an explosive move to the downside, case in point when we went from 1000 after earnings to 580 at the bottom.
You stay flat while everything else around you runs up. Case in point 2021 when SPY and QQQ ran up and we traded between 580-630 for half a year. The call will burn theta but your underlying shares (I assume you own more than just 100 shares) don't move at all.
There's almost never a scenario where the market trades down and we stay flat.
You are better off doing a married put purchase. That way your gains on the way down are a lot more than the premium from a CC and if you have no gains then in most cases you bought the bottom. Which is great too.
Married put Purchase? What do you mean?
I agree that with Tesla, you can feel like crap regardless of what you sell because of the large moves. I had sold 1100 strike Puts in my mom's account not too long ago, thinking of selling CC if the shares were assigned. The stock dropped so fast the last month that I haven't been able to. Just waiting for the SP to get close to 1,000 before I start making money on those shares by selling CC.
jeewee3000
Active Member
"Married put" is the name given to an options trading strategy where an investor, holding a long position in a stock, purchases an at-the-money put option on the same stock to protect against depreciation in the stock's price.
In our example: you buy 100 shares @ $750 and buy a $750p for a few months out for downwards protection.
bkp_duke
Well-Known Member
My 0.02 - I think the reactions to QT are WAY WAY overblown.
If you go back to the May Q&A from JPowell's for the FOMC, the Fed is simply going to let certain bonds, etc. reach maturity and not replace those with new one. When further asked, he said that the FOMC considered it the equivalent of a 0.25% rate hike spread over an entire year. That's really small compared to the other rate hikes.
And the bluster out there about how this is going to contract the money supply . . . well the Fed is not the only entity that CREATES money. Historically, that's been the purview of the banks, by making loans. The Fed had to step in to continue the expansion of the money supply in the near-zero rate environment because rates were so low that the money supply growth would slow. With higher interest rates, the creation of money supply now flows back to the banks (in the traditional form of loans).
I think this is just a bunch of histrionics to something really minor. But, the market has been known to react to histrionics in the past . . .
you can couple this with selling a covered call. when the premium paid for the put is equal to the premium paid for the call, it's called a "costless collar".
jeewee3000
Active Member
If we're talking ATM strikes, that costless collar = a straddle and some shares.
jeewee3000
Active Member
I was trying to make sense of the costless collar and I can't seem to find a good use case.
Your gains from the CC are erased by the purchase of the put or the other way round. The share price does what it does.
If SP goes below the put strike or above the CC strike you lose the shares and have made $0. If the SP stays within the CC and put strikes you only gain if you take gains on one end and expect a reversal before closing the other side. If you let both expire you have made $0 except the gain or loss of the share value.
Made an error in my rough calculations: the put can gain in value more than the premium of the call. My bad. So @BornToFly is correct that this is a bearish trade.
So, the 5x -c750's I'm holding are making me feel uncomfortable as I'm thinking we might get a bear-rally, what to do about those...
- close them out first thing and swallow the loss (if any), if we open around $750 tomorrow, this might just be the best thing to do
- hold, see what happens and roll the same strike until the SP drops back again
- hold and sell 5x -p800's to cover the upside
- buy some July +c900's and slowly roll up to those
- sell 3x -p800's and close out a couple of the calls, so have 3x calls, 3x puts - lowered exposure
- sell some puts and close out the calls totally, could be 2x -p900's, that would be enough
- form an ATM straddle
- do nothing...
Any non-advice on these? Selling puts assumes we move up, which naturally loses more money then on the calls, but if I sell puts and close the calls and then the SP drops, then I lose out there too, damn!
Maybe holding and rolling is best, I'm just mortified of the idea that the markets rally to ATH, for no apparent reason, I've still got scars from Mthat March rally
And you know the most stupid thing, I've been warning everyone about an impending bear-market rally for some time, and I go and sell ATM calls myself. Also for GOOGLE, also for AAPL, also for ARKK - how can I be soooooo stupid...??? (don't answer that one)
Meh!
- close them out first thing and swallow the loss (if any), if we open around $750 tomorrow, this might just be the best thing to do
- hold, see what happens and roll the same strike until the SP drops back again
- hold and sell 5x -p800's to cover the upside
- buy some July +c900's and slowly roll up to those
- sell 3x -p800's and close out a couple of the calls, so have 3x calls, 3x puts - lowered exposure
- sell some puts and close out the calls totally, could be 2x -p900's, that would be enough
- form an ATM straddle
- do nothing...
Any non-advice on these? Selling puts assumes we move up, which naturally loses more money then on the calls, but if I sell puts and close the calls and then the SP drops, then I lose out there too, damn!
Maybe holding and rolling is best, I'm just mortified of the idea that the markets rally to ATH, for no apparent reason, I've still got scars from Mthat March rally
And you know the most stupid thing, I've been warning everyone about an impending bear-market rally for some time, and I go and sell ATM calls myself. Also for GOOGLE, also for AAPL, also for ARKK - how can I be soooooo stupid...??? (don't answer that one)
Meh!
If you expect a bear rally, that means you expect it to fade or retrace at some point, right? In that case, you could roll out a few weeks.
But just looking at the 1 month chart gives me the feeling that our near term trading range is $650-$950 and the momentum is clearly up right now.
Most of my losses have come from avoiding taking a small loss and hoping/waiting for the share price to move favorably. If I was holding those CCs I’d close them on the Tuesday morning dip and open new positions that I was comfortable with.
The SP is so volatile right now, I wonder if buying options is better than selling at the moment. It might be safer and more profitable right now to buy a 10% OTM call and/or put when the SP trends in the opposite direction early in the week, and sell when you hit XX% profit.... 
Oh they're for this week's expiry... They started on Thursday evening as a +$16 sell as I thought we'd get a flat/red day on Friday, how wrong could I have been! So I rolled them to the same strike for +$8 net and sold 10x -p700's to claw a bit more back
A flat to slightly-down couple of days would be most helpful
I'm on the other side of this - that QT is going to be a bigger deal than JPo has guided, but whatever side I take, I would be guessing. My reasoning (which really doesn't make me right) is that simply letting more bonds expire than are being purchased (to net out at the shrinkage planned) doesn't make this a change-free situation.
These bonds are all in the category of things that get refinanced. So a bond rolls off the Fed balance sheet, and is resold (at the new interest rate) to the private sector. Ownership (lender) is being shifted from the Fed to the private sector. As a simple example should I go buy one of these $1M bonds, then my personal balance sheet has $1M less $$ to own Tesla with (just to make it really personal
).My personal worry is that this process in reverse will be sucking so much money out of the economy that we'll reverse the epic stock market run of the last couple of years. In the same way that that QE / stimulus added $6T to the economy and has been important to that stock market run, I worry that QT will have the same relationship except in reverse.
What I can't do is provide any sort of guess as to the size of that impact on TSLA. That's the primary part that I care about. I suppose that my best guess of the moment is that I could see us dropping into the 500s, I don't see 400s, and I mostly expect we'll live in the 700/800/900s for a year or more. That stock price level will get pushed up from below as long as Tesla continues to report increasing EPS / revenue / deliveries each quarter. Keep the 50%+ growth going, with the demonstrated (and improving profitability) and the market will increasingly reward TSLA as a winner within the larger market malaise.
And most of my losses have come from closing out ITM calls or puts when the SP has gone against me, then selling the opposite direction only to have the SP reverse on me again, was horrible earlier this year before I got a grip on the volatility, I've coped with it better recently
But as I think I've written before, in every single case, if I just rolled the same strike, the SP always came back and the positions would have expired
Now -c700's are quite low though, there's always a risk we don't go that low again, unlikely, but possible... so that stresses me a bit, but I guess I can always roll them up and out a bit to allow the underlying LEAPS (Jan 24 +c700's) to go profitable
Let's see what tomorrow brings...
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