Wiki Selling TSLA Options - Be the House

[JustMe]

This "fix" would be good approach for a DITM bps, same expiry only, correct?

At the peak you'd sell the long side in exchange for a lower strike (requires additional margin until low hits). At the low, buyback the short and sell a lower strike to form the "less DITM" bps (frees additional margin assuming same width) ???

Not necessarily. You have a few different outcomes to aim for:

Replace bps with one of same expiration but lower strikes of both legs, for example
900/700 -> 875/675

Replace bps with one of same expiration but lower the short strike only

Replace bps with one of different expiration and same strikes or different strikes. For example, I have 1050/800 spreads that I want to roll out but it requires a debit or widening (costing margin). Ideally, buy the 800 at a later expiration date when the stock rises and sell the 1050 or lower when the stock falls. If the stock doesn’t fall - well, yay.

Start by identifying target replacement spreads that meet your profit or cost goal if the long leg can be purchased at a share price of $20-$50 above where you expect to sell the short strike. The safest approach would be to buy the long leg first, essentially buying an insurance put when the stock price rises. Then, if the stock falls below the value that you bought the long leg sell the short leg. Use the proceeds to buy back the one you wanted to replace.

*Edit -> Keep in mind the effect of theta decay. As each day passes you’ll need the share price to fall more to break even or reach your profit goal. So this would work best if you can pull it off within 1-2 days or even intraday.

 

[traxila]

Maybe I don’t understand what you guys are referring to exactly as for “legging” in, but buying at the high and selling at the low on an intraday basis sounds like market timing to the extreme. Obviously anyone who can do this on a regular basis is very rich.

 

[Knightshade]

Re the discussion about legging in, I've somewhere read this is one of the top beginners mistakes in trading options. I don't remember the reasoning though. Maybe worth a check

Maybe I don’t understand what you guys are referring to exactly as for “legging” in, but buying at the high and selling at the low on an intraday basis sounds like market timing to the extreme. Obviously anyone who can do this on a regular basis is very rich.

FWIW friend of mine was convinced doing this kinda thing on the call side was "the way", buying a call then as SP was going up selling a higher one when he could get all his premium back on the lower one he still held to make it a "free" spread, and laddering up legging into spreads on the way.

Since he "only" had low 6 figures to start and wanted to Get Rich Quick he was doing OTM and $5 spreads.



PS- he went broke. As do the vast majority of day traders sitting there trying to guess what the 1-minute and friends are telling them.

Even worse, he went broke, on Tesla, in 2020.

 

[corduroy]

Re the discussion about legging in, I've somewhere read this is one of the top beginners mistakes in trading options. I don't remember the reasoning though. Maybe worth a check

I've heard that too. Here is an example of someone talking about it: Top 10 Option Trading Mistakes: Watch How to Trade Smarter Now

 

[Yoona]

attaching 3min bars for PM+RTH+AH from ~mid-mar thru last Fri

THANKSSSSSS!!!!!!

 

[JustMe]

Maybe I don’t understand what you guys are referring to exactly as for “legging” in, but buying at the high and selling at the low on an intraday basis sounds like market timing to the extreme. Obviously anyone who can do this on a regular basis is very rich.

Yes, this is day trading. This became my full time job, and >80% my trades are profitable. Picking highs and lows intraday is a lot easier for me than swing trading. Perfect example is last Wednesday run up followed by the plunge on Thursday. Intraday, the price action was very clear on both days, but on Wednesday I did not see the massive overcorrection coming the next day.

I’d be doing very well if I hadn’t gotten into such trouble with options spreads

Recommend Humbled Trader YouTube channel for those that want to learn more about day trading.

 

[Yoona]

i need someone pls to poke a hole on my yet-another-brilliant idea

in 2022, there has never been a day where Low is higher than the Open. The average drop is -$28.52.

therefore, my "guaranteed" minimum peak is the Open

using last night's chain, why can't i do this?

• at market open, buy ATM +p650, debit 25.40 (no margin used and this is my peak if i'm lazy to wait all day)
• preferably at the 10:30 MMD, wait for a $20 drop (ie it's lower than 28.52)
• sp is now at 630
• sell -p670 delta -.62, credit 35.40+(20x.62=12.4) = 47.80 (forget about IV for now)
• BPS is +p650/-p670, 20 width
• total credit 47.80-25.40 = $22.40

TSLA Credit Spread calculator

TSLA Credit Spread Calculator shows projected profit and loss over time. A credit spread is a two-option strategy that results in an initial credit to the trader. It can be used in both a bullish and bearish market depending on the configuration.

opcalc.com

WHAT AM I MISSING? the bps is guaranteed green (because credit 22.40 > width 20) even if at max loss situation; final profit is 240-2240

works best only if i "know" the market will be down (ie "yet-another-Fed-is-speaking" or expected very bad CPI days) to make sure the Low is way deeper than Open; also, works best if i am bullish and expect a worthless expiry (sp 671)

 

[mongo]

WHAT AM I MISSING? the bps is guaranteed green (because credit 22.40 > width 20) even if at max loss situation; final profit is 240-2240

works best if i "know" the market will be down (ie "yet-another-Fed-is-speaking" or expected very bad CPI days) to make sure the Low is way deeper than Open

I think you answered your own question.
Works best -> works only if SP drops.
Open can be the low of the day (or near enough to not matter) and your purchased put only looses value. Maybe plot open-low to see that the distribution is instead of looking at the the average which has a lot of big drops.

 

[Yoona]

I think you answered your own question.
Works best -> works only if SP drops.
Open can be the low of the day (or near enough to not matter) and your purchased put only looses value. Maybe plot open-low to see that the distribution is instead of looking at the the average which has a lot of big drops.

edited, thanks

 

[Oil4AsphaultOnly]

i need someone pls to poke a hole on my yet-another-brilliant idea

in 2022, there has never been a day where Low is higher than the Open. The average drop is -$28.52.

View attachment 818787

therefore, my "guaranteed" minimum peak is the Open

using last night's chain, why can't i do this?

• at market open, buy ATM +p650, debit 25.40 (no margin used and this is my peak if i'm lazy to wait all day)
• preferably at the 10:30 MMD, wait for a $20 drop (ie it's lower than 28.52)
• sp is now at 630
• sell -p670 delta -.62, credit 35.40+(20x.62=12.4) = 47.80 (forget about IV for now)
• BPS is +p650/-p670, 20 width
• total credit 47.80-25.40 = $22.40

TSLA Credit Spread calculator

TSLA Credit Spread Calculator shows projected profit and loss over time. A credit spread is a two-option strategy that results in an initial credit to the trader. It can be used in both a bullish and bearish market depending on the configuration.

opcalc.com

WHAT AM I MISSING? the bps is guaranteed green (because credit 22.40 > width 20) even if at max loss situation; final profit is 240-2240

works best only if i "know" the market will be down (ie "yet-another-Fed-is-speaking" or expected very bad CPI days) to make sure the Low is way deeper than Open; also, works best if i am bullish and expect a worthless expiry (sp 671)

Since your +p650 would've increased in value by almost $20 (since it's ITM), wouldn't it be more profitable to sell-to-close the +p650?

 

[Yoona]

Since your +p650 would've increased in value by almost $20 (since it's ITM), wouldn't it be more profitable to sell-to-close the +p650?

that's a very good point, thanks

 

[samppa]

Re the discussion about legging in, I've somewhere read this is one of the top beginners mistakes in trading options. I don't remember the reasoning though. Maybe worth a check

You're correct. It's good that this came up.
It's been one of my rules, never leg into spreads, just not worth the market risk.
Gotta keep that in mind, and not contemplate otherwise.

 

[adiggs]

If the buy-write ends up ITM, do you plan to just it assign, or do you actively close it?
Active I mean buying back the call option and then selling the shares.

Is there any difference?

My own choice is an active close at low extrinsic value on the short call - say $1 or lower. That's the fallback for when the buy-write goes DITM and ensures that I earn the opening credit along with the strike to strike change (share purchase price - short call strike). I prefer actively closing over assignment - two main reasons that come to mind is I choose which specific shares are sold and (2) the early close enables me to enter a replacement position sooner.

These are the only two difference I know of - its really pretty much the same thing.

The latter (actively close) is sort of a process thing for me - if I consistently close actively like that, then I will also consistently have access to an earlier open than waiting for assignment.


Considering this dynamic I've opened both OTM buy-writes (short call higher strike than the share purchase price) as well as ITM buy-write (short call strike lower than the share purchase price). I think that I particularly like the ITM sale as it increases the likelihood that the overall position finishes ITM and I earn the extrinsic value from the open. As I tend to be really aggressive with these ITM opens (most recent - 700 strike call on a 720 share purchase price), either outcome is a good one for me. Best outcome - shares finish above 700 and I earn the opening extrinsic value. The 'bad' outcome is shares finish below 700 and I earn the full credit, not just the extrinsic at open. In effect the ITM sale lowers potential profit from the position while also greatly lowering the risk.

 

[BrownOuttaSpec]

i need someone pls to poke a hole on my yet-another-brilliant idea

in 2022, there has never been a day where Low is higher than the Open. The average drop is -$28.52.

View attachment 818787

I feel that a day where the low is higher than the open would be extremely rare. The only way it would happen is if there was some big news released right at market open and no one got inside information in the pre-market. Even on "green" days there is enough market churn in the morning trading to bring the day's low below the open price before heading positive.

I think "small wins" could be setup to use this strategy (an automated bot to buy a Put at the current SP at open then quickly close it for $0.15 gain each day) but a day like this past Friday would make it very dangerous where the low was only pennies off the open price for a few seconds later in the day.

And as others said, just sell-to-close the Put for a profit instead of getting fancy with a spread

 

[vikings123]

Seeking ideas and non-advise:

• I have 9/16/22 $1100 and 1/19/24 $1000-$1400 calls purchased near ATH which have dramatically declined in total value.
• What are the pros and cons of rolling these out and down to a lower quantity to strike prices around the current SP (for a small net cost) and dates like 11/18/22 and 6/21/24?
• Something like a 5:2 ratio of current quantity to future quantity.
• The intention is to sell pre-expiry for a profit (or break-even) rather than hold to expiry for additional shares, and these are in a non-taxable account.

The idea is to roll to calls which will more rapidly recover value. I've never done this before so I'm unsure of all the ramifications. Thanks.

I was going to suggest selling them and reinvesting the proceeds if the SP drops further. But I just looked at the prices of some of these calls and they have lost 95% of the value.

I like your idea of reducing the number of contracts and roll them out with lower strikes. But man the more I think about Q2 the more I’m convinced that it will be a FUD show. Shorts will not let the SP getaway with the Q2 and larger macro headwinds. So yes my vote would be for selling half the contracts and letting the rest ride.

i need someone pls to poke a hole on my yet-another-brilliant idea

in 2022, there has never been a day where Low is higher than the Open. The average drop is -$28.52.

View attachment 818787

therefore, my "guaranteed" minimum peak is the Open

using last night's chain, why can't i do this?

• at market open, buy ATM +p650, debit 25.40 (no margin used and this is my peak if i'm lazy to wait all day)
• preferably at the 10:30 MMD, wait for a $20 drop (ie it's lower than 28.52)
• sp is now at 630
• sell -p670 delta -.62, credit 35.40+(20x.62=12.4) = 47.80 (forget about IV for now)
• BPS is +p650/-p670, 20 width
• total credit 47.80-25.40 = $22.40

TSLA Credit Spread calculator

TSLA Credit Spread Calculator shows projected profit and loss over time. A credit spread is a two-option strategy that results in an initial credit to the trader. It can be used in both a bullish and bearish market depending on the configuration.

opcalc.com

WHAT AM I MISSING? the bps is guaranteed green (because credit 22.40 > width 20) even if at max loss situation; final profit is 240-2240

works best only if i "know" the market will be down (ie "yet-another-Fed-is-speaking" or expected very bad CPI days) to make sure the Low is way deeper than Open; also, works best if i am bullish and expect a worthless expiry (sp 671)

The problem is the other variables that make up your option premium. You are assuming theta is a non-factor and IV is going to stay the same. I still think you might be onto something here. I might decide to sell calls instead of buying puts. So for example sell a 600$ call at the open and buy it back for small guaranteed profits at a preset trade based on the low<open average difference or probably more conservative difference.

Also have to setup tight stop orders in case stock behaves like it did on Feb 24.

 

[adiggs]

My own choice is an active close at low extrinsic value on the short call - say $1 or lower. That's the fallback for when the buy-write goes DITM and ensures that I earn the opening credit along with the strike to strike change (share purchase price - short call strike). I prefer actively closing over assignment - two main reasons that come to mind is I choose which specific shares are sold and (2) the early close enables me to enter a replacement position sooner.

These are the only two difference I know of - its really pretty much the same thing.

The latter (actively close) is sort of a process thing for me - if I consistently close actively like that, then I will also consistently have access to an earlier open than waiting for assignment.


Considering this dynamic I've opened both OTM buy-writes (short call higher strike than the share purchase price) as well as ITM buy-write (short call strike lower than the share purchase price). I think that I particularly like the ITM sale as it increases the likelihood that the overall position finishes ITM and I earn the extrinsic value from the open. As I tend to be really aggressive with these ITM opens (most recent - 700 strike call on a 720 share purchase price), either outcome is a good one for me. Best outcome - shares finish above 700 and I earn the opening extrinsic value. The 'bad' outcome is shares finish below 700 and I earn the full credit, not just the extrinsic at open. In effect the ITM sale lowers potential profit from the position while also greatly lowering the risk.

I'll add on - one problem with how I do my active closes, at least the first time around, is that the two legs are closed separately - probably using market orders. I tried to close them on a single ticket but couldn't find an option to sell the specific shares I wanted.

 

[intelligator]

Given my plans the next few weeks, I have to make a move with the DITM December BPS. Any non-advice regarding this approach?

Using Friday's option pricing, I am considering a DITM to DITM BPS roll:

12/16/22 +1000/-1150 ---> 1/20/23 +760/+960 === +.25

Custom | OptionStrat Options Profit Calculator

Calculate potential profit, max loss, chance of profit, and more for custom options and over 50 more strategies.

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The width widened by 30, adding to margin requirement slightly. Although a small credit and still DITM, the rationale is (calculated based on $650 Friday close):

1) The position leaves me with $38 of extrinsic opposed to the $11 at present which is making me nervous this coming week; the week after I am away, can't watch or trade.
2) Strikes divide by 3 clean if the split is indeed 3.
3) A month further rather than March or June leaves me room to adjust again if needed.
4) Expectation is that by Q3, Q2 mess will be over.
I have the same to work out for two more December BPS at +950/-1150 and +750/-1150.

Closing these would be a huge loss. My thoughts are that a roll for max strike improvement, max intrinsic, will offer the most flexibility to adjust the week I return. If P&D is a non-event, doesn't seem to be consensus, there's a chance we've hit bottom. If the slide continues, aim for a similar roll to further reduce assignment risk.

 

[BornToFly]

The problem with the "plan" being discussed regarding selling a Put at the open, and buying it back after the MMD, is the difference between the Bid/Ask. I ran into the same problem selling CC to give myself more margin if we drop further. I thought I will sell the CC, and then wait for a drop, and put in a Buy Stop Loss order to close at the same price I sold them for if the SP recovers. Last Wednesday ( I think that was the day) I lost $10/contract when the SP didn't drop like I thought and actually went up after Powell started talking. Obviously if I knew the SP was going to drop the next day I would have been fine to wait.....

 

[traxila]

The problem with the "plan" being discussed regarding selling a Put at the open, and buying it back after the MMD, is the difference between the Bid/Ask. I ran into the same problem selling CC to give myself more margin if we drop further. I thought I will sell the CC, and then wait for a drop, and put in a Buy Stop Loss order to close at the same price I sold them for if the SP recovers. Last Wednesday ( I think that was the day) I lost $10/contract when the SP didn't drop like I thought and actually went up after Powell started talking. Obviously if I knew the SP was going to drop the next day I would have been fine to wait.....

Sounds like one more strategy that works until it doesn't. If you have the pulse of the market and can switch positions accordingly to always make money, trades like this will work great. But at that point, if you are a successful short term market timer, well then any strategy you choose to pursue will work great for you. After all, you can divine which way the market is going in the very short term more often than not.

 

[mongo]

I feel that a day where the low is higher than the open would be extremely rare. The only way it would happen is if there was some big news released right at market open and no one got inside information in the pre-market.

Rare for low to equal open; impossible for low to be greater than open. Unless the open price is dropped as a data point, the low cannot be higher than it (by definition). @Yoona's spreadsheet had low >= open, so it had a non-zero chance of happening.