Two charts through mid-day, one using 11:55 pricing, the other taken at 10:30 or so when we were up for the day. The 810 and 800 seem to be thinning, possibly shifted interest to 710. That straddle traded earlier may have been the ticket. If we get below 700 will shoot for 675 CSP to keep my 755 CC company this Friday.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Because you can't write a straddle if you don't keep some capital
correct, that's exactly the wheel with straddle component; you collect 5 premiums (in your case, 10)
The Wheel Strategy : 2023 Update With New Examples
Contents The Wheel Strategy Flowchart Theoretical Example Four Real Trade Examples GE Wheel Trade Strategy AVDL Example BHP Example FAQ Conclusion The Wheel Strategy is a systematic and very powerful way to sell covered calls as
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The problem of course is that the SP drops enough that your assigned shares have a cost basis significantly higher than the current SP, so the CC gets little premium, or you are taking a loss if you write ATM and they get exercised. I guess if that happens, you just write another CSP without the straddle and basically ladder down, so that some weeks you will be able to do the Call, but other weeks you will not.correct, that's exactly the wheel with straddle component; you collect 5 premiums (in your case, 10)
The Wheel Strategy : 2023 Update With New Examples
Contents The Wheel Strategy Flowchart Theoretical Example Four Real Trade Examples GE Wheel Trade Strategy AVDL Example BHP Example FAQ Conclusion The Wheel Strategy is a systematic and very powerful way to sell covered calls as
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Yes exactly. Works until it doesn’t. Right now (700 and below) imo a good time for this strategy. Local low > local high or ATH. Imagine this strategy when we were around 1050. Yikes!
reverse it did.those with CCs shouldn't panic yet - THAT'S ME
today we will probably be on the Top 20 TSLA Daily Rise, but there is a 60% probability of a reverse tomorrow
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Top 50 rises have 62% chance of reverse next day
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Top 100 rises have 58% chance of reverse next day
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Yes, except when you're taking 2x premium on the aggregate trade, it makes up for a lot of volatility...
Real life example: I wrote 2x -p725/-c725 strangle earlier this week, for $25 per contract = $10k for a low risk trade, IMO, and it's the binary nature that makes it lower risk, one side will always be pure profit and will allow a substantial movement in the other direction before a loss occurs, in this case the SP closing the week >675<775 turns a profit...
If the SP closes below $725 then you have the choice to buy out the puts or let them assign, which effectively gives you the shares at $675, you can them write the straddle at that same strike the week after, again taking double-premiums, although they may be asymmetric at that moment
IMO the risk is lower than writing just calls or just puts at that strike, primarily because we tend to write calls and puts based on our feeling/analysis on were the SP is going for the coming days, and guess what, we're often wrong...
And $10k return on $145k capital at risk is pretty decent
Not advice, of course, just spewing out my thoughts
NOT-ADVICE. You'll want to think through buy-write dynamics yourself, and probably put on a small position for a few weeks or more to test drive them.
I've been thinking more about the buy-write and why I'm liking it so much.
Given that $700k (call it 706k for the current share price), I can sell 11x 600 strike short puts for next week and collect $5.50. These are cash secured and get managed as usual for short puts.
Another option that I now find myself using I can buy 1000 shares at 706 and sell 10x 600 strike calls for ~$111.50. The bid/ask spread is wide on these (1.40) so the details on the fill will matter, but the position carries nearly or exactly the same time value. Important drawback - with the bid/ask spread as bad as it is, that'll knock on the value of these.
On the buy-write position a full close at expiration is worth the 5.50 at every price above 600. On any drop below 706 and above 600 I have a choice available - I can take the gain from the time value that arises from a full clear(I frequently will need to hold until Thu/Fri of expiration week).
I also gain an additional choice not available with the cash secured puts. If the shares drop to 640 (making up a number) then I can full close the position for the $5 time value from the start. I can also close the short call only and see a $71 gain on that position (the option price drop from 111 to 40). It's not 'free' money in any sense - I also still have a $66 unrealized loss on the shares (706 down to 640). What I do from here is more open ended - I have the $71 in pocket but I also have $66 loss to recover. Maybe I can sell 660ish strike call for a big premium, as well as recovering $20 of that unrealized loss should the share price go up. The point is that I get this optionality for free as a function of the position.
The advantage on the cash secured put side - I can open more of them because the put strike is enough lower than the share purchase price. I'm also likely to see a good early close opportunity that I won't see on the buy-write side.
The dynamic I'm liking the most though is that I'm pretty much ignoring the share price on a day to day / hour to hour basis, to the degree that I am ever able to do that. I currently have a buy-write open with shares at 720 and a covered call at 700. These have been through 3 previous weeks and currently have ~$70 in previous realized results plus $7 credit on the current position. At every price above 700 I can full close at the end of the week and net out $77 - $20 (loss on the shares) for $57 over 4 weeks. Since I'm aiming for $4 per position, clearing $14 per position over 4 weeks is .. outstanding.
One of those weeks produced most of that $70 when I sold a 650 call with shares around 690, and then the shares dropped below 650. I didn't expect that - even regretted the strike selection after I'd made it, but it really paid off.
My guess of the moment - where I'd be selling 600 strike csp for 5.50, I would open a buy-write today using the 650 strike calls. The 650 strike calls have about $13 in extrinsic value (along with $56 intrinsic value) so the position is $69. But the real point here is that I'm in line to earn $13 at every price above $650 (in this mythical buy-write, should I open that).
What I'm finding is that selling ITM call and going closer to the money than a cash secured put feels like a very conservative position that I sleep easily at night while owning. I will hold these longer but trading a longer holding period for less stomach acid is a great tradeoff for me.
I've been thinking more about the buy-write and why I'm liking it so much.
Given that $700k (call it 706k for the current share price), I can sell 11x 600 strike short puts for next week and collect $5.50. These are cash secured and get managed as usual for short puts.
Another option that I now find myself using I can buy 1000 shares at 706 and sell 10x 600 strike calls for ~$111.50. The bid/ask spread is wide on these (1.40) so the details on the fill will matter, but the position carries nearly or exactly the same time value. Important drawback - with the bid/ask spread as bad as it is, that'll knock on the value of these.
On the buy-write position a full close at expiration is worth the 5.50 at every price above 600. On any drop below 706 and above 600 I have a choice available - I can take the gain from the time value that arises from a full clear(I frequently will need to hold until Thu/Fri of expiration week).
I also gain an additional choice not available with the cash secured puts. If the shares drop to 640 (making up a number) then I can full close the position for the $5 time value from the start. I can also close the short call only and see a $71 gain on that position (the option price drop from 111 to 40). It's not 'free' money in any sense - I also still have a $66 unrealized loss on the shares (706 down to 640). What I do from here is more open ended - I have the $71 in pocket but I also have $66 loss to recover. Maybe I can sell 660ish strike call for a big premium, as well as recovering $20 of that unrealized loss should the share price go up. The point is that I get this optionality for free as a function of the position.
The advantage on the cash secured put side - I can open more of them because the put strike is enough lower than the share purchase price. I'm also likely to see a good early close opportunity that I won't see on the buy-write side.
The dynamic I'm liking the most though is that I'm pretty much ignoring the share price on a day to day / hour to hour basis, to the degree that I am ever able to do that. I currently have a buy-write open with shares at 720 and a covered call at 700. These have been through 3 previous weeks and currently have ~$70 in previous realized results plus $7 credit on the current position. At every price above 700 I can full close at the end of the week and net out $77 - $20 (loss on the shares) for $57 over 4 weeks. Since I'm aiming for $4 per position, clearing $14 per position over 4 weeks is .. outstanding.
One of those weeks produced most of that $70 when I sold a 650 call with shares around 690, and then the shares dropped below 650. I didn't expect that - even regretted the strike selection after I'd made it, but it really paid off.
My guess of the moment - where I'd be selling 600 strike csp for 5.50, I would open a buy-write today using the 650 strike calls. The 650 strike calls have about $13 in extrinsic value (along with $56 intrinsic value) so the position is $69. But the real point here is that I'm in line to earn $13 at every price above $650 (in this mythical buy-write, should I open that).
What I'm finding is that selling ITM call and going closer to the money than a cash secured put feels like a very conservative position that I sleep easily at night while owning. I will hold these longer but trading a longer holding period for less stomach acid is a great tradeoff for me.
One notion to keep in mind regarding straddles - as the share price moves away from the straddle price, the losing side will be losing faster than the winning side is winning. The further away you get, the more dramatic this affect will be. Has to do with the changes in delta.
If you hold to expiration then you get that $50 window dynamic. But before then the trade can go pretty far negative.
A thought experiment - you sell the 725 straddle and collect $50. The next day the shares drop to 675; a bad outcome but hardly outside of the window of recent price moves. The put side is doing badly - its now $50 ITM plus some time value - maybe $64 ($14 time value based on option chain I have open) vs. the $25 open. Meanwhile the short call has been gaining value in value and dropped from that $25 open to around $13. You've gained $12 on one side while losing $39 on the other side for a net -$27. If the shares are flat from there to expiration then you get the break even, but you get there by way of a net -27 and get the additional joy of sitting on a position that gets really bad fast if it continues going down.
Not trying to say that straddles are a bad trade - only working out an example to show the dynamic where the losing side is losing, faster than the winning side is winning. This dynamic is pretty even in the vicinity of the straddle strike, so gains on one side offset losses on the other.
Beyond that I haven't done anything with straddles. I do leg my way into strangles, and I even like having both puts and calls open at the same time. It just doesn't happen often these days due to the trading rules I am getting better and better at adhering to.
How do you get out of (or manage) long calls that are way OTM but also way out in the future ?
Back in December, I bought 1x TSLA Jan 19 2024 C2000 and it is down 80% now. I don't have an exit strategy on long calls. I can try to buy some more calls to average down my loss. But is that the only strategy? Thanks in advance.
Back in December, I bought 1x TSLA Jan 19 2024 C2000 and it is down 80% now. I don't have an exit strategy on long calls. I can try to buy some more calls to average down my loss. But is that the only strategy? Thanks in advance.
Well this is clearly non-advice. There is no free get out of jail card with options.
Unless you need the money now I would just ride it out. There’s no guarantee Tesla will be at 2000 by Jan 24. Perhaps you try roll it out to Jun 24 for a small debit and give yourselves more time.
Averaging down on a losing option position is not a great idea in general. So no I would not advise that.
The probability stats have been helpful @Yoona . Thank you for providing the data, it's appreciated.
"Yes", but only if the rise is coming soon, otherwise theta decay will continue to eat into the extrinsic value of your long call. And if the rise doesn't happen fast enough (sp rising constantly only $15 per week for 80 weeks will get you TSLA at $1920 by Jan '24, which would STILL give you a worthless call option), you would've thrown good money after bad.
So my not-advice is to add to the position on down days (buy low), and trim it off on up days (sell high - hopefully at a significantly higher price than what you bought it at during the down days). rinse and repeat. And in case it wasn't clear, this is DEFINITELY timing the market, so you WILL NEED lots of luck with this!
You "could" also apply for margin and use the long call position as the long leg to a BCS. Unfortunately, if TSLA rises "too fast" and the short leg goes far enough ITM you will get margin-called and you'll be in a new world of hurt.
Lastly, you could also sell the LEAP and buy actual shares with what's left for some certainty (since TSLA is unlikely to go to zero - not a guarantee, but we've all kinda assumed this).
So your other choices are all pretty risky or shitty. Good luck!
How do you do the timing of the Buy-write, since you need to capture the few dollars of time value, you have a Bid-Ask spread to try to hit, and the SP can change fast?
It's way OTM but still has a lot of time value. If you still have a lot of conviction, buy another contract and average down.
If you have less conviction: Your 2000c is still worth $38, a 1500c is $70. Instead of getting that 2nd contract, you could move the strike down significantly if you sell the 2000c and buy the 1500c. If TSLA is right at $2000 on the exp. date - it's a difference between $50,000.00 and 0 for $3200 now. Keep in mind this would realize a tax loss.
I'm assuming you want to buy the shares when the price seems to be going up. If you buy the shares at 710 with intention of selling 650CC for the $5 time value, you will get more premium if the SP is at 715 than at 710. But if it reverses before you can put the 650CC order in and the SP drops below 705, you lose.
Ok, truth time. Even though today SP action was almost exactly as I expected, I still managed to screw up. Once again, my timing was terrible, selling c725s at $12.50, way too early. Then, during the rocket rise to 740, got scared and rolled my 715 strangle to next week, though for about $15cr net (all credit on the -p715, rolled call up to 7/31 -c740 at $33, zero net).
Properly timed, I could have made more than my monthly salary today, closing everything at the end of the day. Instead I’m hoping for a Friday close below $725 just to clear less than half that.
In any case, my free cash is in better shape and I hope to pick up a handful of cheaper chairs tomorrow. I do still expect MaxPain to rule Friday, closing at $705+/-$4.99, but, for tomorrow I expect a drop below $700 to “test” or “scare” that weak put wall at 700. Maybe it will break and we stay below 700, maybe it won’t. GLTA
Put it together into a single transaction. When the short call is reasonably close to the money (say $50) then the bid/ask is small and if its on the same ticket then a changing share price won't matter.
In practice I tend to use market orders and enter the two positions separately. So far I haven't seen it make a meaningful difference.
NOT-ADVICE. And incoming book
Here's how I'm doing them. The short version is - open the buy-write on a down day / downward move in the share price. If you do, and you sell the call ATM, then you're hoping for a rebound that stays above the share purchase price and yields the max gain of the short call credit. Kind of exactly like a cash secured put
You -don't- want to continue owning these shares. If you're doing these weekly then the ideal state is for the shares to be sold every week. (This is the toughie for me - letting shares go).
The first point is that I'm using the cash that would otherwise be backing cash secured puts. My mental model, and I'm still adjusting to it, is that these buy-writes substitute directly for csp. I open them using the same logic and I manage them using related (but admittedly, somewhat different) logic and rules.
Because I use these as an alternative to a CSP, I open a new position on a down move - same as I would for a cash secured put. In a traditional buy-write the short call is sold at the same time, and ideally in the same transaction.
The short call can be sold ITM or ATM/OTM. I consider the latter to be the same logic - we're looking to earn money from both a gain in the share price as well as the short call credit. We are also taking on additional risk in the form of a drop in the share price.
With an ITM sale we're looking for a max gain from the original extrinsic value while also reducing the risk of a significant drop in the share price that would leave our newly purchased shares 'stranded'.
For risk management reasons I find myself drawn to the ITM call sale.
Wherever you position the short call strike, if you work the math out at expiration, every share price above the short strike results in a max gain on the position. Just like with a csp we're looking to earn the opening credit (extrinsic value), close the position, and start a new one when the time is right.
These outcomes assume that you take a full close of the position at expiration. But you don't have to!
Management has 3 broad options available.
- The obvious one - full close of the position every time. When the share price goes down enough you'll be realizing a loss.
- Shares go up enough - take the max gain and full close.
- More interesting is when shares are flat to down - we don't actually have to sell the shares on every position, and its reasonably straightforward to collect big credits while waiting for the share price to recover (more traditional cc logic, but with an underlying desire to sell and sell soon). As a bonus on a big move down the ITM call sale will generate a VERY large realized gain (while retaining the unrealized loss - its not free).
A present example. If I were opening a buy-write today I would probably be selling the 650 strike call. Buy shares at 708, sell 650 strike cc (next Friday expiration) for $71.50. That has about $13 worth of extrinsic value and that's the focus of the position for me - that is what I am looking to earn.
Assuming a full close I earn the $13 at every share price above $650.
If the shares go down below 650 then I can full close for the loss minus the $71.50 entry. Say share price of 600 I lose $108, receive 71.50, and lose a net 36.50.
BUT I also have the choice to close the short call and retain the shares (expecting a share price reversal). If shares drop to 600 then I can close the short call for 0 (realized gain of 71.50) while carrying an unrealized loss of $108. I might sell the 650 strike cc again for the following week and, guessing, collect another $13. If the shares return to anything above 650 (let's use 670 as an example) and I full close, then I earn the 71.50 plus 13 and lose the 58 from selling the shares at 650 (the call strike) and show a net realized gain of $26 or so on the position with no remaining unrealized gain or loss.
OR I could keep going, sell the 670 (ATM) cc and collect $20-30 (let's call it $20). If the shares finish above 670 and I (finally) full close then the overall position was 71.50 from week 1, 13.00 from week 2, $20 from week 3, and -38 from buying shares at 708 and selling them at 670. Net of 106.50 - 38 or around $70 for what turned into a 3 week position.
Each time I replace the short call with a new one, I also want to ponder whether its time to full close instead. This is a no-brainer when the share price rises far enough above the call strike. Say 800 share price with a 700 call strike - take the max gain and look for the next entry.
If the share price is near the call strike then it might be about the same to keep the unrealized loss/gain in the shares and replace the ending short call with a new short call.
Closest to advice I have - if this sounds interesting, then starting up a single buy-write is easy to do. Remember that unlike core shares, you DO NOT want to be attached to these shares. There are good results (relative to a CSP) from closing up shop every week, and there are good results from building a larger and larger net credit each week. Keep an eye on the call strike, to opening share price, to accumulated credit relationship. It's a more complex thing to track than other positions we've been doing.
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