Wiki Selling TSLA Options - Be the House

[Drezil]

sounds fascinating, i really need to understand how this works

Example:
I started with sep 700c as the "LEAP". Sold weekly -700 against it.
If they stay otm, fine. Rinse, repeat.
If they go itm early in the week I roll them out/up asap - as they lose money faster than the leap above 710-720. Say roll it to 710 a week out for free.
If they expire worthless, fine. If not, out and up they go.

This week for example I moved 710->735 next week, then 765 for 7/22.
Main aim: get as much Theta as possible and try to stay around the SP.
Still have 2 months on the "leap".

Scenario we explode to 1000:
Hopefully I could raise things. If not I could end up with say 965/700 call spread in Sep going to max-profit.
Investment: ~5k for the calls, return: 26.5k + Theta collected

Scenario we drop to 600:
Short calls near the money will expire multiple times over hopefully covering the 5k investment. Everything expires worthless.

Risks:
- sudden spikes can make rolls out/up hard. You may end up with a 800/700 and only go 5k->10k instead of 5k->30k if you just bought calls
- harsh drops can cause the -700c to not earn enough theta over time before everything expires. Could happen if we go to 550 and stay there.



So.. that is a strategy I do with a small part of my portfolio. I think risk 2 is limited in the current situation, risk 1 is not good, but profit is still profit.
So too me this is a more conservative strategy that earns good if we just flow along. Should be combined with other ones in your portfolio

 

[Max Plaid]

Example:
I started with sep 700c as the "LEAP". Sold weekly -700 against it.
If they stay otm, fine. Rinse, repeat.
If they go itm early in the week I roll them out/up asap - as they lose money faster than the leap above 710-720. Say roll it to 710 a week out for free.
If they expire worthless, fine. If not, out and up they go.

This week for example I moved 710->735 next week, then 765 for 7/22.
Main aim: get as much Theta as possible and try to stay around the SP.
Still have 2 months on the "leap".

Scenario we explode to 1000:
Hopefully I could raise things. If not I could end up with say 965/700 call spread in Sep going to max-profit.
Investment: ~5k for the calls, return: 26.5k + Theta collected

Scenario we drop to 600:
Short calls near the money will expire multiple times over hopefully covering the 5k investment. Everything expires worthless.

Risks:
- sudden spikes can make rolls out/up hard. You may end up with a 800/700 and only go 5k->10k instead of 5k->30k if you just bought calls
- harsh drops can cause the -700c to not earn enough theta over time before everything expires. Could happen if we go to 550 and stay there.



So.. that is a strategy I do with a small part of my portfolio. I think risk 2 is limited in the current situation, risk 1 is not good, but profit is still profit.
So too me this is a more conservative strategy that earns good if we just flow along. Should be combined with other ones in your portfolio

The risk of this, in my experience, is if the long calls go OTM and you're writing short calls below the strike and below the SP where you bought the longs - then the Delta of the shorts is higher and they can put you into a loss situation very quickly, or an endless roll to zero scenario. I have this now with the GOOGL c3000s I bought after the split announcement, very risky to write ATM calls against these, now they're slowly coming back into play, slowly...

All my biggest losses have come from LEAP covered-calls... all my biggest wins have come from buying LEAPS in the dip, selling on the pop...

 

[BornToFly]

I checked my email when I woke up this morning. Among them was an "Option Assignment" email from Fidelity. My initial thought was "how is this possible!" I opened the email and realized it was for the 640CC from my Buy/Write that I had forgotten about with all the 780CC drama After Hours. Big sigh of relief. All good after changing my shorts....

 

[Knightshade]

does anyone know if Elon needs to sell shares AGAIN if he needs $1B cash for the breakup fee?

This really isn't a thing.

He can't just say "Ah, never mind, here's 1B, I'm out"

(if he could he wouldn't need to sell anything, since he sold a lot more than 1B to get initial financing for the deal anyway- like 8.5B I think?)

Some discussion/explanation of this here:

Elon Musk can't just walk away from his Twitter deal by paying a $1 billion breakup fee

Musk can't just walk away from buying Twitter, despite a $1 billion reverse break fee attached to the deal.

www.cnbc.com

What he's trying to do is say "The # of mDAU, that you outright state is a guess and might be wrong--- might be wrong-- and you didn't give me enough info to check, even though the contract doesn't really require you to- so I'm out for free"

This is of...dubious legal value as an argument. The time to check that stuff is BEFORE you sign a purchase agreement.


What is likely to happen is Twitter will sue in Delaware for specific performance-- a clause explicitly in the contract Musk signed- which if twitter wins requires Elon to buy the company at $54.20 a share just like he agreed to, regardless of if he still wants to and regardless of the current value of twitter.

If THAT happens- and especially if other backers have pulled out- Elon would be forced to sell a lot more than 1B in shares to pay for the deal.

IS that going to happen? Most legal experts I've seen comment thinks Twitter is on pretty solid ground legally, but more in a 70/30 chance sense than slam dunk.


So this "overhang is done" thing....really is not....and this entire affair has been a series of incredibly dumb unforced errors from one of the smartest people on earth

 

[bkp_duke]

This is of...dubious legal value as an argument. The time to check that stuff is BEFORE you sign a purchase agreement.

So not true, see my post here:

Elon & Twitter

Not exactly true, there is a very famous acquisition made by HP that turned out to be fraudulent. HP sued, and won, and clawed by billions after the deal was over. There's a few problems with this analogy: 1) They sued under UK law, not US- which is substantially different. 2) They...

teslamotorsclub.com

ANY court that deals with M+A is going to understand that discovery is always an ongoing process, by the very nature of M+A. Elon's most recent SEC filing clearly states that despite what the TWTR board says, he never "waived discovery".

 

[elasalle]

I checked my email when I woke up this morning. Among them was an "Option Assignment" email from Fidelity. My initial thought was "how is this possible!" I opened the email and realized it was for the 640CC from my Buy/Write that I had forgotten about with all the 780CC drama After Hours. Big sigh of relief. All good after changing my shorts....

My 770 CC were allowed to expire by TD Ameritrade- no exercise
AH prices were above 770 - and reading stuff posted here, I though they would get assigned

Have 865 CCs against the same Jun 24 680 leaps for next week
Fun times… thinking of rolling out to Oct 1200s if necessary
Should it hit 1200 by then, it will be good time to convert back to shares

 

[mongo]

What he's trying to do is say "The # of mDAU, that you outright state is a guess and might be wrong--- might be wrong-- and you didn't give me enough info to check, even though the contract doesn't really require you to- so I'm out for free"

This is of...dubious legal value as an argument. The time to check that stuff is BEFORE you sign a purchase agreement.

Have you read the new filing? https://www.sec.gov/Archives/edgar/data/1418091/000110465922078413/tm2220599d1_ex99-p.htm (And why is this in this thread?)

Based on the foregoing refusal to provide information that Mr. Musk has been requesting since May 9, 2022, Twitter is in breach of Sections 6.4 and 6.11 of the Merger Agreement.
Despite public speculation on this point, Mr. Musk did not waive his right to review Twitter’s data and information simply because he chose not to seek this data and information before entering into the Merger Agreement. In fact, he negotiated access and information rights within the Merger Agreement precisely so that he could review data and information that is important to Twitter’s business before financing and completing the transaction.
As Twitter has been on notice of its breach since at least June 6, 2022, any cure period afforded to Twitter under the Merger Agreement has now lapsed. Accordingly, Mr. Musk hereby exercises X Holdings I, Inc.’s right to terminate the Merger Agreement and abandon the transaction contemplated thereby, and this letter constitutes formal notice of X Holding I, Inc.’s termination of the Merger Agreement pursuant to Section 8.1(d)(i) thereof.

In addition to the foregoing, Twitter is in breach of the Merger Agreement because the Merger Agreement appears to contain materially inaccurate representations. Specifically, in the Merger Agreement, Twitter represented that no documents that Twitter filed with the U.S. Securities and Exchange Commission since January 1, 2022, included any “untrue statement of a material fact” (Section 4.6(a)). Twitter has repeatedly made statements in such filings regarding the portion of its mDAUs that are false or spam, including statements that: “We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2022 represented fewer than 5% of our mDAU during the quarter,” and “After we determine an account is spam, malicious automation, or fake, we stop counting it in our mDAU, or other related metrics.” Mr. Musk relied on this representation in the Merger Agreement (and Twitter’s numerous public statements regarding false and spam accounts in its publicly filed SEC documents) when agreeing to enter into the Merger Agreement. Mr. Musk has the right to seek rescission of the Merger Agreement in the event these material representations are determined to be false.

Although Twitter has not yet provided complete information to Mr. Musk that would enable him to do a complete and comprehensive review of spam and fake accounts on Twitter’s platform, he has been able to partially and preliminarily analyze the accuracy of Twitter’s disclosure regarding its mDAU. While this analysis remains ongoing, all indications suggest that several of Twitter’s public disclosures regarding its mDAUs are either false or materially misleading. First, although Twitter has consistently represented in securities filings that “fewer than 5%” of its mDAU are false or spam accounts, based on the information provided by Twitter to date, it appears that Twitter is dramatically understating the proportion of spam and false accounts represented in its mDAU count. Preliminary analysis by Mr. Musk’s advisors of the information provided by Twitter to date causes Mr. Musk to strongly believe that the proportion of false and spam accounts included in the reported mDAU count is wildly higher than 5%. Second, Twitter’s disclosure that it ceases to count fake or spam users in its mDAU when it determines that those users are fake appears to be false. Instead, we understand, based on Twitter’s representations during a June 30, 2022 call with us, that Twitter includes accounts that have been suspended—and thus are known to be fake or spam—in its quarterly mDAU count even when it is aware that the suspended accounts were included in mDAU for that quarter. Last, Twitter has represented that it is “continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our mDAU…” But, Twitter’s process for calculating its mDAU, and the percentage of mDAU comprised of non-monetizable spam accounts, appears to be arbitrary and ad hoc. Disclosing that Twitter has a reasoned process for calculating mDAU when the opposite is true would be false and misleading.

 

[Knightshade]

Have you read the new filing? https://www.sec.gov/Archives/edgar/data/1418091/000110465922078413/tm2220599d1_ex99-p.htm (And why is this in this thread?)

yes it has a lot of stuff that is... not great legal argument.

It's not the first time I've questioned if this is a case of lawyers who know their client is wrong but are being paid too much to tell him.

He repeatedly hammers on the 5% mDAU as something RELIED upon- while pretending Twitter hasn't for 10 years explicitly said it's a guess and SHOULD NOT be relied on, and might be WAY off- to really simplify why it's a poor argument.

 

[Yoona]

yikes, i totally forgot about a 760cc daytrade on another acct

it seems i can relax, TD expired it

i escaped a random assignment AH? lesson learned: next time, don't be so careless

 

[ZsoZso]

So, whatever happens at the end, it looks like this Twitter saga will be dragged out for a while and the future looks bleaker for Twitter than it did prior to this new development. Does that mean it is a good time to buy some PUTs in twitter ?

If Elon walks, deal falls through Twitter stock will drop a lot.
If they settle with a lower purchase price, it may drop a bit.
If Twitter wins the lawsuit and forces Elon to pay the full price, then Twitter stock goes up -- so this is the risk.

 

[CHGolferJim]

So, whatever happens at the end, it looks like this Twitter saga will be dragged out for a while and the future looks bleaker for Twitter than it did prior to this new development. Does that mean it is a good time to buy some PUTs in twitter ?

If Elon walks, deal falls through Twitter stock will drop a lot.
If they settle with a lower purchase price, it may drop a bit.
If Twitter wins the lawsuit and forces Elon to pay the full price, then Twitter stock goes up -- so this is the risk.

4. A white knight comes in, although Twitter may look like damaged goods not worth $35B+ to most others.

 

[TheTalkingMule]

For the love of Satan, can we keep the Twitter argument out of this thread?

 

[mongo]

So, whatever happens at the end, it looks like this Twitter saga will be dragged out for a while and the future looks bleaker for Twitter than it did prior to this new development. Does that mean it is a good time to buy some PUTs in twitter ?

If Elon walks, deal falls through Twitter stock will drop a lot.
If they settle with a lower purchase price, it may drop a bit.
If Twitter wins the lawsuit and forces Elon to pay the full price, then Twitter stock goes up -- so this is the risk.

This thread may be useful.
Elon TWTR Opportunity

 

[Max Plaid]

For the love of Satan, can we keep the Twitter argument out of this thread?

Seconded, value of this thread is that it's pretty much laser-focused on options selling... apparently there's an "other thread" for endless chat and bickering

 

[Drezil]

So, whatever happens at the end, it looks like this Twitter saga will be dragged out for a while and the future looks bleaker for Twitter than it did prior to this new development. Does that mean it is a good time to buy some PUTs in twitter ?

If Elon walks, deal falls through Twitter stock will drop a lot.
If they settle with a lower purchase price, it may drop a bit.
If Twitter wins the lawsuit and forces Elon to pay the full price, then Twitter stock goes up -- so this is the risk.

I still bite myself for not selling long dated $55 calls on the meteoric rise after the acquisition news..
Even if Elon then buys everything for $54.20 the $55 would expire otm..
And if the deal falls through I get to keep the money, too.

I even thought about it at the time, but was too risk-averse having just lost much of my net-worth die to TSLA going down the drain in that time...

 

[BornToFly]

Seconded, value of this thread is that it's pretty much laser-focused on options selling... apparently there's an "other thread" for endless chat and bickering

Agreed. The breaking news was relevant AH Friday. The debate about Elon's legal chances on this or that belong in the main thread (or its own thread). For this thread, all we need to know now is that the SP could get even more volatile in either direction, so be prepared....

 

[OrthoSurg]

Seconded, value of this thread is that it's pretty much laser-focused on options selling... apparently there's an "other thread" for endless chat and bickering

For a moment I thought I was back in the investors round table thread when I went back to go in the option thread I read the same messages. Shocking night.

To get back on the subject about the time to roll CCs when we are in an upward momentum what is the general rule of everyone here? Mine is to roll as soon as they get ITM. Do some here give it a chance for a retracement the day after and hope for a red day before rolling for better strikes?

 

[Knightshade]

For a moment I thought I was back in the investors round table thread when I went back to go in the option thread I read the same messages. Shocking night.

To get back on the subject about the time to roll CCs when we are in an upward momentum what is the general rule of everyone here? Mine is to roll as soon as they get ITM. Do some here give it a chance for a retracement the day after and hope for a red day before rolling for better strikes?

I think it depends on your goals for the CCs.

For example in one account I'm selling weeklies against DITM LEAPs bought when the SP was a decent bit higher-- so I sure don't want those to execute... and I'm making little enough each week trying to sell "safely" OTM that I can't afford to have to rebuy for much of a loss if it came to that either without losing a lot of progress.

So there I'd rather a "small" mistake of rolling out/up to next week for a tiny credit/even. rather than what would add up to a large mistake of letting it start shooting up near dollar for dollar ITM in cost to rebuy, or debit cost to roll out/up.


Whereas for say a buy/write where I'd be perfectly happy to end up with the CC expiring 1 penny OTM, but won't be hurting much if the shares get called away either, I'd probably be more patient in seeing if the SP comes back down (assuming I have some reason to think it will) because even if I'm wrong I only "win less" rather than potentially losing quite a bit.

 

[CHGolferJim]

For a moment I thought I was back in the investors round table thread when I went back to go in the option thread I read the same messages. Shocking night.

To get back on the subject about the time to roll CCs when we are in an upward momentum what is the general rule of everyone here? Mine is to roll as soon as they get ITM. Do some here give it a chance for a retracement the day after and hope for a red day before rolling for better strikes?

If you go with the rolling whenever your CC get close to ATM (some used to say $5 OTM was the best timing), you can end up rolling frequently and getting pretty high DTE in times of rising SP. That increases the risk of going deep ITM and receiving poor quality rolls. Another approach mentioned here which I’ve been using recently (more of a flat trading range period) is to roll only 1 week and $10 each time. When SP is not too far out of touch, that maintains the income stream and seems to retain the agility to take advantage of occasional dips to BTC at low cost. I’m still gaining data points on when this approach works and perhaps when it doesn’t (when SP rises quickly?). But all this is really market timing, and these are some of the risks of choosing more aggressive strikes vs. 10%+ OTM.

Also, I usually try to be patient to allow for TSLA’s natural daily volatility.

 

[AquaY]

My 770 CC were allowed to expire by TD Ameritrade- no exercise
AH prices were above 770 - and reading stuff posted here, I though they would get assigned

Have 865 CCs against the same Jun 24 680 leaps for next week
Fun times… thinking of rolling out to Oct 1200s if necessary
Should it hit 1200 by then, it will be good time to convert back to shares

yikes, i totally forgot about a 760cc daytrade on another acct

it seems i can relax, TD expired it

i escaped a random assignment AH? lesson learned: next time, don't be so careless

View attachment 826644

ITM options are automatically assigned.
The closing price of the stock is what matters for automatic assignment. NOT After Hours.
In the case of AH, since options holders have up to 1 1/2 hours after the close to exercise their options obviously the holder will consider that price.
Assignments are made by the CBOE randomly to Brokers that have accounts that hold positions.
The brokers then must either use a random assignment or a FIFO method to assign which position will be exercised..

Since TSLA closed at $752.29 $760 and $770 options were obviously not ITM and not automatically assigned.
Obviously not enough of these calls were exercised And your brokers did not get orders to exercise any or enough of them for you to be assigned.

You could have been of course but it was not automatic and not up to your brokers