Wiki Selling TSLA Options - Be the House

[TheTalkingMule]

Adding to the warnings above.....there is no such thing as free money. Yes some of these folks are making a very reliable 1-2% per week. On the surface of their posts it looks easy, but it takes years and years of learning and real world trial-and-error to get that comfortable managing positions.

Remember.....black swan evens kill entire portfolios of amateur, intermediate, and professional options traders. That's why this huge options market for TSLA exists. It always always always thrives of portfolio doom.

I'm seeing a lot of posts basically saying, "I'm new to options and want to dive in to dig out of a massive margin hole". There is no recipe to do that reliably. It'll work for some people, and with good timing(luck) a lot of people, but it will wipe out a lot. We're in one of those flat periods of time where trading options seems easy. It is not. It is especially difficult or nearly impossible when you're already deep in margin.

Everyone thinks they're super smart, but humility is a huge ingredient in options trading success. Both for not getting in over you head, and for knowing when to bail on a position and take a loss. BEWARE

 

[adiggs]

At the open today I bought 1,000 shares at 723 and sold 700 strike CC for next Friday for $45. So I made a guaranteed $22,000, and it can increase to $45,000 if we close below 700 next Friday (where I keep the shares and then can sell anything above a 680CC to make more money). Covered Calls on shares you are willing to sell are the safest and easiest way to make money.

NOT-ADVICE

With shares at 720 I've entered an order for the same trade except that I'm going for the 690 strike. I get $18 per share instead of $22 (max gain), but I also get $10 further ITM / less risk.

I'm going a little bit further out because as long as I'm clearing $10/week on these positions then I'm hitting the upper end of my income target - I could go quite a bit further out, but I also need some extra for those weeks when the position doesn't work as planned.

 

[CHGolferJim]

NOT-ADVICE

With shares at 720 I've entered an order for the same trade except that I'm going for the 690 strike. I get $18 per share instead of $22 (max gain), but I also get $10 further ITM / less risk.

I'm going a little bit further out because as long as I'm clearing $10/week on these positions then I'm hitting the upper end of my income target - I could go quite a bit further out, but I also need some extra for those weeks when the position doesn't work as planned.

So, in brief, for your buy-writes are you planning to clear all CC and shares every week, and start fresh the following week? I wonder if this would largely eliminate the risk of shares going deep underwater for people who aren’t 100% TSLA? And this would be in a tax-deferred account to avoid laborious wash rule accounting?

 

[dl003]

I, too, pondered the notions of zero-sum and value creation when first considering trading (option selling to be exact) for a living. My philosophy was if it was zero-sum, ie non-value creating, then it wouldn't be sustainable. But I went head first into it anyway, knowing very little about the inner workings of the market. The result? I lost 40% of my account in 3 days right after the SP 500 inclusion announced. I have since made all of it back, doing the same thing I was doing when that black swan occurred: selling naked calls. At the time of the incident, I was short 8x March 2021 800C for every 100s I held. Ouch. I can tell you all about what I've since learned and employed in my trading: waves, patterns, IV tracking, etc... but the essence is this: it's irrelevant whether the game is zero sum or not. It's a game, and it will be played with or without you. If you want to win, you have to focus on one thing and one thing alone: be better than everyone else.

That being said, I think option selling is inherently easier to profit than option buying:

1/ You need more capital. People with more capital are inherently more wealthy and smarter than those without, on average.
2/ The vast majority of people I talk to don't like to sell options. They rather buy them. The trade is therefore less crowded.

To be fair, when I say option selling is easier to profit, you have to take in consideration the appropriate context:

If the context is someone holding TSLA trying to decide whether or not they should sell calls against their holdings, they definitely should.
If the context is someone in cash trying to decide whether to buy and hold TSLA AND sell calls against it, it's a toss up, depending on the broader market condition. For example: in 2022, TSLA went from 1050 to 720, losing 30% of its value. My account only went down 8%, meaning my trading helped absorb a huge portion of the decline, BUT my account is still lower than it was at the beginning of the year. Had I sold on 12/31/2021, I would have had more money than I do now, assuming taxes are out of the equation. One could say that the only reason my trading has been so profitable in 2022 is because I'm heavy on the short side during a bear market. I can see the logic. For context, in 2021, my account went up 150% while TSLA only went up 50% during a bull market. So I definitely know what I'm doing.

 

[Max Plaid]

This is true. But stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years. So, one can be rather sure, that a well-diversified stock portfolio over several decades will yield something like that.

Poker example is actually very good regarding the option market. It is true, that some particularly skilled player may constantly earn in poker, but when we look at the players in the poker table as a whole, it is a zero-sum game, actually the total sum for the players is negative as house takes its rake on every deal, akin to a broker, who takes its share of every option trade.

So yes, it is possible to get constant gains with the options trade, but in order to do that, one has to be better at predicting stock movements than market participants in general.

One thing to be aware of is that on average ~80% of all options expire worthless, so if you're selling them, the odds are in your favour

 

[Max Plaid]

A few comments - mostly for others reading about buy-writes here and thinking "free money"!!

If shares stay above 700 and you full close the position (STC shares, BTC call) then you will earn $22 ($45 - $23 intrinsic at open; or the $22 extrinsic in the position at open). This result happens at all share prices above 700 (the call strike). You can see why I like buy-writes so much

For those wondering about how this is true, do the math on a closing share price of say 710 and 810. It's an interesting exercise.


However should the shares drop below 700 you do earn $45 on the calls as they finish OTM BUT you haven't earned $45. Well technically you have but you ALSO carry a $23 unrealized loss in the shares. You've got risk in the shares that aren't yet closed. I personally would love that outcome - sell more cc using those shares for a second round. But the position hasn't ended with a $45 gain instead of a $22 gain.


I like that position. Has me thinking of wrapping up my current buy-write and starting a new one...

Yes, but you can sell another -c700 against those shares, even if the SP falls to $600 you'll get a decent premium, and just rinse/repeat until the market recovers... and the converse, if those calls end up ITM, you can roll them for credit too, until the credit isn't worth it... Indeed lots to be made when you give up the idea that shares have to be cherished forever

Heads-up: $VIX is getting very, very close to 24, which is critical support, if it hits we could see a reversal, or it could smash through and the rally takes-off, no idea, but I expect some volatility

 

[juanmedina]

Hello you lot...

I'm thinking about straddles again... yes, I know... my current idea is an ATM 4 weeks out, so right now -p735/-c735

Such a trade would net $12k, meaning break-even if the SP is approx >610 <850 by end July

My motivation for considering this is that I have absolutely no idea where the stock market is heading, everything is being pushed around by the indexes, individual stocks are getting lost in the noise

The worst-case outcomes is a purchase of some shares with a net price in the low 600's or the selling with a net around 850 - is that such a bad thing right now??

First I need too acquire some shares though

Did you end up entering that position? so far it has worked out for me and I am trying to decide when to close it with 2 weeks to go. Right now I am sitting at about $4575 profit and I wonder if I should wait after earnings to take advantage of the IV crush but if the stock moves hard it might not work out. Any thoughts?

 

[Max Plaid]

I, too, pondered the notions of zero-sum and value creation when first considering trading (option selling to be exact) for a living. My philosophy was if it was zero-sum, ie non-value creating, then it wouldn't be sustainable. But I went head first into it anyway, knowing very little about the inner workings of the market. The result? I lost 40% of my account in 3 days right after the SP 500 inclusion announced. I have since made all of it back, doing the same thing I was doing when that black swan occurred: selling naked calls. At the time of the incident, I was short 8x March 2021 800C for every 100s I held. Ouch. I can tell you all about what I've since learned and employed in my trading: waves, patterns, IV tracking, etc... but the essence is this: it's irrelevant whether the game is zero sum or not. It's a game, and it will be played with or without you. If you want to win, you have to focus on one thing and one thing alone: be better than everyone else.

That being said, I think option selling is inherently easier to profit than option buying:

1/ You need more capital. People with more capital are inherently more wealthy and smarter than those without, on average.
2/ The vast majority of people I talk to don't like to sell options. They rather buy them. The trade is therefore less crowded.

To be fair, when I say option selling is easier to profit, you have to take in consideration the appropriate context:

If the context is someone holding TSLA trying to decide whether or not they should sell calls against their holdings, they definitely should.
If the context is someone in cash trying to decide whether to buy and hold TSLA AND sell calls against it, it's a toss up, depending on the broader market condition. For example: in 2022, TSLA went from 1050 to 720, losing 30% of its value. My account only went down 8%, meaning my trading helped absorb a huge portion of the decline, BUT my account is still lower than it was at the beginning of the year. Had I sold on 12/31/2021, I would have had more money than I do now, assuming taxes are out of the equation. One could say that the only reason my trading has been so profitable in 2022 is because I'm heavy on the short side during a bear market. I can see the logic. For context, in 2021, my account went up 150% while TSLA only went up 50% during a bull market. So I definitely know what I'm doing.

I think many here - and in the TSLA investing community as a whole - are "lucky" because we were in before the 2020, hell, I was still buying shares in 2019 with a split-adjusted price of $35, how crazy is that? Not to mention the $1 calls in September 2019 - these alone went 3600x by expiry...

So we have capital, and we can deploy that capital, which is essential for selling options, you need that backing to cover the trades. retail call buyers are the same as those buying lottery tickets, they don't have much money, so they "try their luck"... selling options isn't actually a gamble, you have very defined parameters, you sell a contract for X amount of money to buy or sell a stock for price Y on date Z, that's it

Just be sure to only enter a trade where you can live with the outcome should it exercise, if you can do that then you're golden

 

[Max Plaid]

Did you end up entering that position? so far it has worked out for me and I am trying to decide when to close it with 2 weeks to go. Right now I am sitting at about $4575 profit and I wonder if I should wait after earnings to take advantage of the IV crush but if the stock moves hard it might not work out. Any thoughts?

Not quite... I did sell 10x -p700's that got assigned, then sold 10x -c700's plus 10x more -p700's - in the end it looked like we'd be wandering around here for a while and the premiums were so juicy I couldn't resist... same trade, shorter DTE, working very well indeed, cash-secured puts are so stress-free down here!

 

[TheTalkingMule]

Getting pretty irritated I have to keep rolling these deep ITM BPS.

Rolled for $25 credit: 8/19 $1000/850 to (2x) 11/18 $1000/900

Again added margin with a credit equal to half the additional margin. Not terrible and I'm confident about 3Q earnings in October to get these expired. Though I was pretty confident about these strikes in May too!

 

[Jim Holder]

For the folks that bought shares at a higher strike and are now paying margin interest. I think the best option is too be patient (in other words not try to make the whole situation go away today), and instead sell safe covered calls (CC) on those shares to cover your Margin Interest payments (Which are tax deductible). So if you bought shares at 1,000 and are no longer looking to make money on those shares, the easiest thing to do is sell Jun 2024 Covered calls at $1,000 strike, and see if the premium covers your margin interest payments for the next 1.5 years. If you have the knowledge to roll, you can sell 800 strike CC with Jun 2023 expiration, and then roll up and out if they get In The Money (ITM) (but while this maybe more profitable, if you are new to options this could lead to an execution error that makes you lose money). Or, get even more aggressive and sell weekly CC (every Monday morning for Friday) against those shares that are only 20% Out of The Money (OTM = above the Monday morning stock price), but then you are trading and/or rolling every week, and can definitely make a mistake if you are new to the game.

Thank you! This is just what I was looking to hear and it brings a measure of comfort that there's a way out.

I don't mind learning how to sell weekly CC's every Monday morning for Friday that are only 20% OTM and rolling, but I hear your warning about possibly making a mistake.

1) Are there no software/platforms that can run this type of recurring trade with only minor oversight? It seems to be repetitive and thus open for automation with just some confirmation or oversight on my part.

2) For the 400 day-trading TSLA shares I got stuck with @ avg. $1,025.00 and was anyway willing to cut loose @ b/e, seems like selling a CC for 24 months exp. just means more months of paying interest. What's the best balance between time and value for this one?

3) What are the possible downsides of selling the CC for the 400 shares?

4) Lastly, based on what you know, would selling the CC reduce my margin owed and protect me from a margin call/PNR if TSLA drops a lot in the next few few months, or am I only credited the share sale price on execution in 12 months time (or whatever the expiration date is)?
I'm now at 61% equity and can weather TSLA falling to $545 before I trigger a margin call.

Thanks again!

 

[Jim Holder]

"I'm seeing a lot of posts basically saying, "I'm new to options and want to dive in to dig out of a massive margin hole". There is no recipe to do that reliably. It'll work for some people, and with good timing(luck) a lot of people, but it will wipe out a lot. We're in one of those flat periods of time where trading options seems easy. It is not. It is especially difficult or nearly impossible when you're already deep in margin.

Everyone thinks they're super smart, but humility is a huge ingredient in options trading success. Both for not getting in over you head, and for knowing when to bail on a position and take a loss. BEWARE"

Good message! Warning heeded!

 

[adiggs]

So, in brief, for your buy-writes are you planning to clear all CC and shares every week, and start fresh the following week? I wonder if this would largely eliminate the risk of shares going deep underwater for people who aren’t 100% TSLA? And this would be in a tax-deferred account to avoid laborious wash rule accounting?

I think more accurate to say that for cc's that are in max gain territory and aren't very close to the cc strike (this week was $40 ITM) then I'm more likely to clear them.

NOT-ADVICE
My thinking, and I'm still working this out, is that the first week open uses buy-write logic. Later weeks where the position stays open uses short call / cc logic. Thinking about different kinds of permutations, I've seen some instances where a largish drop in the share price can get me to accidentally sell a short call that locks me into a loss (absent a roll or further management) without really realizing it.

Or maybe this is just me doing my first few buy-writes and being cautious with them as I figure them out.


I've already had 2 particularly successful buy-writes where week 1 went OTM on a call that started reasonably far ITM such as the 720ish share / 690 call I just opened. In that case I took the big win on the cc, sold a new call at or above the first cc strike, and then had the second cc finish ITM for a max gain on position #2. The net was better than 2 weeks that each hit max gain (something like $55 over 2 weeks vs. $15 each week for 2 weeks sort of magnitude).

So I like my ITM cc going OTM - I just don't want to go TOO far OTM .

Actually I'd like the shares to be close to the call strike every week - that sounds like heaven.

 

[dc_h]

I think many here - and in the TSLA investing community as a whole - are "lucky" because we were in before the 2020, hell, I was still buying shares in 2019 with a split-adjusted price of $35, how crazy is that? Not to mention the $1 calls in September 2019 - these alone went 3600x by expiry...

So we have capital, and we can deploy that capital, which is essential for selling options, you need that backing to cover the trades. retail call buyers are the same as those buying lottery tickets, they don't have much money, so they "try their luck"... selling options isn't actually a gamble, you have very defined parameters, you sell a contract for X amount of money to buy or sell a stock for price Y on date Z, that's it

Just be sure to only enter a trade where you can live with the outcome should it exercise, if you can do that then you're golden

I remember when you bought those calls. I tried to get onboard, but they had doubled in price, so I was obviously too late.

 

[Max Plaid]

I remember when you bought those calls. I tried to get onboard, but they had doubled in price, so I was obviously too late.

Totally bonkers - I had no idea what I was buying, if I did I would've bought 100x - trade of a lifetime that was, but sold way too early, I was clueless...

 

[mongo]

I remember when you bought those calls. I tried to get onboard, but they had doubled in price, so I was obviously too late.

Yeah, they were $16 when I looked... Who wants only 200x gain... (were $40 a few months later, only 90x)

Totally bonkers - I had no idea what I was buying, if I did I would've bought 100x - trade of a lifetime that was, but sold way too early, I was clueless...

As I recall that was post not going private and the SEC suit and I was very much on the fear end of the spectrum. After being down 50%, hope was in low supply.

 

[dl003]

Thank you! This is just what I was looking to hear and it brings a measure of comfort that there's a way out.

I don't mind learning how to sell weekly CC's every Monday morning for Friday that are only 20% OTM and rolling, but I hear your warning about possibly making a mistake.

1) Are there no software/platforms that can run this type of recurring trade with only minor oversight? It seems to be repetitive and thus open for automation with just some confirmation or oversight on my part.

2) For the 400 day-trading TSLA shares I got stuck with @ avg. $1,025.00 and was anyway willing to cut loose @ b/e, seems like selling a CC for 24 months exp. just means more months of paying interest. What's the best balance between time and value for this one?

3) What are the possible downsides of selling the CC for the 400 shares?

4) Lastly, based on what you know, would selling the CC reduce my margin owed and protect me from a margin call/PNR if TSLA drops a lot in the next few few months, or am I only credited the share sale price on execution in 12 months time (or whatever the expiration date is)?
I'm now at 61% equity and can weather TSLA falling to $545 before I trigger a margin call.

Thanks again!

Trust me, you don't want to sell a 24 MTE CC if your goal is to get out of those shares at BE.

It's not going to be easy and you will have to work very hard or allow enough time for the market to stage a decent comeback.

If you do things right, which take time and effort, I think you can get to B/E in 8 months, provided the stock doesn't go anywhere from here. If you just want to set and forget, I'm afraid it'll take much longer.

There're more than a few ways to get there:

1. Identify where the momentum has stalled for the week and sell aggressive CCs.
2. Sell naked semi-FOTM calls & FOTM puts throughout the week.
3. Trade in and out of shares to decrease your cost basis.
4. If you can't sell naked calls & puts, BPS & BCS are viable alternative.

NONE of these are risk free. I strongly recommend getting a portfolio margin account at IBKR and transfer your positions there. You can buy cheap weekly puts to secure a lot of margin at a very low cost. Their margin rate is outstanding as well.

 

[Max Plaid]

Yeah, they were $16 when I looked... Who wants only 200x gain... (were $40 a few months later, only 90x)

As I recall that was post not going private and the SEC suit and I was very much on the fear end of the spectrum. After being down 50%, hope was in low supply.

I honestly didn't even know what a "LEAP" was back then, TBH, nearly three years later I still don't have a clue, there's something new every day

A year ago, did we ever talk about 10Y bonds, or yield inversions? What about inflation?? I would wager that "macro" is a pretty new concept to many, because for those of us in the the "$TSLA bubble", with the FED money printer going, it was total oblivion!

End of innocence, eh? At least for me...

 

[scubastevo80]

Had a bps 7/15 630/530 that I wrote Monday for $2.60. Just rolled to 7/22 590/490 for $4. I am now trying to roll lower and lower for premium since I feel like we’re around a bottom. I could be wrong but I’m willing to take the risk at these prices ahead of the split.

Closed this late today at $1.20. Will look to see what Mondays early behavior is before I consider another trade.

 

[MaxPain]

The buy-write approach isn't fully clicking for me so can you please help me understand this approach vs selling a naked put? I looked back a few pages to see if there was an argument/trade between these approaches but didn't see it. Sorry if I missed it...

Buy write example with 100 shares
- Buy shares at 720 - $72,000 cost
- Sell -690c - $4600 premium.
- Total out of pocket/risk $67,700
- Intrinsic value $3000
- Extrinsic value $1600
- If TSLA closes ITM total profit would be $1600 (do I have this right?)

Why not sell a cash covered -690p for ~$1500?

I see the total money at risk on the BW is $67.2K and the naked put is $67.5K.

What am I missing?