Wiki Selling TSLA Options - Be the House

[ninpb]

Today's move down ends a week of should-I-shouldn't I roll my 8/5 830CC (rolled once already from 7/29 820C for credit). Instead of rolling, I wanted to be able to wheel sooner to catch the brief time we have before the split fomo, hopefully getting back the shares in the process. Or sp just rockets Monday, worst case I rebuy less of my shares back where I would have been further left behind with a roll.

I was playing chicken with the share holder meeting but I kept thinking we've known about the split for months now and the first split was a complete surprise.

 

[corduroy]

Nibbled on a few 8/12 BPS -800/700s for $2.47 These might be early, but if we drop Monday I will sell the long puts to increase position credit and convert to CSPs.

 

[juanmedina]

closed my c910 buy-writes at 95%; waiting to reopen them today or maybe just reuse the shares next week

bought 8/12 +p850 instead of sold 8/12 -p850 by mistake; closed quick for minor profit enough to pay fees (whew)

What kind of buy-write were you thinking?

 

[Yoona]

closed my c910 buy-writes at 95%; waiting to reopen them today or maybe just reuse the shares next week

bought 8/12 +p850 instead of sold 8/12 -p850 by mistake; closed quick for minor profit enough to pay fees (whew)

reopened 8/5 -c910 at peak and closed again for another 57% in 11 minutes

for this trick, i am simply following the fibs and saw RSI was overbought, then waited for MACD to confirm start of reverse, then closed the position at the fib supp (it's better to wait for MACD to turn green but i'm impatient so i cashed in early)

What kind of buy-write were you thinking?

not sure yet for next week, but i think red by friday?

 

[juanmedina]

I have no positions open right now and I am thinking about selling December $1140 covered calls for $60. Those calls have 19 weeks to expiration and they would give me $325 bucks per week which is decent IMO with a breakeven of $1200. @adiggs any thoughts? Lots of great catalyst in the near term but the macro .

I ended closing the $1140's for $14.5 a piece of profit. I am hopping for a Monday bounce when the 8-k is out.

 

[BornToFly]

I just sold 860 Puts for next week. We'll see if we get a pop tomorrow or a drop.

(would replace shares I'm loosing tomorrow on 810CC buy/write).

I knew I should have waited until today....

 

[ReddyLeaf]

I knew I should have waited until today....

…..and MaxPain was listed as $885. Hmmmmm. Time to buy calls for Monday? Edit: boughr 8/12 +c930 @$9.35-$10, +c960 @$5.45, and 9/02 +c990 @ $17.70 (early, so probably we drop until close ).

 

[Yoona]

…..and MaxPain was listed as $885. Hmmmmm. Time to buy calls for Monday?

what strike so i can copy?

 

[adiggs]

I continue thinking about buy-write dynamics compared to cash secured puts and I think the conclusion I'm arriving at is that while they both get to the same end result when held to expiration or very close, the dynamics of how they get there are strongly in favor of the buy-write (at least for me).

For the retirement accounts the buy-writes are straightforward as there are no tax consequences. However the brokerage account runs into repeated wash sales and that is a mess I don't want to deal with. So I'm looking for help designing a buy-write strategy that doesn't use shares, and am looking for ideas and input on what I've come up with so far.


The problem with a leap cc, even when purchased DITM, is that it carries a large amount of time value and has high vega (impact from IV changes). These are bad for a buy-write where a critical component of what makes it work is the 1 delta / 0 theta / 0 vega dynamic of shares. I went looking at the option chain and it looks like I can almost get these dynamics using really, really DITM calls with a shorter duration.

For example the Dec '22 150 strike call is 746 bid / 750 ask with shares at 895. That works out to a $1-5 time value range. If I assume that I can get the midpoint of 748 then I'm paying $3 for 133 days of share replacements. I'm not looking at these for leverage - I'm looking at these for wash sale avoidance. If I use the Sep '22 150 strike call as an indicator of what this Dec option will look like in November. The Sep '22 150 strike call is 745 - 747 with shares at 895 for a spread of 0-2. Assuming the midpoint then there is $1 in time value at 1 month remaining.

Using a frequent in/out dynamic that I've been using with the buy-write I will need to change expirations or strikes to avoid wash sale problems, and if I restrict myself to multiples of 3 to avoid messy options post-split then I am probably also restricted to using monthlies that started off as leaps (Sep, Jan, Mar, Jun) if I want to keep the long call in the 3 to 6 month range.

Or heck - maybe I buy the Sep '22 150 strikes as the long calls and roll them if the buy-write isn't yet ready to resolve. That will generate a realized result along the way that shares wouldn't generate but the cash will be on hand either way to support the roll.

Because its kind of fun those Sep '22 150s have a delta of 1, theta of 0, and vega of 0.0025. That's practically shares!

The biggest potential problem that I'm seeing right now is just how easily and what quality of fill that I can get on these. Buying shares is as fast as I want it and using a bid/ask measured in pennies or dimes. The share replacements are going to be a bid / ask measured in a few $ and have such low total volume that the fill may take awhile. The Sep '22 150s has 117 open contracts right now.


Questions / feedback:
- Is there an alternative structure you can think of that creates buy-write dynamics (nearly) without using shares?
- Is there something I'm missing?

I suspect that I'm going to use the Sep monthly contract and plan to roll to October if my fake buy-write hasn't had a good close before then. The Sep contract also has strikes that are $10 apart but that will be the exception - October strikes are $50 apart, leaving me with 150s and 300s if I want to continue avoiding weird post-split contracts.

 

[adiggs]

Still looking for feedback but I've gone ahead and opened an initial round of these to see how they go. These are technically diagonal spreads if you're looking for the transaction ticket to fill these in.

I've opened a diagonal spread using a long Sep '22 300 strike call and selling the Aug 12 800 strike call. With shares at 878.21 the long call is at 577.95 (.26 time value) and the short call is 84.80 (6.59 time value). I've got a net 6.46 available to earn at expiration at every share price above 800.

Management will be like a buy-write.


EDIT to add: An immediate learning - use a round strike for the long call. It makes it a LOT easier to eye ball the position status (i.e. the 300 strike instead of the 150 strike)

 

[ninpb]

Today's move down ends a week of should-I-shouldn't I roll my 8/5 830CC (rolled once already from 7/29 820C for credit). Instead of rolling, I wanted to be able to wheel sooner to catch the brief time we have before the split fomo, hopefully getting back the shares in the process. Or sp just rockets Monday, worst case I rebuy less of my shares back where I would have been further left behind with a roll.

I was playing chicken with the share holder meeting but I kept thinking we've known about the split for months now and the first split was a complete surprise.

Holy crap it's actually going how I planned it.. for now.

 

[john tanglewoo]

Sold Aug 26 1040 calls @ 17, premium was looking good and TSLA has enjoyed a really nice run up over the past week

Got out of these today for a quick 60% / $8k profit in just 3 days.

I almost panicked yesterday since I forgot the stock split vote would be taking place and I thought it would send the price soaring up. So I tried to get out but premium was basically sitting even to where I sold them, so I decided to roll the dice and hold them (even though with 20 days left there’s time for a LOT of things to happen).

Stock is down today based on macro data and I made a quick decision to get out. But in reality I think the CPI data next week will send us even lower. So even though I’m leaving like $5k on the table, it is always nice to take a profit before the weekend.

What I have learned so far in my short journey selling calls and puts, is that I need to continue being patient and let the Theta decay do it’s job. I’m still getting impulsive and have to learn to take the emotion out of it.

 

[ReddyLeaf]

what strike so i can copy?

9/12 +c930s @ $7.20-$10. That $10 was way too early. Never catch a falling knife. Edit: looks like that $7.20 was also too early. Are they really targeting -9.9% today? Damn, just bought a couple shares at $869.69.

 

[adiggs]

Still looking for feedback but I've gone ahead and opened an initial round of these to see how they go. These are technically diagonal spreads if you're looking for the transaction ticket to fill these in.

I've opened a diagonal spread using a long Sep '22 300 strike call and selling the Aug 12 800 strike call. With shares at 878.21 the long call is at 577.95 (.26 time value) and the short call is 84.80 (6.59 time value). I've got a net 6.46 available to earn at expiration at every share price above 800.

Management will be like a buy-write.


EDIT to add: An immediate learning - use a round strike for the long call. It makes it a LOT easier to eye ball the position status (i.e. the 300 strike instead of the 150 strike)

An extension of this test I'm running - I have added the same number of short puts to more directly experience the emotional dynamics of how these two types of positions with the same profit structure (or really, really similar) work out. Sell 800 strike Aug 12 puts for around 5.60. Similar time value, easier position to track, but I expect that if the shares keep going down, then I'll be happy with the diagonal spread and worried about the CSP.

 

[MP3Mike]

Well I'm glad I closed my $885 puts yesterday.

Of course I opened some 720/770 BPS for 8/12, so I guess we will see if I dipped my toes back in too early.

 

[juanmedina]

I continue thinking about buy-write dynamics compared to cash secured puts and I think the conclusion I'm arriving at is that while they both get to the same end result when held to expiration or very close, the dynamics of how they get there are strongly in favor of the buy-write (at least for me).

For the retirement accounts the buy-writes are straightforward as there are no tax consequences. However the brokerage account runs into repeated wash sales and that is a mess I don't want to deal with. So I'm looking for help designing a buy-write strategy that doesn't use shares, and am looking for ideas and input on what I've come up with so far.

I was thinking about this the other day. I just don't see how I can avoid the wash sale issues unless I don't trade Tesla for an entire month specially selling weekly options.

It seems according to this video that options sellers have it worse than anyone:

Any advise on avoiding the wash sale mess? I have a decent deferred loss this year.

 

[corduroy]

These false bottoms get me every time.

 

[Drezil]

These false bottoms get me every time.

View attachment 837101

For me it's the inverse.
I always sell at the bottom to reduce my exposure and then the stock reverses.

Today i said "there is no reason for the dip, we will soon peg the qqq with the usual factor, so just sit it out".... OUCH.

 

[scubastevo80]

So apparently Robinhood no longer lets you roll on day of expiration. You basically have to close and then separate open a new position to execute a "roll". Ugh - may need to move my parents to a platform that doesn't remove functionality.

 

[adiggs]

I was thinking about this the other day. I just don't see how I can avoid the wash sale issues unless I don't trade Tesla for an entire month specially selling weekly options.

It seems according to this video that options sellers have it worse than anyone:

Any advise on avoiding the wash sale mess? I have a decent deferred loss this year.

Good video - very much appreciated. The short version of what I've come up with for avoiding wash sales while trading a single underlying as I do:
1) and best: pick a date in December, close all of the open option positions that are shorter duration, and don't trade again for 31 days.
2) weeklies are better than leaps, close to the money is better than DITM (or DOTM), for avoiding "substantially identical".

Here's one link:

Wash Sale: Definition, How It Works, and Purpose

A transaction where an investor sells a losing security and purchases a similar one 30 days before or after the sale to try and reduce their overall tax liability.

www.investopedia.com

The relevant paragraph:

The sale of options (which are quantified in the same ways as stocks) at a loss and reacquisition of identical options in the 30-day timeframe would also fall under the terms of the wash-sale rule.3

Here's a really long and very detailed discussion of substantially identical regarding options. I found this particularly helpful as there is a discussion of how previous IRS rulings regarding substantially identical for bonds can be used to establish an equivalent idea for options.

Substantially Identical Securities solution | www.optionstaxguy.com

Substantially identical options. Discussion using bond and option valuation models to argue why option trade losses do not qualify as substantially identical securities and not wash sales. Downloadable template to test if option rolls are substantially identical.

www.optionstaxguy.com

The short version being that ... it depends.

Then there's mark to market accounting (instead of investor accounting that all but people with Trader status uses) that requires Trader status; MTM eliminates wash sale rules and has its own, different, problems.


Interestingly - using weekly options is probably the best way to avoid wash sales. Its pretty easy to make the case that Aug 12 and Aug 19 options that are in the vicinity of the share price are not substantially identical. Their delta, theta, and vega are likely to be quite different. Its the longer dated and really DITM options where substantially identical is harder to show.

There is a thread around here somewhere about tax issues and strategies regarding options. The tax conversation is best taken there.


For my initial forayu I've used Sep monthly 300 strike calls to get started. They've got a delta over .99 and stay that way down into the 600s. I open these using the same buy-write logic and will manage them the same. I'm hoping to get 3 or 4 call sales using a single long monthly call, before rolling the monthly out 1 month. If the situation calls for a full close using my current position (+300c Sep monthly, -800c Aug 12 weekly), then I'll open a new Sep call with the next buy-write at any other strike than 300. If I do 3 weeks in a row of this, then I'll have "used up" 3 strikes on the Sep monthly and will probably be looking at the October monthly at that point. This might not work for wash sale purposes (sigh).

As long as the time value on the long call is really low (I'm using $1 for my approximately correct math) then I'll roll the strike up and down as the situation and warrants. There will be some cash flow ups and downs as a result but that would happen with shares also.


I have even more wash sale accounting to learn about.