Wiki Selling TSLA Options - Be the House

[ZsoZso]

I have a lot of buffer left of my margin, but Interactive Broker's software would not let me place an order to sell share-covered calls.
The error message claims it would violate margin requirements. I opened a support-ticket, which got closed by a representative repeating the BS claim that my order would increase my margin requirement beyond the max available. As far as I know selling OTM share covered calls should have no margin requirement at all. I can sell such calls on non-margin accounts.

Anybody else experienced similar troubles with IBKR software ?
It is one thing that they have buggy software that throws out baseless error message, but I hate their attitude in response to customer complaints on said bug.

Today, I got a more detailed response from IB to my complaints to them.
I add here the relevant explanation, just in case others are interested:

A review of the rejected order shows the long TSLA stock was matched with the Long TSLA Puts to create a Protective Put strategy and the Short TSLA Calls were matched with Short TSLA Puts to create Short Straddle strategies. Each time you enter an order to add or subtract from an option class group it will cause the margin requirements for that class to be recalculated. This will be reflected in the new Initial and Maintenance margin requirements.

This is how the margin system is designed. The manner in which option positions are added to or how spreads are opened is not necessarily the same manner they will be closed. The option margin optimization software looks at the new or remaining options in a class group and calculates a new margin requirement. Although you may not agree with the recalculated margin requirements they are correct. If the account does not have the Available Funds to meet the new margin requirement, then that particular trade will not be allowed.

So, @MP3Mike was right, they have combined my various open positions in a different way than I was trading them (and different from how their UI was showing too!), instead of put-spreads and covered calls, they treated them as Protective Put and Short Straddle strategies.

 

[MikeC]

Today, I got a more detailed response from IB to my complaints to them.
I add here the relevant explanation, just in case others are interested:


So, @MP3Mike was right, they have combined my various open positions in a different way than I was trading them (and different from how their UI was showing too!), instead of put-spreads and covered calls, they treated them as Protective Put and Short Straddle strategies.

Anyone know why stock would need to be "matched" with protective puts? They are obviously inversely correlated but both are cash-bought positions that don't put any further collateral at risk regardless of where the SP goes.

 

[Drezil]

In the future, you and I should coordinate our sells, since whenever I sell a put, the stock falls off a cliff

But only if both of you warn us here beforehand!

 

[intelligator]

Anyone know why stock would need to be "matched" with protective puts? They are obviously inversely correlated but both are cash-bought positions that don't put any further collateral at risk regardless of where the SP goes.

Not sure why brokers are doing this. Fidelity, for example, today decided that a 10x +985/-955 BCS order needed to be structured as 8x +985/-955 , 2x -955CC (using 200 shares I had un-leveraged) and 2 +985C. The net effect is 24K rather than 30K of margin.

 

[MikeC]

Not sure why brokers are doing this. Fidelity, for example, today decided that a 10x +985/-955 BCS order needed to be structured as 8x +985/-955 , 2x -955CC (using 200 shares I had un-leveraged) and 2 +985C. The net effect is 24K rather than 30K of margin.

Seems like Fidelity matches them efficiently to use up the least margin. I even understand when the algorithm matches things suboptimally for whatever reason.

What doesn’t make sense is IB matching up shares with long puts, there are no margin implications even if both were to go to zero.

On topic, I’m holding -c930s, -c1000s, -p830/730s, and a -p905 I’ve been rolling since May. This low volume kind of scares me - I’m concerned about shorts getting back in with a vengeance after the split, along with people selling the news.

 

[UltradoomY]

Tough call, isn't it? I'm letting my Friday -c900's run, at least until they're 90% profitable. Maybe they expire, maybe they assign, don't care too much

What is a little concerning is the risk of holding a large number of $TSLA shares with the potential for more market downside - depends which narrative you subscribe to: bear market is over and this is a retest of support OR the bear market is just beginning

Whichever it is, I'm still very bullish on $TSLA right now, I think the 2nd half of the year will be tremendous for the fundamentals, whether these they buried in the macro noise, remains to be seen

My strategy from here is to keep selling -c900's as long as they give some decent premium, or exercise, after which I'll switch to puts. If the SP dumps into the 700's then I'll continue selling calls but roll down the strike a bit - I have a weekly target from here to hit and can manage that with 30x covered calls without flying too close to the sun. Worse case if we get a sudden rise, I just need to be able to roll back to -c900 or above without losses, as long as I don't sell the shares lower than the face-value purchase price, I'm fine

If, on the other hand, I can anticipate the SP taking-off and ride the shares up, I'll try to do that too - 30th September expiry is perfectly placed for the P&D on the following Monday

Not advice, eh...

Really liked your photo with Elon this morning at Giga Texas!

 

[TheTalkingMule]

Not sure why brokers are doing this. Fidelity, for example, today decided that a 10x +985/-955 BCS order needed to be structured as 8x +985/-955 , 2x -955CC (using 200 shares I had un-leveraged) and 2 +985C. The net effect is 24K rather than 30K of margin.

Fidelity has done this to me a bunch of times and it's messed me up when trying to unload shares that are paired to options contracts. With limited margin in a Fidelity IRA, it's good to have all transactions(and shares) tagged as margin transactions for some reason. I think it keeps the settlements more fluid.

Then when I run into a weird pairing issue like this I have them carve off shares to "cash". I then end up with two buckets of TSLA shares, one tagged as margin and one as cash. All my options and margin shares then refresh and go back thru the Fidelity algo to be matched up, leaving the cash shares unmatched.

 

[Max Plaid]

Really liked your photo with Elon this morning at Giga Texas!

Yeah, just a shame that I was looking up at him longingly, rather than into the lens...

 

[mongo]

What doesn’t make sense is IB matching up shares with long puts, there are no margin implications even if both were to go to zero.

Not for that pair, but what if that position is being used as the margin collateral for another?
Long shares + long puts = guaranteed value which reduces risk of margin call due to stock price movement. Other pairings may provide more margin now, but less if the price moves against it.

Edit: @Oil4AsphaultOnly, I disagree with the last line of your following post, but vote a 'like' anyway.

 

[Oil4AsphaultOnly]

Anyone know why stock would need to be "matched" with protective puts? They are obviously inversely correlated but both are cash-bought positions that don't put any further collateral at risk regardless of where the SP goes.

Not saying that this is the reason, but considering that the maintenance margin on TSLA is about 40% (only 60% of the value of TSLA shares is available for margin use, versus the 100% for cash), the protective put would make the full value of the strike-price of the put option available for margin (since TSLA below the strike is protected by the put, while rises in TSLA is protected by the shares themselves).

Hypothetical example (assumes stock price of $1000):
100 shares of TSLA and $10k cash would give you $70k of margin ($10k + 60% of TSLA).
while 100 shares of TSLA and one 900p would give you $90k of margin.

That's my hypothesis anyway.

Edit: mongo said it better.

 

[Drezil]

Not for that pair, but what if that position is being used as the margin collateral for another?
Long shares + long puts = guaranteed value which reduces risk of margin call due to stock price movement. Other pairings may provide more margin now, but less if the price moves against it.

I think this is the exact reason.
AFAIK they use a 2-sigma and 3-sigma-event (you can "simulate" them in the "What-If"-thingy) against you to the up- and downside, calculating an "expected shortfall" that behaves similar to margin..

So if you have a dumb greedy algorithm and you calculate the minimum expected shortfall for the pairings you should come up with something like those matchings. But if you then go and plot it and calculate the integral over your P/L-Graph weighted by normalized (historic or marked-implied) variation to calculate the "margin" you need .. then this may lead to completely BS answers that are fully avoidable if you pair it another way.

Edit: Especially if you consider set orders for i.e. stop-losses that will fire in some cases to reduce margin by a huge amount.. Because .. why take a -30%-event into account, when there is a stop-loss at -5% SP-move.. For that event to happen you have to model a gap-down (and the probability * margin-requirements should just be a few $)..

 

[Yoona]

 

[JustMe]

You guys, I accidentally made over $2,000 today.

I thought I bto 10x 930c at $5.30 and sold at $5.50

But - instead of closing I accidentally bought 10 more at $5.50. Hours later I was like - why is my cash so low? Noticed then I had 20 open $930 calls. . . Trading at $6.80

Next couple of days will sure be interesting and maybe even fun.

 

[Drezil]

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stop posting that .. i am getting nerdsniped and think about how to automate the interpretation of these..

like identifying what trades go together (i.e. if someone is closing a call spread or just rolling it)... - especially if you start registering it in a virtual portfolio .. so you see a spread with 150 opened on day x, closed on day y and another spread with similar risk-profile opened on day y after the first closes .. so getting insight into how the "big guys" are trading .. ^^

onto the data:
To me the things for this week looked like "profit taking" 1020/1025 Call-Spread should be too far out to be in play and only worth cents.. so maybe it was a bear-call-spread and possible one leg of an iron condor that hit 90% profits or so.
Same for the 795/800 put-spread.

For next week the 1075/1120 call-spread looks bullish (i guess green = bought at bid, yellow = midprice). could be a cheap bet they will pay off if we go up after the split without the heavy theta-burn of this weeks options. Closing this on friday could especially be a vega-play additionally to the delta.

all other trades don't seem to pair up - but i guess much green for next week is good .. and the red for this week should be attributed to profit-taking via tight trailing stop-losses (thus selling into the ask on a down-tick).. so i interpret that data as "bullish, but maybe we have to wait to next week for it".


EDIT: On the nerdsniping: anyone has an idea if you can get such volume data for all strikes of the ticker for the whole day with IBKR? I'm working on a tool anyway and that would be a useful feature, that could be implemented FAST. And i mean really fast. Like ready next week.

 

[llirk]

You guys, I accidentally made over $2,000 today.

I thought I bto 10x 930c at $5.30 and sold at $5.50

But - instead of closing I accidentally bought 10 more at $5.50. Hours later I was like - why is my cash so low? Noticed then I had 20 open $930 calls. . . Trading at $6.80

Next couple of days will sure be interesting and maybe even fun.

Two of those are mine. Please take good care of them as I may want them back. I'll let you know Friday.

 

[JustMe]

I was wondering how the run up to this split compared with the one two years ago. Some people were hoping for an Earth-shattering kaboom but that didn’t materialize. Many differences in the situations of course.

But TSLA has had a very modest run over the week ahead of the split - compared with QQQ at least.

Here I compare the TSLA price changes in the following way: Ap = Tp - 2* Qp

Tp is the TSLA price change (in percent) relative to the closing price two weeks prior to the split date

Qp is the QQQ price change relative to the closing price two weeks prior to the split date

Ap is the adjusted TSLA price change since two weeks prior to the split date.
(normalized to QQQ change)

Hope this makes sense. .

Well it’s just for fun anyways.

Vertical scale expanded below

 

[saniflash]

EDIT: On the nerdsniping: anyone has an idea if you can get such volume data for all strikes of the ticker for the whole day with IBKR? I'm working on a tool anyway and that would be a useful feature, that could be implemented FAST. And i mean really fast. Like ready next week.

AFAIK you cannot get this data out of TWS, but I'm not 100% sure. you could ask that question at twsapi groups.io Group to get a more qualified answer

 

[BornToFly]

Yesterday I was away from the computer. Looking to sell BCS today on a pop. If there were any short sellers that didn't learn their lesson last time, would any squeeze from naked short selling happen today or tomorrow?

SP data from last split per Gary:

https://twitter.com/x/status/1562395901737553920

 

[CHGolferJim]

Yesterday I was away from the computer. Looking to sell BCS today on a pop. If there were any short sellers that didn't learn their lesson last time, would any squeeze from naked short selling happen today or tomorrow?

SP data from last split per Gary:

https://twitter.com/x/status/1562395901737553920

Watching the same thing. I’m thinking since there is a good chance of selling the news tomorrow, I may make a move today. Curious to see what happens in first hour.

 

[BornToFly]

Watching the same thing. I’m thinking since there is a good chance of selling the news tomorrow, I may make a move today. Curious to see what happens in first hour.

Nice pop, but the 1050 calls I sold Monday morning are still worth less right now. Interesting. Not a lot of demand for calls I guess....