Wiki Selling TSLA Options - Be the House

[EVNow]

THere's also a huge contextual component to all of this. I am retired now with zero plan to work for a paycheck (or start a business) for the rest of my life. I'm also pre-social security. So avoiding big changes in account balance from big share price moves is important to me now, where it wasn't important from roughly 2012 to 2021 (and really, before 2012, but my TSLA experience starts in 2012).

I'm in a similar position - except I'm not retired yet. That $400 to $100 has postponed the date (thanks in part to Elon's Twitter obsession). But the overall strategy is same - capital preservation + make a little money + wait for TSLA to rebound. My cost basis has come down - and if I had not got caught in the June runup and sold around $300, potentially I could have retired this year end !

I found a website / app a year or 2 back that enabled me to design a trading system, with rules, that would run that back over 10 years worth of TSLA data. I found a couple of problems implementing my testing. I went looking for the website and name, but I think I've gotten rid of that info

Fidelity allows limited back testing - I'll try that. Or might do it by hand looking at a few runups/rundowns.

What I want to check is whether rolling when the SP comes close to strike helps compared to waiting till expiration day. All it might do is move the needle a little - for eg. call spreads I sold in June helped me move the short calls from around 200 to 220 - but the SP ran up to nearly $300 !

 

[Singuy]

I agree with the overall thesis.

What increases the weekly or even monthly volatility is the shorting. I believe on the bond side there is a lot of shorting as @Singuy (?) noted earlier (something I didn't even know was possible a couple of days back). We all know about shorting on the stock side.

Oh yes, bond shorting was huge and I think there's a short exodus right now.

https://x.com/BillAckman/status/1716450746814570860?s=20

 

[SAPharmD]

So, how will the market react to this new um…app, Grok…?

 

[EVMeister]

So, how will the market react to this new um…app, Grok…?

They probably won't. Way over their heads.

 

[SAPharmD]

They probably won't. Way over their heads.

I personally wouldn’t want to pay $16 a month (esp in this economy) on something like that

 

[Jim Holder]

FAQ on the transition to SCHW for those of us on TD/TOS:

https://welcome.schwab.com/faqs

 

[Max Plaid]

I’d not combine what they said. @adiggs is way more conservative than @Max Plaid - infact I’d say different philosophies / strategies altogether.

What I’d like to do is to take these posts and come up with a “thumb rule” that can be back tested. Something along the lines of
- Sell cash or stock secured OTM calls with a “low” chance of going ITM say .05 to .15 delta (5 to 15% chances of going ITM)
- Do not bet on the direction of the SP movement. If you do - it’s no longer “be the house” strategy.
- Close for a set profit (2/3 or 3/4). Don’t wait for expiration day.
- If SP gets close to strike price, roll for a small credit.

Other things like price target objectives to convert cash to stock or the other way are subjective and difficult to backtest.

BTW, does anyone know of a website/app where we can backtest this ?

I'm not aware how to get historical options prices, but I guess a good practice could be to take a snapshot of the options ladder over the weekend, then see how it would have turned out the following Friday...

I don't know any free price downloads, there are some Excel plugins, but they're quite expensive, I'm going to start taking some screenshots each weekend of the coming 4 weeks premiums and see if it gives any insight

I daresay @Yoona has such data, shame she's not around still

 

[tivoboy]

I personally wouldn’t want to pay $16 a month (esp in this economy) on something like that

i think as usual, EM thInks whatever he has made is better than anything else, but sadly needs to be sold at a discount. So, with ChatGPT 4.0 $20 a month, he’s putting Grok out there for 20% off to get things rolling - I doubt it’s going to gain much momentum.

 

[Gwgan]

Elon needed to create a revenue stream. Grok pays for X like Starlink pays for SpaceX, and they eat their own dog food.

 

[tivoboy]

FAQ on the transition to SCHW for those of us on TD/TOS:

https://welcome.schwab.com/faqs

It’s a good overview site, but sadly I’m still concerned… like the fact that SCHW sent me a 1099-R for 2022 in MID AUGUST this year for taxes that I had already filed in July!….

Fortunately a lot of my options trading, short term trading, etc. is done in non-taxable accounts ELSEWHERE, the 1099 and paperwork implications are reduced. but still, at some point my oldest trading acct. TDAM, STILL isn’t scheduled to move - at least not through any notification. It’s odd, but not necessarily unwanted.

Depending on what Mr. Mkt is doing EOY/Early next, I’m moving all the SCHW/TDAM somewhere else very early on to minimize 1099 cross-talk complications.

 

[BornToFly]

But the easy one - absolute value left to gain. If I've got .10 left on 12 puts (a reasonably common position size for me), then there is $120 left for me to earn. That might mean waiting 1 additional day, but even if its expiration day, I take it off the table. I've had winning positions turn into big losers REALLY fast, and just how much risk do I want to take for $120? If I avoid 1 sharp reversal and bad move every other year (1 time, 100 weeks, 1% occurrence), then I pay $12k over 2 years. If I avoid a single bad situation that goes to $10/share then I've broken even, and gained all of that emotional benefit of not waiting around for small positions to give up their last little bit of value. The problem with assessing the trade off is that the cost is pretty determinant - but the impact of the risk is open ended. Kind of like insurance!

This brings up different strategies. I start at 0.1 when I sell. So there is very little risk of it ever going in the money. If you are selling options that you are willing to close at 0.1, that means you started with a higher risk premium. I broke my rule on Wednesday when he SP didn't seem to be doing anything during the FOMC meeting, and I sold 230 calls for Friday for 0.43 that were around 15% OTM. Now they are significantly in the red, only 5% away, and I might have to roll them if the SP continues to climb.

 

[tivoboy]

I think there is a higher than average possibility of a short term melt up - 2-3 days that will bring all high beta and mega caps along from the ride, with only a few exceptions. Possibly AAPL, NVDA excluded.. My plan, is it sell calls and positions accordingly.

I don’t think TSLA will participate as much and certainly not it’s usual beta and I will look to buy and sell downside puts for income and entry ~ 200-210$ for 11/24-12/8, but only if premium is low on the $210, and rises above 3-3.5% for various lower strikes as price moves lower.

 

[adiggs]

...

What I want to check is whether rolling when the SP comes close to strike helps compared to waiting till expiration day. All it might do is move the needle a little - for eg. call spreads I sold in June helped me move the short calls from around 200 to 220 - but the SP ran up to nearly $300 !

What I expect you'll find - rolling at first hint of challenge will minimize the number of losing trades while also minimizing the number of winning trades (assuming one continues to roll until winning). Waiting for expiration will be more driven by your ability to predict that week's closing price, but will generally yield more wins (options go ITM, and then back OTM), while also increasing the number and magnitude of losses.

There is a subtlety in here that took me awhile to recognize as well. Let's use those 200 strike puts that I had expiring on Friday, that went ITM earlier in the week. If I had rolled them when they were challenged - lets say I could get 190s for this Friday and a small credit - then instead of completing that winning trade, I would still have an open put for this Friday. I'd feel pretty good about a 190 for this Friday being a winner, but I'd still have the risk. I also wouldn't want to close for a 2/3rds gain - for that position to be a winner it first needs to gain back all of the loss I bought out when I rolled (leaving me with the net credits accumulated over the open plus the roll; THEN I'd be able to start creating a gain). So an early close would be 2/3rds of the accumulated credit - not 2/3rds of the position.

Anyway - the early roll can actually create losses from wins when the initial challenge gets rolled away from, and the share price reverses. Then reverses again and challenges whatever you rolled to, when the whole sad play can run again.


And at its root, selling options means that we are persistently opening positions with defined gains, and undefined / limitless losses. A limitless loss can wipe out all of the defined gains awfully fast.


Spreads are a whole different beastie. When the short leg goes ITM, the rate of change in the spread value is just wonky. My best general suggestion with these is to run small numbers of spreads for a few months, or at least as long as it takes for something to go ITM and experience how that spread value changes. And how quickly a spread can go from max gain to max loss.

 

[thenewguy1979]

Pardon my dumb doggy brain. Last few days the discussion was getting deep into selling options and stragedy.

Seem to be a way to make income building on existing equities or stocks. Dumb me is asking why not just do weekly and way out of reach strike so you know 99% it wont land. That would yield far lower income but also with far less risk. But if you have ton of stock or equity that small profit can add up but still playing it super safe. 0.5% of a big pie is still good income? Or this thinking is flaw……if this week we believed 240 is max and sell call at $260 would that be a good stragedy if say we have tons of stocks to sell x times more option to make up for the less profit.

Was hoping to learned from others that has millions in option stragedy experiences before little doggy brain start investing his smaller bone piles. Thanks guys.

 

[juanmedina]

Pardon my dumb doggy brain. Last few days the discussion was getting deep into selling options and stragedy.

Seem to be a way to make income building on existing equities or stocks. Dumb me is asking why not just do weekly and way out of reach strike so you know 99% it wont land. That would yield far lower income but also with far less risk. But if you have ton of stock or equity that small profit can add up but still playing it super safe. 0.5% of a big pie is still good income? Or this thinking is flaw……if this week we believed 240 is max and sell call at $260 would that be a good stragedy if say we have tons of stocks to sell x times more option to make up for the less profit.

Was hoping to learned from others that has millions in option stragedy experiences before little doggy brain start investing his smaller bone piles. Thanks guys.

Thinking that making money selling options on Tesla is easy is a fallacy. The stock is way too volatile to make money consistently and one bad week will destroy weeks of hard work. A 0.5% return for Friday would require you to sell a $235cc for $1 or get a $1 return some other way. I would consider selling a $235cc a risky trade even with 0.15 delta is less than 7% OTM.

As far as I know the only person that consistently makes money is @Yoona and she made a ton of money when it was easy and now she only risks a little portion of her portfolio on IC's from what I can tell. Remember the good all days? the 6-figure a week club .

 

[BornToFly]

Pardon my dumb doggy brain. Last few days the discussion was getting deep into selling options and stragedy.

Seem to be a way to make income building on existing equities or stocks. Dumb me is asking why not just do weekly and way out of reach strike so you know 99% it wont land. That would yield far lower income but also with far less risk. But if you have ton of stock or equity that small profit can add up but still playing it super safe. 0.5% of a big pie is still good income? Or this thinking is flaw……if this week we believed 240 is max and sell call at $260 would that be a good stragedy if say we have tons of stocks to sell x times more option to make up for the less profit.

Was hoping to learned from others that has millions in option stragedy experiences before little doggy brain start investing his smaller bone piles. Thanks guys.

Way out of reach strikes give a lot less income. So with a big portfolio where you can do hundreds of CC or CSP that works ok. But one black swan can undo 3 months of tiny earnings.

 

[tivoboy]

Pardon my dumb doggy brain. Last few days the discussion was getting deep into selling options and stragedy.

Seem to be a way to make income building on existing equities or stocks. Dumb me is asking why not just do weekly and way out of reach strike so you know 99% it wont land. That would yield far lower income but also with far less risk. But if you have ton of stock or equity that small profit can add up but still playing it super safe. 0.5% of a big pie is still good income? Or this thinking is flaw……if this week we believed 240 is max and sell call at $260 would that be a good stragedy if say we have tons of stocks to sell x times more option to make up for the less profit.

Was hoping to learned from others that has millions in option stragedy experiences before little doggy brain start investing his smaller bone piles. Thanks guys.

100% this is true, but as others have said the overall return is relatively poor - although still quite good. Historically, I would sell calls against portfolio positions yielding about 4-6% ADDITIONAL ANNUAL nominal portfolio performance, which was already ~ 20-25% above NOT nominal compared to mkt averages somewhere between a DOW return and S&P return. Overall, that was an additional 25-30% again NOT nominal addition to the portfolios.

Since ~ six years, my objective is to return ~ 3-4% A MONTH, against whatever percentage of a portfolio or equity positions I’m willing to sell CALLS against, or what percentage of cash covered PUTS I’ll sell, or just speculative call buying or put buying. Either way, that’s nearly a 10x compared to historical habit, which was already 2+ standard deviations from the mean.

So, yes, sell CC against positions, fairly far outside the current price, collect relatively low premium, SLEEP WELL at night and add 4-6% or more to overall portfolio values annually depending on positioning.

IF you were a CAT, I would say, sleeping soundly without any noise or disruption is a priority, but since you’re a pooch - I say go big or go home?

Historically (I could be wrong here) but I thought this thread was called something like “the wheel” etc.. okay, maybe there is a “TSLA - THE WHEEL” thread.. but now, “Be the House” means, sell premium, KEEP premium, WIN more than you LOSE.. that’s the house.

Once one realizes that of ALL the options sold, for most equities, 90%+ expire WORTHLESS (or at a loss overall)… so the SELLER has been making out all along. Even with the “loss”, for many equity holders and options buyers, those options HAD VALUE, even though it yielded essentially nothing at expiration. It’s SORT of a RACKET, and overall I think there is more $$ in the collective value of ALL OPTIONS than ALL the underlying total EQUITY MARKET VALUE. So, it’s sort of like many people writing an insurance policy on your ONE house, over many time frames, at various values and quantified levels of risk. Nothing like this would actually occur in the material world, and yet here we are..

So, be the house. Find your sweet spot of risk/greed/angst/effort/time to spend and buy/sell accordingly.

 

[dl003]

Pardon my dumb doggy brain. Last few days the discussion was getting deep into selling options and stragedy.

Seem to be a way to make income building on existing equities or stocks. Dumb me is asking why not just do weekly and way out of reach strike so you know 99% it wont land. That would yield far lower income but also with far less risk. But if you have ton of stock or equity that small profit can add up but still playing it super safe. 0.5% of a big pie is still good income? Or this thinking is flaw……if this week we believed 240 is max and sell call at $260 would that be a good stragedy if say we have tons of stocks to sell x times more option to make up for the less profit.

Was hoping to learned from others that has millions in option stragedy experiences before little doggy brain start investing his smaller bone piles. Thanks guys.

It's in our nature to want to make more money. The math is not the issue. The issue is greed, which is good, sometimes. Even the most conservative sellers will at some point want to take on more risks as they think they've got it all figured out, which may or may not be true.

 

[tivoboy]

It's in our nature to want to make more money. The math is not the issue. The issue is greed, which is good, sometimes. Even the most conservative sellers will at some point want to take on more risks as they think they've got it all figured out, which may or may not be true.

I would argue that it is most likely NOT in our nature to want to accumulate more surplus goods, objects, assets, etc,,, but it has almost certainly in society, either socially or culturally become so.

 

[Singuy]

I'm not aware how to get historical options prices, but I guess a good practice could be to take a snapshot of the options ladder over the weekend, then see how it would have turned out the following Friday...

I don't know any free price downloads, there are some Excel plugins, but they're quite expensive, I'm going to start taking some screenshots each weekend of the coming 4 weeks premiums and see if it gives any insight

I daresay @Yoona has such data, shame she's not around still

Yoona is a female? Most likely not. Don't let that avatar fool you. That's a korean actress/kpop singer named Im Yonna