Wiki Selling TSLA Options - Be the House

[Jim Holder]

AFAIK, Im the only one here that has been selling naked calls (theres no such thing as a naked CC - CC implies you have shares to back the call while naked means you dont). I have done risk assessment to death on this topic.

1. A BW is simply a CSP. If you buy shares at 765 and sell calls at 740, with some discrepancy in premium due to interest rate, its the exact equivalence of selling a 740 CSP, only your head is tricked into thinking its not by the 2 separate transaction. So, keep it simple and think in term of CSP. If you are willimg to sell a 740 CSP, then proceed with the BW and vice versa.

2. Treat naked short calls as you would BCS, only with a longer leash if your aim is income. Naked calls mean you dont cover it with anything to maximize returns and reduce risk. The more net premium you receive, the less risk you have to take.

What do I mean treat it like you would a BCS? Do I mean always sell FOTM naked calls? No.

If you normally sell BCS as a directional bet, like some of my friends do, then sell slightly ITM or ATM naked calls instead. They would, for example, sell 715/720 NVDA BCS right now if they think it will go down more. However, if you are not into directional bet, like I deduce from your posts, then sell FOTM naked calls, same as your BCS. The difference is: further OTM than BCS. If you normally go with 6 SD on the BCS, then go with 7 or 8 SD on the naked call. Same entry (sell at resistance) as a BCS for maximizing R:R.

TL;DR:
Naked calls = BCS
Covered calls (even if DITM) + long shares = CSP
Keep it simple and know what do you want to get into. Directional or nondirectional? Up or down? Capital in cash to earn interest or deployed in shares for higher premium?

This is super helpful, saving for future reference.

Thanks!

 

[UncaNed]

Thanks. By average down you mean buy more?

...effectively making up for the loss by doing something similar enough to kid ourselves that the original bad transaction somehow wasn't really so bad after all?

Somebody please help me out here-
This concept has always grated on me (though I've done this myself); isn't this really just doing another transaction to make money so we feel better about the unprofitable one already made?

Isn't "averaging down" just the trading equivalent of dropping a quarter in the toilet, then throwing in a dollar before picking them both out so you're not reaching into the toilet for only a quarter?

I feel the same about "rolling" things... what am I not understanding? TIA

 

[Jim Holder]

...effectively making up for the loss by doing something similar enough to kid ourselves that the original bad transaction somehow wasn't really so bad after all?

Somebody please help me out here-
This concept has always grated on me (though I've done this myself); isn't this really just doing another transaction to make money so we feel better about the unprofitable one already made?

Isn't "averaging down" just the trading equivalent of dropping a quarter in the toilet, then throwing in a dollar before picking them both out so you're not reaching into the toilet for only a quarter?

I feel the same about "rolling" things... what am I not understanding? TIA

I’ve read often that pros never average down unless one has strong conviction of a move coming in one’s favor. I don’t have much experience with it. The few times I did it it actually helped me (SP came back to me and the average down helped me exit sooner) but I had to hit the exit on time!

 

[dl003]

...effectively making up for the loss by doing something similar enough to kid ourselves that the original bad transaction somehow wasn't really so bad after all?

Somebody please help me out here-
This concept has always grated on me (though I've done this myself); isn't this really just doing another transaction to make money so we feel better about the unprofitable one already made?

Isn't "averaging down" just the trading equivalent of dropping a quarter in the toilet, then throwing in a dollar before picking them both out so you're not reaching into the toilet for only a quarter?

I feel the same about "rolling" things... what am I not understanding? TIA

Nope. Theres a science to averaging down and most people do it wrong. Averaging at the next strong support in hope it will do a DCB there. If that fails, look for the next strong support. This means you have to acknowledge that your first buy can be too early and have a plan to average down before you pull the trigger.

However, this means the very first buy has to make sense. If you buy just because its "low enough", chance are you will average down too early. If you do it right, it will feel less like averaging down and more like buying at supports that fail to hold - this is very common and an acceptable risk in trading. Best if you buy at supports AND have a SL for when your thesis doesnt work out. So instead of holding your first buy all the way down to the next support, you cut it early for a small loss then wait for the next support to try again, again with a SL. Setting SL IMO is one of the hardest things to get right that separate good traders from bad ones. If you set it too tight, you can get faked out. If you dont set it, you risk massive losses. A good Stop Loss is made possible by a good entry. If you enter with crappy R:R then it will be extremely hard to set your SL right. So you have to get both the entry and the SL down to a science, something very few people can do.

Averaging down is hard if:

a. You are too bullish on the fundamentals and think sooner or later it will go up.
b. You dont have a systematic approach to setting entry. "feeling" is not a reliable method. I like charts. Theres also dark pool, flow, etc...
c. You think in absolutes, that you cant be wrong so averaging down is always your plan B or C instead of plan A.

 

[intelligator]

not-advice
One idea for DITM spreads that I've been using effectively this year is a flip roll. Round numbers - you can flip roll an ITM call spread to an equally ITM put spread with the same expiration, but one strike worse, for a net credit.

I don't know how far ITM the spread is that you're talking about, but if you've got a put spread that you're really hating, what call spread can you roll that into (it'll be a bit further ITM to start, given you restrict yourself to rolling for a net credit). Do you like that position better?

One way I've used this is to flip roll half of a position. That leaves me in an overall position where a move in neither direction keeps my high % loss equally high. But a definitive move in either direction will cure one half of the overall position. Of course the other side will be a bit deeper into max loss territory.

But mostly I have been, in effect, swing trading these spreads. Each time I give up $5 on the strike, but as long as I've gotten more ahead than that first, then the overall result has been getting the spread closer and closer to the share price.

Hopefully this makes sense - all you've got to do is get the direction right as you swing trade the spreads. At least for me its a lot easier to try and pull this off when I've started with spreads that are at $25 on a $30 wide spread (there's not that much more loss to be found at that point)


Beyond the flip roll you get other permutations - a split roll where you turn 1 bad spread into 4 bad spreads (or whatever number you like). They'll still be bad spreads, but you can get them a whole lot closer to the money and resolution. This usually means increasing your total risk and potential loss. Split flip (more spreads, and of the other kind).


Ideas that have helped me a lot, but are themselves very much a source of risk.

At the end of the day, when we choose to roll a position, what we're really doing is realizing the loss on a bad position, while pairing that up with a position that we are unlikely to ever open directly, and looking for a directional move to make back from the 2nd position the loss that we realized on the first position. By rolling for a credit we maintain positive CASH FLOW, not earnings.

Checking the chain, it doesn't look like I have a roll opportunity, nor a flip.... the -p830.will lose extrinsic soon. These are great thoughts but are way too risky to chance where I sit now. I checked gamma and vanna , 800 stands out but nothing earlier in the week hinted or pointed to 700. To limit further loss.and assignment from this black swan, my gut is telling me to shut down both at the expense of several months of profits and new cash added The first half is turning into a loss.

Any further thoughts, I'm open to ideas. I can't hold anything without backing,.meaning can't have naked put.

SMCI +p730/-p830 and SMCI +p685/-p785 ... 5x each.

 

[dl003]

...effectively making up for the loss by doing something similar enough to kid ourselves that the original bad transaction somehow wasn't really so bad after all?

Somebody please help me out here-
This concept has always grated on me (though I've done this myself); isn't this really just doing another transaction to make money so we feel better about the unprofitable one already made?

Isn't "averaging down" just the trading equivalent of dropping a quarter in the toilet, then throwing in a dollar before picking them both out so you're not reaching into the toilet for only a quarter?

I feel the same about "rolling" things... what am I not understanding? TIA

about the rolling thing. Its not neccesarily just cutting one bad bet and replacing it with another. Rolling a put out and down means you reduce delta and increase theta, which can make sense at times. If you think in greek, theres nothing wrong with reducing delta and increasing theta given the correct circumstance. Best done before the first bet gets DITM. When its DITM, delta is too high and cant be reduced to an acceptable number while theta is too low to enjoy any extra by rolling. Of course, having the conviction to cut it early is best. But if the situation is murky, rolling early is the next best thing.

 

[Jim Holder]

https://twitter.com/x/status/1782064940142207255

https://twitter.com/x/status/1782067256194633756

 

[Jim Holder]

Interesting OTM 175 calls position this week showing up when TA doesn’t support it at all.

Thanks to @Yoona for posting about this fellow, he presents current TSLA data and reasonable opinions often daily:

 

[Tachyon]

Tesla should beat the OEMs at their own game by calling the price reduction as a “discount “ instead of a “Price cut “

And tag the discount with a random holiday/ festival/ commemorative day etc

This month should have been Ramadan Discount , next month Memorial Day discount and so forth. This also helps highlight Tesla’s Diversity and inclusiveness .

For God’ sake , stop calling these price cuts . OEMs do this all the time and never call it a price cut .

 

[Jim Holder]

TESLA WEEK IN REVIEW:

Last Sunday: Announced 10% layoffs—the largest in company history, also affecting the sales team.

Monday: Key executives Drew and Rohan depart.

Wednesday: $TSLA discloses Elon Musk's 2023 comp. was $0 and new website for compensation plan vote and Re-domestication to Texas, on June 13th.

Thursday: Deutsche Bank downgrades $TSLA (Hold; 123), citing risks from 'going balls to the wall for autonomy.

EU new car registrations down 4.7% YTD; March registrations dropped 30.4% YoY.

Friday: 3,878 CyberTrucks recalled; reduced prices for Model Y, Model S, and Model X by $2,000 each in the U.S.

Saturday: Elon Musk postpones trip to India ; reduces Full Self-Driving software price by 33% to $8,000 from $12,000.

(Credit: WallStEngine)

 

[dl003]

Tesla should beat the OEMs at their own game by calling the price reduction as a “discount “ instead of a “Price cut “

And tag the discount with a random holiday/ festival/ commemorative day etc

This month should have been Ramadan Discount , next month Memorial Day discount and so forth. This also helps highlight Tesla’s Diversity and inclusiveness .

For God’ sake , stop calling these price cuts . OEMs do this all the time and never call it a price cut .

Tesla doesnt call it a price cut. Tesla doesnt call it anything. People call it a cut on X. So does MSM.

 

[InTheMiddle]

TESLA WEEK IN REVIEW:

Last Sunday: Announced 10% layoffs—the largest in company history, also affecting the sales team.

Monday: Key executives Drew and Rohan depart.

Wednesday: $TSLA discloses Elon Musk's 2023 comp. was $0 and new website for compensation plan vote and Re-domestication to Texas, on June 13th.

Thursday: Deutsche Bank downgrades $TSLA (Hold; 123), citing risks from 'going balls to the wall for autonomy.

EU new car registrations down 4.7% YTD; March registrations dropped 30.4% YoY.

Friday: 3,878 CyberTrucks recalled; reduced prices for Model Y, Model S, and Model X by $2,000 each in the U.S.

Saturday: Elon Musk postpones trip to India ; reduces Full Self-Driving software price by 33% to $8,000 from $12,000.

(Credit: WallStEngine)

It really has been quite a week. My investment thesis has and both short term and long term Tesla and TSLA expectations have had to be reconsidered far more often this week than most weeks, to be sure. Come Monday, place your bets (or don’t) as you see fit. But definitely get some popcorn ready and enjoy the show…

 

[MikeC]

TY, @adiggs[/
[/QUOTE]

TESLA WEEK IN REVIEW:

Last Sunday: Announced 10% layoffs—the largest in company history, also affecting the sales team.

Monday: Key executives Drew and Rohan depart.

Wednesday: $TSLA discloses Elon Musk's 2023 comp. was $0 and new website for compensation plan vote and Re-domestication to Texas, on June 13th.

Thursday: Deutsche Bank downgrades $TSLA (Hold; 123), citing risks from 'going balls to the wall for autonomy.

EU new car registrations down 4.7% YTD; March registrations dropped 30.4% YoY.

Friday: 3,878 CyberTrucks recalled; reduced prices for Model Y, Model S, and Model X by $2,000 each in the U.S.

Saturday: Elon Musk postpones trip to India ; reduces Full Self-Driving software price by 33% to $8,000 from $12,000.

(Credit: WallStEngine)

The Isaacson bio made it pretty clear that Elon is most comfortable in hardcore back-to-the-wall situations. This seems to be where we are now.

I think it’s now clear Tesla dropped the ball the last couple years but the good thing is Elon finally seems to be taking it seriously.

The stock price is where it is and I don’t know how ugly Q1 numbers will be, but this flurry of action and whatever else is going on behind the scenes should have a good outcome at some point down the road. Just maybe not immediately.

I’m going to continue buying protective puts $5-10 lower than SP in the short-term. Will try to close out my 155-170 CCs before ER just in case of a relief rally.

Long-term moves, I’m rolling LEAPS down and out to 12/26 100c, and adding to those with cash from recently sold shares, and picking up a few shares here and there.

 

[thenewguy1979]

Wicked stock daily NVDA updates aligned with tivoboy on more pain coming, perhaps 6xx in 2-3 weeks maybe sooner. Monday lookout for 82x as daily high if there a DCB else be wary of further drop.

Overall this does not forshadow any good for the tech next week as MSFT and META may have correction of their own.

Careful out there.

 

[thenewguy1979]

The Isaacson bio made it pretty clear that Elon is most comfortable in hardcore back-to-the-wall situations. This seems to be where we are now.

I think it’s now clear Tesla dropped the ball the last couple years but the good thing is Elon finally seems to be taking it seriously.

The stock price is where it is and I don’t know how ugly Q1 numbers will be, but this flurry of action and whatever else is going on behind the scenes should have a good outcome at some point down the road. Just maybe not immediately.

I’m going to continue buying protective puts $5-10 lower than SP in the short-term. Will try to close out my 155-170 CCs before ER just in case of a relief rally.

Long-term moves, I’m rolling LEAPS down and out to 12/26 100c, and adding to those with cash from recently sold shares, and picking up a few shares here and there.

We will know in 2 days. Just dont bet the house.

 

[Yoona]

AFAIK, Im one of the very few here that have been selling naked calls (theres no such thing as a naked CC - CC implies you have shares to back the call while naked means you dont). I have done risk assessment to death on this topic.

1. A BW is simply a CSP. If you buy shares at 765 and sell calls at 740, with some discrepancy in premium due to interest rate, its the exact equivalence of selling a 740 CSP, only your head is tricked into thinking its not by the 2 separate transaction. So, keep it simple and think in term of CSP. If you are willimg to sell a 740 CSP, then proceed with the BW and vice versa.

2. Treat naked short calls as you would BCS, only with a longer leash if your aim is income. Naked calls mean you dont cover it with anything to maximize returns and reduce risk. The more net premium you receive, the less risk you have to take.

What do I mean by treating it like you would a BCS? Do I mean always sell FOTM naked calls? No. It depends on your strategy.

If you normally sell BCS as a directional bet, like some of my friends do, then sell slightly ITM or ATM naked calls instead. They would, for example, sell 715/720 NVDA BCS right now if they think it will go down more. Slight ITM because you want to have some theta built in for income. If you get into the DITM territory, it becomes more like shorting common, no longer BCS mentality. However, if you are not into directional bets, like I deduce from your posts, then sell FOTM naked calls, same as your BCS. The difference is: further OTM than BCS. If you normally go with 6 SD on the BCS, then go with 7 or 8 SD on the naked call. Same entry (sell at resistance) as a BCS for maximizing R:R.

TL;DR:
Naked calls = BCS
Covered calls (even if DITM) + long shares = CSP
Keep it simple and know what
you want to get into. Directional or nondirectional? Up or down? Capital in cash to earn interest or deployed in shares for higher premium?

THANK YOU!!!!

Sorry to disagree, but B/W <> CSP... they are the same at setup time only but 6/7 mechanics isn't the same

1) buying power
- shares + CC have positive bp
- CSP has negative bp (CSP has risk of margin call)

2) income if sp is going up too fast (aka Hertz)
- B/W can be decoupled: close the CC quick (for maybe a loss) and let the stock ride up; income is unlimited and bigger profit due to 1 delta
- CSP can be closed but max profit is capped at initial credit

3) if sp is dropping fast (black swan)
- it is cheaper to close CC than CSP
- CSP eventually has risk of early assignment

4) at 0dte, stock < strike
- B/W and CSP have almost same realized gain
- B/W expires relaxed with stock in hand; in danger of weekend MM shenanigans
- CSP is panicking at this stage because of unrealized loss if assigned, especially if sp keeps dropping

5) at 0dte, stock = strike (rare?)
- B/W and CSP have almost same realized gain
- B/W expires with stock in hand; in danger of weekend MM shenanigans
- CSP expires with no stock in hand

6) at 0dte, stock > strike (this is the only time B/W = CSP)
- B/W and CSP have almost same realized gain
- B/W expires with no stock in hand
- CSP expires with no stock in hand

7) at 0dte, stock way way way higher than strike
- B/W will have regrets selling the CC due to "lost income opportunity"
- CSP doesn't care, he just wants the initial credit

 

[Jim Holder]

Look at mid- to end of May:

 

[Jim Holder]

I’m going to continue buying protective puts $5-10 lower than SP in the short-term.

What DTE, weekly or a couple weeks out?

 

[BornToFly]

It definitely feels like Elon was surprised by the (bad) ER numbers they gave him, and then reacted with the lay offs and everything else. We will know in 48 hours....

 

[InTheMiddle]

It definitely feels like Elon was surprised by the (bad) ER numbers they gave him, and then reacted with the lay offs and everything else. We will know in 48 hours....

We will know the ER numbers in 48 hours, yes. What will still be unknown is the more important part of your post, to what degree Mr. Musk was surprised by the numbers (vs being very aware throughout the quarter how things were shaping up) and to what degree the numbers drove the seemingly-reactionary sequence of events of the past weeks (vs thoughtful planning of actions and reversals).