This is my strategy playbook (still in formation) for playing TSLA weeklies.
Disclaimers: These are my personal opinions and they are still in formation as I’m not an expert on weekly options, so they’ll likely to change. Also, these strategies only apply to weekly options. I’ve purposely left out naked OTM weekly calls/puts since the time-value decay (theta) is so great on these and are probably better suited for the experienced options day trader.
Main strategies for weekly options:
1. If I’m bullish for the week, bull put spread
2. If I think it’s range bound, iron condor
3. If I’m bearish for the week, bear call spread
Rare strategies for weekly options:
4. If I’m super bullish for the week, bull call spread
5. If I’m super bearish for the week, bear put spread
6. If I’m playing a huge positive catalyst event that has just occurred with huge upside for the week, then naked ATM calls (ie., 7-10 days out).
7. If I’m playing a huge negative catalyst event that has just occurred with huge downside for the week, then naked ATM puts (ie., 7-10 days out).
I’ll go a bit more in depth with some of these specific strategies for weekly options.
1. If I’m bullish for the week, bull put spread
Here’s some examples.
Prior to Q4 earnings I was riding March 180 calls (bought when stock was under 135) and Feb14 190 calls (bought when stock was 170). I decided to exit both positions fully the Friday before earnings (when stock was about 200). Then, I wanted to play earnings with some weeklies.
I could have just kept my March 180 and Feb14 190 calls and sold higher strike calls (ie., 220) and went into earnings with a some bull call spreads. However, going into earnings I was bullish but I wasn’t super bullish. So, I decided to do some bull put spreads instead.
The day before earnings, I bought a 195/190 bull put spread (sold 195, bought 190) for a credit of $1.75 (and max pain of $3.25 if stock expired at 190 or lower). The reason I chose this bull put spread (vs a OTM bull call spread) is because I felt like TSLA had a 75% chance of closing the week at 195 or higher. And I thought that there was a decent chance of TSLA closing at 195-210 at the end of the week (vs higher than that), so I didn’t want to take a lot of risk with a OTM bull call spread (ie., 205/210) and naked OTM weekly calls were way too risky with the scenarios I was seeing. The trade expired on Friday (3 days later) and I was able to keep the $1.75 credit.
Post earnings, I wanted to do another weekly play based on my thinking that the earnings was good and we wouldn’t see the stock close on Friday lower than $210. But I was afraid of the stock going higher than $220, so I didn’t want to do an Iron Condor (will explain later). In other words, I was more bullish than neutral. So, I sold a weekly bull put spread 210/205 (sold 210 put, bought 205) for a credit of $1.90 (max pain $3.10) when the stock was at $211 on Thursday. I thought the stock would actually bounce and we would end the week at $215-220, so I thought the 210/205 was fairly safe. The extra safety of margin a bull put spread provides is that if the stock stays stagnant I can still come out on top since I’m benefiting from time-value decay. So, actually the trade turned against my expectations. The stock didn’t end at $215-220 like I expected, rather it ended the week at $209.60. But as long as the stock ended at $208.10 or higher I would still make money on the trade, and that’s what happened.
My wife also did a post-earnings weekly trade and here’s what it looked like. The day after earnings (Thursday) she bought a 205/200 weekly bull put spread (sold 205 put, bought 200 put) for a credit of $1.12 (max pain $3.88). Then she also bought a bear call weekly spread 225.50/225 (sold 222.5 calls, and bought 225 calls) for a credit of $.20. So, she was counting on the stock to remain within $204-223 range. This set up an iron condor where her max profit was $1.32 (already received up front) and her max pain was $3.68. The stock closed at $209.60 allowing her to keep the full credit.
That depends in both cases where you place the strikes.
If you buy the following bull call spread
buy Feb28 $200 call for 12
sell Feb28 $210 call for 6
for a net debit of 6 and the stock doesnt't move and ends at $210 the bcs ends at $10 for a 66% gain.
One advantage of bull put spreads is, that you you don't have to close them.
In the above example of a bcs you have to sell the $200 call if the stock ends around $210.
In this example of a bull put spread:
sell Feb28 $210 put for 6.50
buy Feb28 $200 put for 2.70
for a net credit of 3.80.
Because you already received the 3.80 upfront and the stock didn't move and ends at $210 you don't have to do anything, you can just let them both expire worthless.
But I assume that can't be the only reason, why DaveT used BPS instead of BCS. Care to elaborate a bit on your reasoning, Dave?
The reason why I’m choosing to use a bull put spread (vs a ITM bull call spread like you illustrated) is because the trades are actually almost identical in terms of max profit and max gain (ie., if you can sell the Feb28 210/205 bull put spread for $4 credit, then max pain is $6. That would be the same as the 210/200 bull call spread example you shared). However, in a bull call spread you need to fork over the max pain amount at the beginning of the trade (ie., in the bull call spread example that would be $6 debit) and then you would wait to be able to get that money back and up to $4 more for max profit. This poses some challenges with cash flow since you’re $6 cash is tied up and when you close the BCS you’ll need to wait for the money to clear to be able to trade with that money again. So, you couldn’t close the spread on friday and on the same day use that money to buy another spread. But with the bull put spread, you get the max profit (ie., $4 up front) and only pay the pain (up to $6 net) if the losses are realized. So, if the trade works out and you retain your initial credit, then you can immediately execute another trade (since you’re money doesn’t need to clear like in the case of the bull call spread).
I must say DaveT, you recent posts have piqued my curiosity about the idea of getting into spreads. Would you mind telling us if you are moving significant dollars in these plays, or just a few contracts at a time?
I’m still relatively new to weekly credit spreads, so I’m taking it slow and doing a relatively small amount for me (I’d rather not share the exact amount, but it’s more than a few contracts at a time). For someone new to this, I would suggest reading up on weekly spreads, iron condors, income plays, etc and getting some training first. Then, starting out with minimal risk and building up from there. For example, start out with the smallest trades possible and build from there. Weekly credit spreads still carry a lot of risk but they’re definitely lower risk than naked weekly OTM calls/puts or even weekly OTM bull/bear spreads.
I was going to go into the other weekly strategies in my current playbook, but this post is already very long so I’ll just stop here. And for the most part, I'm currently more theory than experience in regards to trading weeklies. But I'm sharing so that others can benefit from my learning experience and so we can crowdsource experiences/lessons to speed up each other's learning experiences.
