Wiki Selling TSLA Options - Be the House

[adiggs]

All coincided with FUD about Twitter, Elon needs to sell, right before earnings come out, and reaching the SP of the original S&P500 addition. Hmmmm.

Don't forget the big news from the P&D report - Tesla is having problems delivering cars, either indicating a breakdown in internal processes, and even more alarmingly - demand destruction.

With extrinsic uncomfortably low (.50 mid day), I rolled 10/14 265/215 bps to 10/21 for debit... couldn't find a mutually reasonable debit for improving strike and didn't want to roll weeks away. On a positive note, the spread has been rolled 5 times now, this last one to again get more time, but now have given back 90% of the credit booked from when it was opened. Next stop, I'll accept assignment. I do have room to sell calls. Unless ATM, premiums are lousy; not enough to buy out the bps, or i would consider. Other reason to no sell CC, the shares getting called away would be a disaster, many have low cost basis. Or I just change the to last in first out... Lots to consider. Nice weekend all.

On spread rolls I found that looking at different expirations was instructive. The cost to roll a month or a year was, at least when I was last looking at these, surprisingly close to each other. The way I think about it - when you're deep enough ITM then the incremental time value being bought / sold is about the same between the two legs of the spread, so whether its $5 for a 1 week roll, or $100 for a 1 year roll, the two still net out to about the same overall debit (credit).

I think that’s exactly just that the fed was intending to do with their non stop raises to crunch the market and make us go back to work. Not so long ago I was dreaming of pulling the plug and enjoying everyday left however I concluded I was too young so I continued trading option and losing money instead to prevent any possible retirement.

One thing I can tell you for sure - at least my own experience, I did pull the plug and nearly 2 years later I can say two things with confidence:
1) I'm glad that I did
2) I am just about useless for anything other than day labor (and options trading) at this point. My income earning / work skills, as well as motivation, have decayed to uselessness. The Fed is going to have a hard time inducing me to return to the work force.

 

[OrthoSurg]

One thing I can tell you for sure - at least my own experience, I did pull the plug and nearly 2 years later I can say two things with confidence:
1) I'm glad that I did
2) I am just about useless for anything other than day labor (and options trading) at this point. My income earning / work skills, as well as motivation, have decayed to uselessness. The Fed is going to have a hard time inducing me to return to the work force.

One thing I found out when I have too much free time is that I end up doing much less. Probably my procrastinating habit. If I am not run on a tight schedule I feel at the end of the day I did not optimise what I could do during my day. So my wife loaded my schedule and booked us for triathlon training almost every night, public community hospital trauma call, medicolegal expertises and Joints replacement in the private sector during the day, dropping the kids to their hockey games/Jiu Jitsu training the evening. The problem with that is that my puts get closer DTE I don’t even realize it as the time goes so f&$/?! fast. One week end on 2 I am booked for an ortho conference or presentation, the others we registered the kids to start their first triathlons/runs/swimming competition.

The day I am going to retire I think it is going to play sports full time with my kids and grand kids, never looking back at the stock market ever again. Unless my kids want me to teach them in advices of what not to do! Getting assigned twice on 50% underwater puts twice 42-60DTE!

 

[BornToFly]

Interesting isn't it? The Fed wants to see a slower economy with higher unemployment, but they are forcing retired people back to work by destroying everyone's retirement accounts.... Morons....

 

[BornToFly]

I was not assigned any of my ITM Dec. Puts last night. Does this mean I'm safe until Tuesday?

 

[juanmedina]

At his rate I might have to do this:

37-year-old millionaire reacts to couple who retired early with $2.2 million in Portugal: It's 'like cheating'

Does anyone has a prediction about how low we will go? Is chicken genius not that crazy? We are already at -44% for the year per google finance. If we are down to 50% that put us at $210 and 60% around $187.

 

[JustMe]

Interesting isn't it? The Fed wants to see a slower economy with higher unemployment, but they are forcing retired people back to work by destroying everyone's retirement accounts.... Morons....

I’m certainly not in favor of forcing retired people back to work, but increasing labor force participation rate would be a very positive thing I’m the fed’s eyes. That’s because more people are competing for jobs, which reduces pressure to raise wages. The participation rate ticked down by 0.1 % in the most recent employment report which probably contributed to the market sell off. Ironically, most of the employment report was very positive.

The inflation report coming out next week will be a hundred times more impactful for the market and the fed. I’m a bit scared tbh. I wish the fed would back the heck off before things get really bad but they seem hell bent on slamming the brakes.

I expect a very strong market reaction up or down when that report drops…

 

[MP3Mike]

I was not assigned any of my ITM Dec. Puts last night. Does this mean I'm safe until Tuesday?

I don't think E*TRADE processes the assignments until Sunday night/Monday morning. So you may not know if you have been assigned yet depending on when your broker processes things.

 

[TheTalkingMule]

Got assigned just 2 put contracts last night, which I'm taking that as a victory!

I want to execute the long end of these rather than sell the shares and puts. Do I need to do that over the weekend to clear any house call, or can I just do it Monday morning premarket?

This is in a Fidelity IRA with cash margin essentially maxed out.

 

[TheTalkingMule]

An even deeper early assigned BPS question....

I've had two of my Nov18 -$340p assigned. Having 30x Nov18 +$313p on the other end of these spreads, my plan was to execute two of these to clear the position. Perfectly fine.

My question is.... I currently also have Oct21 $310/$288 BPS that I haven't been able to roll. Is it more optimal to execute two of these Oct21+$288 contracts instead?

 

[mongo]

Got assigned just 2 put contracts last night, which I'm taking that as a victory!

I want to execute the long end of these rather than sell the shares and puts. Do I need to do that over the weekend to clear any house call, or can I just do it Monday morning premarket?

This is in a Fidelity IRA with cash margin essentially maxed out.

Options only trade during market hours so anytime before 9:30 Monday is the same for an order. However, you are looking to early exercise.
Does Fidelity let you do that via internet? A search tells me you need to call them. Which might be a good idea anyway if they might take action on their own.

 

[mongo]

An even deeper early assigned BPS question....

I've had two of my Nov18 -$340p assigned. Having 30x Nov18 +$313p on the other end of these spreads, my plan was to execute two of these to clear the position. Perfectly fine.

My question is.... I currently also have Oct21 $310/$288 BPS that I haven't been able to roll. Is it more optimal to execute two of these Oct21+$288 contracts instead?

Optimal is hard to quantify. I'd try putting the resultant positions into options profit calculator to see how they act.

 

[adiggs]

One thing I found out when I have too much free time is that I end up doing much less.

Me too!

I don't know if it'll take a couple of years or more (it has nearly been 2 years so far, so the clock is still running), but I'm still doing much less than before I retired, and recovering from those decades of work. But that's me, and I'm ok (deliriously happy) being a bum for awhile. My own variant of nirvana is to achieve boredom. Still not there.

 

[Yoona]

***Stock Repair Strategy If Share Price Drops Too Far from Buy-Write Cost Basis (Large Paper Loss)***

After closing all my -c280 BW, i am left with garbage shares with cost basis $279; sp is currently at $223.80... what to do next week? 6 choices:

1. sell all the shares and cut the losses; unlikely since the difference of $56 is more than the prems received
2. double-down and buy more shares; unlikely since support appears to be bottomless pit
3. HODL; unlikely since i am not on "the other thread"
4. sell OTM buy-write; unlikely since credit is in the pennies
5. sell aggressive buy-write; perhaps in normal weeks but not sure this time since earnings coming in 11 days
6. apply Stock Repair Strategy (Call Ratio Spread); due to macros, i think i will try this to see if the 279 cost basis can be lowered; this is a net zero/credit play

How it works... the halfway point of 279-223.80 is 252.20; this is the max profit location

Using tonight's chain, BTOx1 +c225 (closest to current sp) and STOx11 -c252.50 (midpoint); this is a 1:11 combination that gives $33 credit (the point is to look for credit closest to 0; 1:10 is a debit so forget that)

11 means there should be (11-1)*100=1000 BW shares to make sure all 11 shorts are covered calls (10 -c shouldn't be naked)

At expiration:

• if sp <= 252.50, all options expire worthless; cost basis remains the same at 279; keep the credit
• if sp > 255.30, cost basis capped at 279; keep the credit
• any other sp in between the 2 above will reduce the cost basis; keep the credit
• for ex: if sp=252.60, the 279 cost basis becomes 251.30 (i got paid $33 for a chance to drop my CB by 27.30); THEN i can sell "aggressive" BW -c252 with no risk
• in summary: sell -c on the halfway point for max reduction of cost basis
• note: don't try this strategy if you think sp at expiration > cost basis; i think unlikely tsla will jump (279-223)=25% in 5DTE

Stock Repair Strategy

You did your homework, picked a great stock, totally undervalued and ready for a nice price rise. However, after you bought the stock, the damn thing goes and drops 20%. So what do you do now?

optionstradingiq.com

"Today we’ve learned that the stock repair strategy is ideal for an investor who is holding a losing stock who simply wants to get back to breakeven and get out.

It can help the investor reduce their breakeven price for little or no cost."

 

[adiggs]

At expiration:

• if sp <= 252.50, all options expire worthless; cost basis remains the same at 279; keep the credit
• if sp > 255.30, cost basis capped at 279; keep the credit
• any other sp in between the 2 above will reduce the cost basis; keep the credit
• for ex: if sp=252.60, the 279 cost basis becomes 251.30 (i got paid $33 for a chance to drop my CB by 27.30); THEN i can sell "aggressive" BW -c252 with no risk
• in summary: sell -c on the halfway point for max reduction of cost basis
• note: don't try this strategy if you think sp at expiration > cost basis; i think unlikely tsla will jump (279-223)=25% in 5DTE

I think there's an error in here on the first bullet. I think this is how it goes together.


I think that should be sp<225, all options expire worthless. However the long call purchase and short call sale premiums net to ~$0/share, so nothing changes.

If sp >225 and <252.50 then the short calls are worthless, and the long call is worth {share price - 225]. As the open netted to $0, you earn the long call value (time value of all options goes to 0, leaving only the intrinsic value of the long call).

If sp>252.50 then the long call continues to be worth (share price - 225), but the short calls are now worth (share price - 252.50). As there are 11 of these they will be losing value much faster than the long call is gaining value (11:1 in fact). You'd be ahead about $27 at that point, so the first $2.50 over 252.50 is still a small gain / break even. Above 255 a $1 increase in the share price will lose $11 on the short calls and gain $1 on the long call.

As these short calls are share backed you can't do worse than selling your 279 shares for 252.50 - this is the risk, with the long call value as an offsetting gain to that $17 loss. With shares at $280 for instance you sell for 252.50 (short call strike) on 1100 shares while earning 280-225 ($55) on 100 shares. That'd be $17*1100 loss - $55*100 gain. Around $13k loss on the 1100 shares overall in the event the shares rebound above the 279 cost basis. And it won't stop there - the 11:1 ratio will continue losing faster.


I could be totally misunderstanding how this goes together. If I'm right though I think the particular issue here is the ratio other than 2:1. hrown for your edification. As you're selling 1000 share at a $17 loss, and earning on 100 shares from the long call, the long call won't make up much of that loss, but it'll be some. And of course you could just roll those short calls.

The +c225 will be worth $25ish if shares are around $247 (for example). The -c252.50 will expire worthless so you'll earn 1x $25 for that 1 long contract plus the 11x short call credits. For share price <225 the long call is worthless and the short calls are worthless. Since the entry netted out to 0, nothing changes in the original position. or a 2.50 improvement to cost basis over 1000 shares / 10 contract equivalents. (Or I'm missing something). At every price under >225 and <252.50 the short calls expire worthless earning their credits, while the long call is worth shares - 225 (min 0).


I think there is an error in the link in the description of what happens when shares stay <225 (your example). The claim is that the position nets to 0, but somehow the cost basis moves to the mid point. There is no source of gains in the <225 instance that will change the cost basis.

The big ratio will also change the dynamic relative to what was described.

I think the key to the strategy is that you're pairing up a cc with a vertical call spread. So 100 shares are covered by 1 call, and then add on 1 long call paired with a short call. The 2 short calls pay for the 1 long call.

Or maybe I'm finally catching up You use 1000 shares to back 10 cc, and another 1 vertical call spread using an ATM purchased call paired with an 11th cc.


I should be in bed right now so maybe I'm not thinking clearly

I do see some potential here - something I'll need to look at more deeply.

 

[Yoona]

I think there's an error in here on the first bullet. I think this is how it goes together.


I think that should be sp<225, all options expire worthless. However the long call purchase and short call sale premiums net to ~$0/share, so nothing changes.

If sp >225 and <252.50 then the short calls are worthless, and the long call is worth {share price - 225]. As the open netted to $0, you earn the long call value (time value of all options goes to 0, leaving only the intrinsic value of the long call).

If sp>252.50 then the long call continues to be worth (share price - 225), but the short calls are now worth (share price - 252.50). As there are 11 of these they will be losing value much faster than the long call is gaining value (11:1 in fact). You'd be ahead about $27 at that point, so the first $2.50 over 252.50 is still a small gain / break even. Above 255 a $1 increase in the share price will lose $11 on the short calls and gain $1 on the long call.

As these short calls are share backed you can't do worse than selling your 279 shares for 252.50 - this is the risk, with the long call value as an offsetting gain to that $17 loss. With shares at $280 for instance you sell for 252.50 (short call strike) on 1100 shares while earning 280-225 ($55) on 100 shares. That'd be $17*1100 loss - $55*100 gain. Around $13k loss on the 1100 shares overall in the event the shares rebound above the 279 cost basis. And it won't stop there - the 11:1 ratio will continue losing faster.


I could be totally misunderstanding how this goes together. If I'm right though I think the particular issue here is the ratio other than 2:1. hrown for your edification. As you're selling 1000 share at a $17 loss, and earning on 100 shares from the long call, the long call won't make up much of that loss, but it'll be some. And of course you could just roll those short calls.

The +c225 will be worth $25ish if shares are around $247 (for example). The -c252.50 will expire worthless so you'll earn 1x $25 for that 1 long contract plus the 11x short call credits. For share price <225 the long call is worthless and the short calls are worthless. Since the entry netted out to 0, nothing changes in the original position. or a 2.50 improvement to cost basis over 1000 shares / 10 contract equivalents. (Or I'm missing something). At every price under >225 and <252.50 the short calls expire worthless earning their credits, while the long call is worth shares - 225 (min 0).


I think there is an error in the link in the description of what happens when shares stay <225 (your example). The claim is that the position nets to 0, but somehow the cost basis moves to the mid point. There is no source of gains in the <225 instance that will change the cost basis.

The big ratio will also change the dynamic relative to what was described.

I think the key to the strategy is that you're pairing up a cc with a vertical call spread. So 100 shares are covered by 1 call, and then add on 1 long call paired with a short call. The 2 short calls pay for the 1 long call.

Or maybe I'm finally catching up You use 1000 shares to back 10 cc, and another 1 vertical call spread using an ATM purchased call paired with an 11th cc.


I should be in bed right now so maybe I'm not thinking clearly

I do see some potential here - something I'll need to look at more deeply.

thx; i am away today on a trip and will re-check my formulas tom, it did work on test values from 2 sites, the other one being:

| Stock Repair Strategy: Using Stock Options to Reduce Losses When Stock Price DeclinesThe Blue Collar Investor

www.thebluecollarinvestor.com

i believe exercising +c below the exact midpoint is optional for the purposes of the examples; they don't lower the cost basis per se but gives tiny credit

ttyl

 

[BornToFly]

I'm so confused....

I think the stock repair strategy makes the most sense for a stock you don't think will recover. If you have the cash, you can just keep laddering down. In my mom's IRA I just keep buying shares every $15-20 decline, and doing new B/Ws. I stop writing CC on the shares that are too far OTM, and will wait until the SP recovers to sell against those again. Her income needs are low, so this seems like a good strategy for her account, especially since we have to be near the bottom... Right?

 

[Max Plaid]

thx; i am away today on a trip and will re-check my formulas tom, it did work on test values from 2 sites, the other one being:

| Stock Repair Strategy: Using Stock Options to Reduce Losses When Stock Price DeclinesThe Blue Collar Investor

www.thebluecollarinvestor.com

i believe exercising +c below the exact midpoint is optional for the purposes of the examples; they don't lower the cost basis per se but gives tiny credit

ttyl

Trying to get my head around this, but it's making my brain hurt...

I have shares with $300 cost-basis: +c225 = $7.3, -c262.50 = 0.32 -> that means I'd need a 1:25 long:short ratio, no? That wouldn't work at all...

Am I missing something fundamental?

 

[samppa]

I've always understood stock repair to mean that, after stock haa declined:
- buy 1 atm call for every 100 shares
- sell 2 otm calls for every 100 shares

Ideally for zero credit.

You're lowering your breakeven point for recovery, but limiting maximum profit.

I'd see that this only works with shares you are not planning to hold, but sell at breakeven.

 

[OrthoSurg]

I'm so confused....

I think the stock repair strategy makes the most sense for a stock you don't think will recover. If you have the cash, you can just keep laddering down. In my mom's IRA I just keep buying shares every $15-20 decline, and doing new B/Ws. I stop writing CC on the shares that are too far OTM, and will wait until the SP recovers to sell against those again. Her income needs are low, so this seems like a good strategy for her account, especially since we have to be near the bottom... Right?

I thought the bottom was in March, then I thought it was in May then I saw the YTbers like CGS turn into bears. Then I started buy for every $15 drop but I sincerely don’t know when/what will be the bottom anymore.

 

[BornToFly]

Futures are BAD right now....