Wiki Selling TSLA Options - Be the House

[ReddyLeaf]

Sweet! thanks Yeah I figured I would get assigned which is good in particular for next week’s blue balls earnings call... (thanks POTUS) ... so assignment will probably will happen overnight or whatever schwab does... anyway, that’s what I hoped for, as long as it was above the breakeven... appears I “made” 2800... I assume this profit will show up in the cash basis of my new shares. For the sake of the wheel, if I’m trying to buy new shares with my weekly profits, I guess that would equate 4 shares. Is this how you guys would do it? Or do you only count the profit from covered calls for sake of share buying? I know it’s not how you have to do the wheel, but if you were trying to do the snowball method?

FYI, I had a CC on a different (learning) stock that finished ITM yesterday. I did not want to hold this stock anymore and rolled my CC down until I knew it would exercise. This Saturday morning at 4AM, I received confirmation via text and email that I had just sold 100sh at the strike price. It doesn’t look any different than any other confirmation. No indication that it was a call. The cash from the sale is in my account, ready to sell a put on Monday.

BTW, this was a lower priced stock, that I was selling both puts and calls right ATM (strangle) to gain experience without losing too much or requiring as much capital as TSLA. I learned that timing the selling of both is still important.

When I sold both a put and a call at the same time, one increased & one decreased in value as the SP changed (duh!), but that the winning position could only lose 100%, while the losing position could easily gain 2x, 3x, 4x, etc. and that I would be required to roll way ITM losing positions out multiple weeks. I’m pretty sure that’s what @adiggs showed a few weeks back with some new money put into an IRA from a 401(k) roll over. Apparently, I wasn’t able to understand it at the time.

Thus, it’s probably better to sell at different times (puts at a local SP minimum and calls at a local SP maximum), thereby creating a wider difference in strike prices (straddle?), much like @setipoo did this week when selling the -690p/-800c strangle, so that both have a better chance of finishing OTM. Wow, crazy sentence. Finally, and this is something that I can’t quite figure out yet, is how to time these sales in a falling IV environment. I’m still not able to find or understand accurate IV data without switching brokers or using a fee-based website. Maybe in a few more months of trading experience and I will feel more comfortable to open another brokerage account.

 

[adiggs]

FYI, I had a CC on a different (learning) stock that finished ITM yesterday. I did not want to hold this stock anymore and rolled my CC down until I knew it would exercise. This Saturday morning at 4AM, I received confirmation via text and email that I had just sold 100sh at the strike price. It doesn’t look any different than any other confirmation. No indication that it was a call. The cash from the sale is in my account, ready to sell a put on Monday.

BTW, this was a lower priced stock, that I was selling both puts and calls right ATM (strangle) to gain experience without losing too much or requiring as much capital as TSLA. I learned that timing the selling of both is still important.

When I sold both a put and a call at the same time, one increased & one decreased in value as the SP changed (duh!), but that the winning position could only lose 100%, while the losing position could easily gain 2x, 3x, 4x, etc. and that I would be required to roll way ITM losing positions out multiple weeks. I’m pretty sure that’s what @adiggs showed a few weeks back with some new money put into an IRA from a 401(k) roll over. Apparently, I wasn’t able to understand it at the time.

Thus, it’s probably better to sell at different times (puts at a local SP minimum and calls at a local SP maximum), thereby creating a wider difference in strike prices (straddle?), much like @setipoo did this week when selling the -690p/-800c strangle, so that both have a better chance of finishing OTM. Wow, crazy sentence. Finally, and this is something that I can’t quite figure out yet, is how to time these sales in a falling IV environment. I’m still not able to find or understand accurate IV data without switching brokers or using a fee-based website. Maybe in a few more months of trading experience and I will feel more comfortable to open another brokerage account.

I think you have your winning / losing backwards, at least for a position where you've sold options. The winning side (option premium declining from the premium at open) has an upper limit win of 100%. However the losing leg has no particular theoretical limit and can easily lose 2x / 3x ...

But the larger point stands - at least near the share price on opening the position, the delta on each side assuming a similar number of contracts on each side, will (or at least can) be roughly equal. Thus a gain on one leg will be a loss on the other leg. What we're hoping for is the share price to land anywhere between the strangle strikes, or at least land close enough to the strike on one leg or the other to roll into a new strangle at the target deltas. I've had a few days where the two legs gained/lost so close to the same amount that it's hard to even call it a rounding error (<$100 on >$20k changes in value).

As the share price moves further in one direction or the other there is an increasing imbalance in the delta such that the losing leg is losing faster than the winning leg is gaining. And this leads to the management choice to roll the winning leg closer in strike to the losing leg (gets the delta on each side closer to balanced).

In theory we can earn the premiums on both legs - so far in practice I'm earning new cash on one leg or the other, with the losing leg focused on rolling to as much of an improved strike as possible (given a net credit restriction on my part). And lately earning roughly no new cash on either leg as I roll each side back from deeply ITM.


Over the last 2 months for me, rolling the winning leg towards the losing leg has gotten me the worst of both worlds. Mostly at least. Some have won bigly, but recently I roll the winning leg closer to the share price, and the share price promptly reverses and leaves me with both legs ITM as we near expiration. So I'm trying to figure out a better / safer way to deal with this situation.

My initial and simple thinking is to have a much lower delta threshold before I roll to a higher delta, thereby decreasing the number of times that I roll towards the shares as a management technique. But I also think these less than desirable outcomes are due to relatively extreme moves in the share price over the last few months, and will naturally be rarer with shares trading in a smaller range.

Note that within my context I'm still exceeding my target income comfortably while not (yet?) hitting 2x my target. Still being paid to learn, and I like that. I'll have an update on what I've been doing and what I've learned shortly (along with that empty spreadsheet I've been using to track trades, income, and portfolio that I mentioned previously )

 

[buttershrimp]

I think you have your winning / losing backwards, at least for a position where you've sold options. The winning side (option premium declining from the premium at open) has an upper limit win of 100%. However the losing leg has no particular theoretical limit and can easily lose 2x / 3x ...

But the larger point stands - at least near the share price on opening the position, the delta on each side assuming a similar number of contracts on each side, will (or at least can) be roughly equal. Thus a gain on one leg will be a loss on the other leg. What we're hoping for is the share price to land anywhere between the strangle strikes, or at least land close enough to the strike on one leg or the other to roll into a new strangle at the target deltas. I've had a few days where the two legs gained/lost so close to the same amount that it's hard to even call it a rounding error (<$100 on >$20k changes in value).

As the share price moves further in one direction or the other there is an increasing imbalance in the delta such that the losing leg is losing faster than the winning leg is gaining. And this leads to the management choice to roll the winning leg closer in strike to the losing leg (gets the delta on each side closer to balanced).

In theory we can earn the premiums on both legs - so far in practice I'm earning new cash on one leg or the other, with the losing leg focused on rolling to as much of an improved strike as possible (given a net credit restriction on my part). And lately earning roughly no new cash on either leg as I roll each side back from deeply ITM.


Over the last 2 months for me, rolling the winning leg towards the losing leg has gotten me the worst of both worlds. Mostly at least. Some have won bigly, but recently I roll the winning leg closer to the share price, and the share price promptly reverses and leaves me with both legs ITM as we near expiration. So I'm trying to figure out a better / safer way to deal with this situation.

My initial and simple thinking is to have a much lower delta threshold before I roll to a higher delta, thereby decreasing the number of times that I roll towards the shares as a management technique. But I also think these less than desirable outcomes are due to relatively extreme moves in the share price over the last few months, and will naturally be rarer with shares trading in a smaller range.

Note that within my context I'm still exceeding my target income comfortably while not (yet?) hitting 2x my target. Still being paid to learn, and I like that. I'll have an update on what I've been doing and what I've learned shortly (along with that empty spreadsheet I've been using to track trades, income, and portfolio that I mentioned previously )

Wow I have lots to learn... I am a noob that simply feels comfortable with the long investment strategy to accumulate and try to utilize the wheel to do so.

Thus far, I’m only armed with the understanding of Theta decay, and my predicted range of where I’d be comfortable selling stock price on that particular week. Premium is secondary throught for now until I can ride the unicycle known a

I’m wondering, is there a terminology (i.e. straddle and strangle) for selling multiple calls all behind different parts of the call walls? Aggressive to less aggressive calls? Say 2 or 3 tiers of calls?

Wondering because my cost basis is much higher than most people on the thread. Probably now in low 700s. So I’m less worried about triggering massive realized tax gains, and with weeklies, I’m just trying not to miss out on more than $10 dollar rise in stock price on average if I get called on a given week.

I also understand the wheel is part of the bigger investment strategy and sometimes can mean selling the underlying stock and cashing out for a few weeks if one senses a large downturn is imminent (Gary Black)... then re-entering.

sorry to load up this thread with so many noob questions and comments. I’m hoping for any opinions and feedback out there on how I’m thinking of this. Thanks again guys!

 

[bxr140]

If IV is trending down what is actually consider low IV to buy calls? All the OTM options that I hold keep on bleeding.

That depends if you believe the last 12 months are the new norm or if the previous N months defined the longer term IV rails.

IMHO IV isn’t so high that buying is off the table, but it’s high enough that one needs to mitigate the likely decreasing IV environment that we’re in with sold contracts (so, spreads).

As (almost) always, if you’re looking to profit off underlying movement, you should be buying into positions. If you’re looking to profit off volatility burn (and are happy to take inefficient profit from underlying movement too) you should be selling into positions.

 

[Chenkers]

I also understand the wheel is part of the bigger investment strategy and sometimes can mean selling the underlying stock and cashing out for a few weeks if one senses a large downturn is imminent (Gary Black)... then re-entering.

I wouldn't say that applies here. The majority of us operate a HODL strategy with our core shares and wouldn't look to sell these on a perceived downturn. Selling options can be viewed as an active way of extracting the maximum return on investment from the equity contained a held share position (an enhancment to a passive HODL). Much of the time this about trying to maximise premium while avoiding assignment by buying to close at significant profit or rolling to gain extra premium.

While the intial focus of this thread was on the Wheel strategy, it has since evolved to be more focussed on options selling in general. The wheel is still a valid strategy but isn't that applicable for shares where a large capital gain would result if exercised. As a result the wheel can only properly apply to a short held portion of a portfolio. A broader strategy of options selling including targeted covered calls and puts sold using accumulated maintenance margin can allow much more of a portfolio to be used to generate extra returns.

Everyone's individual strategy will be different but the beauty of this thread is that we learn from each others collective experience. For me this has meant my strategy has evolved and improved over time as I gain from what others have shared.

 

[ReddyLeaf]

I think you have your winning / losing backwards, at least for a position where you've sold options. The winning side (option premium declining from the premium at open) has an upper limit win of 100%. However the losing leg has no particular theoretical limit and can easily lose 2x / 3x ...

Arrrrrg. Yes, that’s what I meant. Apparently, not only do I have trouble getting these concepts, that when I do, I can’t explain my understanding of my previous misunderstandings.

 

[buttershrimp]

I wouldn't say that applies here. The majority of us operate a HODL strategy with our core shares and wouldn't look to sell these on a perceived downturn. Selling options can be viewed as an active way of extracting the maximum return on investment from the equity contained a held share position (an enhancment to a passive HODL). Much of the time this about trying to maximise premium while avoiding assignment by buying to close at significant profit or rolling to gain extra premium.

While the intial focus of this thread was on the Wheel strategy, it has since evolved to be more focussed on options selling in general. The wheel is still a valid strategy but isn't that applicable for shares where a large capital gain would result if exercised. As a result the wheel can only properly apply to a short held portion of a portfolio. A broader strategy of options selling including targeted covered calls and puts sold using accumulated maintenance margin can allow much more of a portfolio to be used to generate extra returns.

Everyone's individual strategy will be different but the beauty of this thread is that we learn from each others collective experience. For me this has meant my strategy has evolved and improved over time as I gain from what others have shared.

Thank you for this post, very helpful. Since yesterday I’ve learned the Greeks, IV concept yay. I was doing the math and my average share price will likely be 721. So I’m interested how this might change strategy. I plan to buy 400 shares tomorrow premarket and skip the selling of puts. I think price will go up tomorrow quite a bit is my reasoning and I can always sell calls on these shares once bought.

I wanted to ask people on this thread if they use weekly covered calls in stair step fashion (I assume this is a type of spread?). For instance, As a noob it seems a lot of money can be made by having 4 contracts generating higher premiums and the other 12 on safer ranges. I’m sure this is options 101 but curious to how people here think about this sort of thing?

 

[adiggs]

Wow I have lots to learn... I am a noob that simply feels comfortable with the long investment strategy to accumulate and try to utilize the wheel to do so.

Thus far, I’m only armed with the understanding of Theta decay, and my predicted range of where I’d be comfortable selling stock price on that particular week. Premium is secondary throught for now until I can ride the unicycle known a

I’m wondering, is there a terminology (i.e. straddle and strangle) for selling multiple calls all behind different parts of the call walls? Aggressive to less aggressive calls? Say 2 or 3 tiers of calls?

Wondering because my cost basis is much higher than most people on the thread. Probably now in low 700s. So I’m less worried about triggering massive realized tax gains, and with weeklies, I’m just trying not to miss out on more than $10 dollar rise in stock price on average if I get called on a given week.

I also understand the wheel is part of the bigger investment strategy and sometimes can mean selling the underlying stock and cashing out for a few weeks if one senses a large downturn is imminent (Gary Black)... then re-entering.

sorry to load up this thread with so many noob questions and comments. I’m hoping for any opinions and feedback out there on how I’m thinking of this. Thanks again guys!

I know I'm still a n00b and I've been at this for a year now. I hope to always be a n00b as well - it means I'm continuing to learn and make adjustments.

For a series of calls at increasing strikes (or a series of puts at a series of decreasing strikes) - I think the usual term is a ladder. I.e. - you sell the 800, 820, 840, and 900 strike calls. However many of each at each strike - you've created a series of less and less likely strikes to go ITM while also decreasing the premium received for each. (Risk / reward, cost/benefit - it's always there).


An important comment in the middle there - you mention that you're selling based on a predicted range that you're comfortable with, and that premium is a secondary thought. My not-advice advice - keep that approach, always. The problem with letting the premium participate (or even drive) your decision making is that as IV goes down you'll have a tendency to start 'reaching' for premium to keep the income steady, which also means moving your strikes closer and closer to the share price.

This is why I focus on delta mostly to control my risk as well as looking for a reasonably balanced effect (by selling roughly equal numbers of puts and calls at similar delta, one or the other is winning with the other balancing it out, and time is going by so that both are steadily eroding). Or at least that's the idea. For all of us using Prob ITM is a better measure of just how 'comfortable' we should really be about a position. 10% OTM (or any other fixed ratio like that) is subject to problems at higher IV - it might not be enough when the IV is particularly high (you might also notice its a problem because the premiums start being TOO high )

But the point here is to reinforce that comment passing by - (IMHO) don't use premium in your decision making.

Actually - the one exception I can see here is that the premium you're receiving has become so low that its no longer worth the effort or the risk of a really really big move. I see this as a reasonably binary choice though - risk/reward is within your comfort zone, so the premium is whatever it is (unless its just too low to be worth the effort).

 

[st_lopes]

Oh that's way too complicated for my monkey-mind... Any chance you could explain this as though you're speaking to a child?

I just think of Iron Condors as lower risk Short Strangles. You essentially are capping downside risk on either side of the strangle. In other words, you always know what your downside risk is, which translates to less overall premium per set of contracts sold.

 

[buttershrimp]

Would love to hear trading plans for approaching this week! So far I plan to wait until Tuesday to sell calls or puts. Other than that I’ll pretty much be trying to imitate this thread’s finest

 

[Chenkers]

Would love to hear trading plans for approaching this week! So far I plan to wait until Tuesday to sell calls or puts. Other than that I’ll pretty much be trying to imitate this thread’s finest

I'll also be waiting until Tuesday to sell any options. Hopefully we get a read by then if it will be a sell the news or a pop. Either way I'll be able to set Put and Call strikes a bit wider if unsure and then roll closer to ITM as the week progresses. There's a really strong Call wall at 800 again and another smaller wall at 750. I don't see the 750 wall holding if we get a significant beat and doubt it will go too far below 700 if there's some sell the news.

 

[buttershrimp]

I'll also be waiting until Tuesday to sell any options. Hopefully we get a read by then if it will be a sell the news or a pop. Either way I'll be able to set Put and Call strikes a bit wider if unsure and then roll closer to ITM as the week progresses. There's a really strong Call wall at 800 again and another smaller wall at 750. I don't see the 750 wall holding if we get a significant beat and doubt it will go too far below 700 if there's some sell the news.

Do you guys have a go to source for figuring out call walls? I have just been relying on papafox’s thread up to this point. It’s going to be a fascinating week, but perhaps even more so the following 2 weeks. I am anticipating Elon being the richest man in the world again for SNL, I probably won’t even bother to watch it if he’s only 2nd or 3rd richest... no sense rewarding mediocrity

 

[ReddyLeaf]

Do you guys have a go to source for figuring out call walls? I have just been relying on papafox’s thread up to this point. It’s going to be a fascinating week, but perhaps even more so the following 2 weeks. I am anticipating Elon being the richest man in the world again for SNL, I probably won’t even bother to watch it if he’s only 2nd or 3rd richest... no sense rewarding mediocrity

Stock Option Max Pain

 

[bxr140]

if you are referring to my daytrading stocks, it's market buy 200 shares at a time and limit sell after ~$3 gain; rinse and repeat 5 times... i wasn't scared of doing this because if i ever have any leftover unsold shares, they will easily sell next week.

That's a pretty solid approach--my trading partner and I call it "the two dollar game". (We started doing that years ago on SOXL and would basically just buy on a dip and then...more or less...sell $2 later). I'd recommend going a few steps further and setting a trailing loss or a conditional trailing loss rather than a limit at a fixed profit. Either that or really hone your price analysis to identify an exit price.

 

[samppa]

Whatever earnings are, I think the likelihood of IV going up is fairly high.

 

[Criscmt]

Would love to hear trading plans for approaching this week! So far I plan to wait until Tuesday to sell calls or puts. Other than that I’ll pretty much be trying to imitate this thread’s finest

Again, during SP drop in Feb, March, I traded my shares for Sep-2021 490C, I did that too soon. And, my options will get me back the same level of shares if SP reaches ~$860. I plan to hedge by selling CC against these long options, considering 05/28 900C, or 09/17 900C, ideally when SP reaches $777 (a couple of dollars below the $780 resistance).

Similarly, considering selling CC, 05/28 900C, against my core shares too if price action during market hours tomorrow is really good, gets close to $800. If these CC continue to be at loss till expiry, and become ITM, will roll few days before expiry.

 

[Chenkers]

Whatever earnings are, I think the likelihood of IV going up is fairly high.

Yep, that's a large part of why I'm holding off selling options until Tuesday. Last week I sold Puts on the previous Friday to take advantage of weekend Theta and what would normally be the low point of the week. In reality we had a drop below $700 and a big but brief spike up in IV on the Monday. I could have sold the same Puts for around 3 times the premium on Monday. They worked out OK but I'd still rather the extra premium.

I'm not looking to sell beyond weeklies at the moment. Too much risk of the stock going on a big run after a delayed response while the market digests the earnings.

 

[Yoona]

That's a pretty solid approach--my trading partner and I call it "the two dollar game". (We started doing that years ago on SOXL and would basically just buy on a dip and then...more or less...sell $2 later). I'd recommend going a few steps further and setting a trailing loss or a conditional trailing loss rather than a limit at a fixed profit. Either that or really hone your price analysis to identify an exit price.

Thanks!!!

Instead of selling Iron Condors and Short Strangles this week, i am thinking of selling +p680/-p700 Bull Put Spreads on Tuesday (preferably on the 10:30 dip).

It's my first time and I researched it to death the last 2 days. If someone thinks this is a really bad idea or have some thoughts on it, please give a shout!

Thanks in advance...

 

[juanmedina]

Whatever earnings are, I think the likelihood of IV going up is fairly high.

Why is that?

 

[dmvevguy]

Why is that?

FSD? Giga Berlin / Austin news? Semi truck? Lots of factors for post earnings volatility...