Obviously a lot of variables, but if TSLA stays at or under ~ $1500 in the next year, rolling should work. If it goes up to $2000 (and assuming not a stead rise to get there), the rolling strategy could start to run away from you (at least in some simulations)
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
Obviously a lot of variables, but if TSLA stays at or under ~ $1500 in the next year, rolling should work. If it goes up to $2000 (and assuming not a stead rise to get there), the rolling strategy could start to run away from you (at least in some simulations)
You say IV gong lower makes it sometimes impossible to roll for a profit (of break even), but surely the buy/sell leg premiums are affected broadly the same? So if you do the roll close together then should cancel out... I also find that rolling intra-week helps you keep up sometimes - I keep an eye on the delta, extrinsic of each strike and move when it looks favourableIn theory yes. As long as you fully own the backing (no margin calls to trouble you) AND as long as you can have that backing tied up in the position for an open ended period of time (no home purchases that require pulling out the backing for instance), then yes - you can roll ~forever.
Well - as long as the shares do come back. In the case of a sold put then that isn't something I personally worry about - I'm confident the shares are going back up, even if it takes 5 years to get back to 900 - I'm confident that they will. In my investment thesis the forever roll won't work on covered calls though. If one had sold a 400 strike covered call (pre-split) at the wrong time back there, you might have rolled up to 500 or 600 (still pre-split) and today be looking at a forever roll with a 100 or 120 strike call with shares in the 600s. Any belief that the shares are coming back for that position?
The big deal though is that its not as hard as you'd think to get DITM enough that there isn't a strike improvement available while constraining yourself to a net credit. Back in Feb when IV was higher I could get $80 ITM and still roll 1 week for a strike improvement (small). Today I can't add 1 week to a $60 ITM contract and get a strike improvement (IV is lower - this is one of the consequences).
As a current for-instance: those 760 puts that I keep talking about currently have a 7/16 expiration (I roll these DITM options the week before to ensure I don't get early assignment; time value is about 0 anyway by then). The roll to 7/23 actually generates a decently large net credit but no strike improvement.
But in surprising news I could roll to 7/30 right now and get to the 755 strike and a $1 credit. This is the first 2 week roll with an available strike improvement that I've seen for months. I usually don't see a strike improvement even with a 4 week roll.
If I could have been getting $10 strike improvements, maybe 2x per month (2 week rolls instead of 1 week rolls), then it'd be a no-brainer to me. There is no doubt to me that a short put would eventually catch up.
So the size of moves we've seen since the Feb drop into the 600s - pretty easy to keep rolling and from what we've seen since, probably catch up in a month at most. A big move (short time, large share price change) and you can get caught out. And with calls possible forever (vs. say years on a short put).
This is the (or at least -a-) risk - whether the risk is worthwhile next to the reward is an individual question.
If the SP went to $2000 then I'd sell everything to cash anyway, then sell very OTM puts to live off forever...
Thanks for doing that computer simulation, and thanks to @Lycanthrope @adiggs @bobscof @CHGolferJim for the great discussion. In my simplistic mind, the ATM (best) roll is typically near 1-2% per week. (Edit: depending on IV) For example, after today’s 650 close, rolling ATM (puts or calls) to 7/16 provides about $13 (19-6) net improvement in premium for the 650 strike. This is exactly 2% (13/650). Going even slightly OTM rapidly decreases the improvement: at just $10 OTM (660p) the numbers are $8 (25-13) for only 1.2% (8/650). So at best, one could continuously roll for 2%/week or about 100%/yr. Thus, if the SP is at +100% (1300) in 12 months, one could “conceivably” have perfectly rolled for no net gain/loss in premiums. I don’t know about others, but that sounds like a lot of work for absolutely no gain (a person holding stock would obviously obtain the same improvement in net worth without lifting a finger). I know I’m not that good or diligent (I’d even hazard a beer bet with @Lycanthrope that he’s not either), so I take my lumps and losses about every third week, and try to stay OTM on my sells. This week is looking like another drubbing, but at least I’m mostly on the put side and should be getting assigned p670s and one p700. I’m again low on free cash because of a bunch of rage stock buying, but might be able to roll if the SP gets close to 660 tomorrow.
I think what's happened is that as the IV has shrunk then the premiums on the farther out options has shrunk. Those lower premiums get small enough that they can't buy out a better strike. This will happen at some point regardless of the IV - just look at a $300 strike put next week and compare it to a $310 strike put the week after - there is so little difference in those premiums that you'll need a net debit to get from the 300 to the 310.
But that's just an example to illustrate the idea - we'd obviously never let an option go $300 ITM, at least not in these <4 week options we're working with.
There are exceptional cases (I've nearly seen one, but found an alternative that worked) where the straight out roll is for a small net debit. I believe what is happening there is that the IV on the later roll is enough lower than the current position that the premium on the same strike shrinks, and with the help of the bid/ask spread a small net credit becomes a small net credit to make the move. It's rare - you need to be deeply ITM. I've seen something close 1 or 2 times in the last 4 or 5 months of rolling that deep ITM put.
That rage stock buying gets me every time.
I went looking back in the thread and didn't see anything - have you posted any details on the simulations you've run? Also if the tool(s) you're using are broadly accessible, even with an annual subscription or something of the sort, can you tell us about that?
I've been coming up with rules of thumb to handle different extreme moves and stay ahead of them. I'd like to have a more mathematic / systematic way of viewing my approach - I'm pretty certain that there is something better out there for me
Thanks!
Posted an options question on the main thread, for those interested (in short 150OTM puts are priced same as 70OTM calls expiring Jul-16)
Hmm, should I get an annual subscription to my crappy GitHub account?
I made one post on it maybe a month or so ago in this thread. Basically it's my own code in Python. I grabbed some code for modeling Black-Scholes equation, then some other code for modeling Brownian motion for time series (to generate various "Tesla-like" time series). Then I coded my own trading algo with 3 or 4 parameters for modifying rolling strategy systematically.
Is there a non rage based stock buying? Now I know my main problem with financial strategy.
corduroy
Active Member
I set up an account, but never funded it. I like their visual interface for researching trades, especially spreads - you can use the sliders to move strike and expirations up and down and easily see possible results. It helped me finally wrap my head around credit spreads.
Last edited:
gabeincal
Active Member
So, here is a small data point. I've been holding -4 x 900 puts for a while (got stuck in them) and have been rolling them monthly. They still net a small credit per month (about $300-$500 each) and therefore it is still a profitable position should the SP return to 900 at some point. Obviously, barring early execution on them...
I'm planning to go in all cash soon and start selling PUTs for income. Made some calculations and I think it's very possible to make about 2-3% of portfolio value weekly. So with a $500k account, one can easily make $10k a week. I understand that I will probably miss a run-up with the stock, which I can always cover with some LEAPs and frankly, at a guaranteed income of that level ($40-50k a month), I don't really care about HODLing. And this can be compounded as the income almost pays for another put to be sold every month. So the account will easily double every year perpetually.
Talk me out of it.
I'm planning to go in all cash soon and start selling PUTs for income. Made some calculations and I think it's very possible to make about 2-3% of portfolio value weekly. So with a $500k account, one can easily make $10k a week. I understand that I will probably miss a run-up with the stock, which I can always cover with some LEAPs and frankly, at a guaranteed income of that level ($40-50k a month), I don't really care about HODLing. And this can be compounded as the income almost pays for another put to be sold every month. So the account will easily double every year perpetually.
Talk me out of it.
@BornToFly has a lot experience selling puts for his mother. Do you think the above is possible?
We are rolling over my wife's 401k and I planning on staying cash with those funds to sell puts. We are getting to the point that we don't care much about growth but consistent income and capital preservation. @gabeincal is your calculation with weekly puts or longer term puts? ITM, ATM or OTM?
Do you have a Portfolio Margin account? If so you're likely to be better off staying in stock and using excess liquidity in your margin to sell Bull Put Spreads weekly using the margin as backing. I expect a BPS should provide a better return against the margin used. Cash requirements of a BPS are usually much smaller and more flexible than a straight P- via selection of strikes and spreads. While you're doing BPS's you may even consider IC's as depending on the broker you get extra premium for little extra margin. Play around with some hypothetical alternative option selections with your brokers tools and you should be able to see what works best for you.
I went to Cash on a chunk of one account last year and used it to sell Puts. It worked OK for a few weeks but then I missed a couple of fast run-ups in the share price. I ended up falling off the back of the Puts where I didn't have enough cash against the required strike to get a decent return. You can be in a position where you have to progressively sell one less Put with the available cash to maintain an acceptable premium. The worst part of this is that your cash balance can remain relatively stagnant (stuck in Puts) while the equivalent share value races upwards. I missed out on realising some of last years gains on that account due to being in Puts at the wrong time.
Additionally to that i opened 5x 655/705/755-Butterfly-Call today.
=> max gain at 705-stock-price on next friday. Options-Market looks like 700 is a wall - but i rather have more leeway to the upside.
=> set a market-close-order on the condition that TSLA hits $700. I expect it to close monday/tuesday.
Break-evens at expiry: 668/741. Break-even now: 650-760 & shrinking over time.
When we hit 700 now: doubled money. The later we hit 700, the better the payout (up to 20k return for a mere 5k bet).
I wanted to try out Butterflys anyway. I want to learn to manage them to start i.e. with a broken-wing-butterfly & manage it into a freefly that i can let ride with a trailing stop-loss as long as possible.
=> max gain at 705-stock-price on next friday. Options-Market looks like 700 is a wall - but i rather have more leeway to the upside.
=> set a market-close-order on the condition that TSLA hits $700. I expect it to close monday/tuesday.
Break-evens at expiry: 668/741. Break-even now: 650-760 & shrinking over time.
When we hit 700 now: doubled money. The later we hit 700, the better the payout (up to 20k return for a mere 5k bet).
I wanted to try out Butterflys anyway. I want to learn to manage them to start i.e. with a broken-wing-butterfly & manage it into a freefly that i can let ride with a trailing stop-loss as long as possible.
Because I believe in the company mission more than just a little extra money, I personally like having about 2:1 - 4:1 sold calls
uts strangles each week. Earned premiums are funneled into buying more shares, at least for a few more years. I try to keep the strangle spread ~10% SP ($50-$70), but often it’s closer to 5%($20-$30). I’m still in share accumulation mode, so use the cash secured puts to balance out a bad week selling calls. If the SP rockets on me, the put value drop significantly and I’m able to buyback/roll the calls with the cash that is released from the put buyback. It’s not perfect, and with multiple accounts, the ratio varies significantly (one account is 1:1 because it’s too small for any other ratio, but often bounces back and forth between 2:0 and 0:2).
Are you able to use the account then, and importantly their tools, to figure out trades that you then execute with your current broker? Maybe I don't need to move any money over - just start using their interface and decide later if I like it so much to move. I'd like that.
And that'd give me leverage with Fidelity should I go seeking a better commission rate.
Well today was a very interesting roller coaster ride up to $658.xx, which allowed me to buyback some of those p670s and then roll them down to 7/16 p660s for $4.00 credit. I also have a small confession: sold a bunch of c652.50s yesterday which were then rolled up and out today to 7/16 c680s for $5.20 credit. Looks like this week will produce positive options profits after all. Also picked up 15 shares. One IRA account has reached my share goal (if I were to stop rolling the puts) and the ROTH isn’t too far behind, though more puts than my preferred 3:1 c/p ratio.
Looking at 7/16 max pain, there are still a huge number of puts in the 400-500 range. Historically, this seems to foreshadow market manipulation to lower the stock price. Hence, I’m expecting a rough next week, dropping again to 620 before touching 700 and finally settling around 670. That’s my guess, which is probably just as wrong as it is correct. Good luck to all and enjoy your weekend. Unfortunately, mine will be rather sedentary because of a bicycle crash yesterday. Fortunately, nothing appears to be broken (other than the bolt that held the seat together) and ibuprofen is helping.
Similar threads
