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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
I haven't tracked week to week results all that closely, though I do have the individual trades going back more than a year. That being said I think that last week was comfortably my best week ever. About a 4% realized gain in one account, and a 7% realized gain in another, using the full account value as the denominator. Since my target is a lot closer to 10% / quarter (which is itself kind of a ridiculous target if you think about it too long), I am more than somewhat happy
Let the yo-yo continue, preferably in a slightly up direction (up 30, down 20, repeated ad nauseum would be very much to my liking).
What duration were those assigned put contracts? Has it ever happened with weeklies?
I haven't tracked week to week results all that closely, though I do have the individual trades going back more than a year. That being said I think that last week was comfortably my best week ever. About a 4% realized gain in one account, and a 7% realized gain in another, using the full account value as the denominator. Since my target is a lot closer to 10% / quarter (which is itself kind of a ridiculous target if you think about it too long), I am more than somewhat happy
Let the yo-yo continue, preferably in a slightly up direction (up 30, down 20, repeated ad nauseum would be very much to my liking).
I assume you are doing a ton of BPS? Last week I did 4% in one account thanks to BPS but with CC's I can't barely make 1%. I am still happy about my half percent and wish I could do that consistently
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I assume you are doing a ton of BPS? Last week I did 4% in one account thanks to BPS but with CC's I can't barely make 1%. I am still happy about my half percent and wish I could do that consistently
My experience last week (and thus much, much too small of a sample size) is that my good earnings are CC side. And that HASN'T been my experience the last year.
I am usually far too attached to my shares to do very much on the call side. I stay out at very distant strikes, which works great for gravy.
What is working for me is a combination of:
- LEAPs to back the cc
- income orientation
The strategy and thought process that I've just started, and sure is working well so far, is to buy those DITM calls with a long expiration. I'm trying 1 and 2 year positions, at varying DITM ($300 - $600 strikes; they cost more but I think I like the 300s better), with an income orientation rather than a leveraged exposure to upwards moves orientation (thus no $1500 strikes for me
). What that means is that I enter the long dated calls just to provide backing for the CC. I wouldn't do that without my long term belief in an outrageous future for Tesla, but for these position's its secondary. I own shares that I am no longer selling calls against for that big move up exposure. And I size the number of calls based on delta so that the net delta in the account in the shares and long calls is a little or a lot higher. If those long calls don't get forced out of my hands on a sustained move upwards, I get the best of all worlds; willingness to sell aggressive cc and the resulting profits PLUS even higher exposure to that big move up.
So the intention is to use these long dated calls to sell calls, and because I am ok with losing the calls (called away), I can get more aggressive with the call strikes. So I sold 740s with the shares around 720; stuff like that. Getting $8-12 for a 1 week option adds up really fast, and last week every time I sold one of those I woke up the next morning to a 60-90% profit, and immediately took that off the table. That can't repeat of course
But what can repeat is being ready for the shares to go up in that situation, and view those leaps being called away as just another source of income.
So if the shares had gone up from 720 past 740, I would have rolled at least once for time and strike; probably keep rolling until I had a full month to expiration and as good of a strike as I could get to. And after that month if the shares were still out of range of good rolls, then take assignment on those DITM short calls (really BTC short call + STC long call) with the incremental gains in the long call as additional cash. A good roll is one that improves the strike while also generating a reasonably good credit. $2/week is more than good enough for me.
The thing that I realized here - once the shares are past the short strike, then the short call will be losing money slower than the long call is gaining money based on delta only, and theta is a small factor on the long call, so I'm also earning money on the time decay. Vega is the one wildcard here but I'm going with the value in the two changing in the same direction due to IV changes even if its not the same value change, so they neutralize each other to some degree (I know it isn't necessarily true).
Anyway - as long as the long call delta is enough higher than the short call delta I'd let the position run. I'm either earning as the shares go up OR I get back into range of a good strike/credit roll and buy more time and an even better assignment price. Every roll is either generating adequate income / credit (or better than adequate), or its earning an adequate credit and getting me a better assignment result. What's not to love, eh?
I still take on the opportunity cost risk of a huge move upward, which is ok for me to say. With the long calls I also believe it will be ok for me to do. My wife and I don't actually need any big upward move in the shares in the bigger picture - retirement is already more than comfortable without that. That big move is a bonus piece of the puzzle but not needed.
It's interesting to me how the freedom to be more flexible in how I get my results has a very good chance of increasing the realized results by a lot.
Oh - and yes, I'm doing a ton of BPS. Probably more than I should but the $100 spread size makes it work for me. It does, at least, help keep my emotions in check and avoid really big positions that can go to 0 in the blink of an eye (ask me how I know).I assume you are doing a ton of BPS? Last week I did 4% in one account thanks to BPS but with CC's I can't barely make 1%. I am still happy about my half percent and wish I could do that consistently
I'm probably not ready or willing yet to roll straight out if needed to keep the weekly income going, but balancing an improving strike with modest credits - I can do that. And in the meantime they're all expiring worthless, and more typically earning 30-70% in a day or two, and also being closed early. The fast and early closes are also not my historical experience, and thus the observation that it last or be that consistent. But it sure was nice last week when it was happening!
I actually need some of these BPS to go into the money to force me to do some position management. Until I get some experience with that sort of position management I won't be able to get the put side back into its historical position as my best earner. SOLUTION! I'll take a smallish subset of the next batch of BPS I sell and be REALLY aggressive. More of these "I dare you" sales, trying to force me into a situation to experience the mechanics and emotions of.
Not @Lycanthrope aggressive (like rolling ITM position straight out, or even AWAY, from the share price), but something like a 1 or 2 week .30-.40 delta.
And this calls for a visit to the option chain! Using the midpoint prices available right now, I would use a 585/685 Aug 13 for a $7.13 credit or a 580/680 Aug 20 for a $11 credit. Off the cuff - I go for the 1 week position to provide a sooner adjustment and more generally put the puts onto the same cadence / expiration window as the calls. These are .35 delta positions and that sounds about right for me.
Position size will be large enough (to me) that it will be enough to move the needle yet still small enough I can suffer a complete loss (that won't happen) and yet be ok.
I knew it was a good week - I had no idea until I got all of the trades into the trade tracker I've begun using (I am definitely not going back to manual trade tracking).
Another observation is that it's easy to feel good about things, and make a lot of money fast, when all of the positions are OTM.
(NOT-ADVICE. We all make our own decisions and experience our own consequences)
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pz1975
Active Member
Question about selling covered calls against LEAPS (haven’t done this myself before): if the sold call expires ITM, is your LEAP sold to cover it at its strike price or at its bid/ask price? If strike price, then you would be losing some time value even if it is DITM.
Or would you just sell the LEAP first and then buy back the covered call before expiry in the setting where you didn’t want to/couldn’t roll it?
What if it was exercised by the buyer? What would happen to your LEAP?
You guys must be trading on margin. For next week, ATM calls and puts are at about 2% each, so even if a non-margin trader (like in my IRAs) manages to sell ATM calls at a local peak (say the Monday opening rise) and sell ATM puts at the local bottom (MMD), then the best outcome is maybe 4-5%. Congratulations to all, but I will just have to remain happy with my measly 1% (to quote Riley in National Treasure).I assume you are doing a ton of BPS? Last week I did 4% in one account thanks to BPS but with CC's I can't barely make 1%. I am still happy about my half percent and wish I could do that consistently
I’ve managed a week or two of +2%, but that’s unusual, and unfortunately, often followed by a -1-2% week.
I'm curious to know for those that can't access their margin buffer to trade options against, whether this is a regulatory restriction, the brokers policy or an unrealised opportunity?
I have two accounts with IBKR, one with limited margin borrowing ability (max $AU25k) and a retirement account that is cash only by regulation. However in both of these accounts I can access my full maintenance margin buffer as security for trades. So I sell Puts, BPS or IC's using part of the maintenance margin buffer/excess liquidity in my account (Net Liquidation Value - Maintenance Margin Requirement) all without paying any interest (unless exercised). If I didn't have access to this margin buffer then I would be left with just selling CC's or cash secured Puts. The difference in max revenue potential is huge, roughly an order of magnitude difference per week. At first I didn't think I could use the margin buffer in my retirement account but I tried it out and I can. So I'm wondering if anyone else has been sitting on a potential additional source of option revenue?
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AquaY
Member
Each country has it's own laws.
In the USA you can not trade on margin in an IRA. Individual Retirement Account
You can buy options, sell covered calls and do collars.
Another retirement account that many Americans have is a 401k
If you qualify for opening a Solo 401k you can trade on margin but I've never had one and know little about them.
I believe there are some kind of margin trades legally allowed in a 401k ( but perhaps prohibited by the broker) but that runs a big risk of IRS problems
Knightshade
Well-Known Member
As I just recently learned (from this thread in fact!) there IS a limited form of margin available in IRAS, allowing spreads.
But not every broker offers it.
Seriously considering moving my IRA out of ML to one that has this for that exact reason... (I've got more than enough in my cash account at ML to keep my status with BOA, which is why the IRA was opened there in the first place)
Something like this from IBKR? Trading permissions in an IRA account | IB Knowledge Base This sounds similar to the way my Australian IBKR retirement (SMSF) account works. I assume some of the other US or International brokers would offer something similar. I expect the key here is that they will auto-liquidate enough existing positions to ensure that the account does not go into a negative balance if there is a Put or similar option exercised.
AquaY
Member
Back when I took my Series 7 ( the basic licensing exam required for financial people) when the earth was young and so was I, it was against regulations to allow margin in an IRA. Limited margin has been allowed for years but that isn't really what people think of as trading on margin.
It merely means you can use unsettled cash positions in the IRA. Not borrow against holdings.
Of course that was a long time ago in the 1980s. I never dealt with individual investors and while I have several more licensing #s under my belt I never needed to keep up on the rules for individual investors.
Things certainly change and I'm sure they can figure out a way for an account not to go into negative territory.
But I would check with the FINRA website if it is different than the way I remember it.
For those who do not know FINRA is the self regulatory agency for Wall Street firms. It used to be called the NASD
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Thanks for that. Yes, it appears to be broker-specific. Mine allows everything except the last option (spreads). That would definitely improve my trading returns as I think OTM BPSs and ICs are where many here are generating lots of profits
corduroy
Active Member
TD Ameritrade allows spreads in IRAs. I've been selling calls against my LEAPs in my IRA account there for a while.
AquaY
Member
That's a covered call.
(For all intents and purposes)
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Knightshade
Well-Known Member
No, it's not. It's a spread.
I can sell covered calls in my IRA (and have). I can not sell spreads.
You have no shares with which to cover with a spread. You only have the option to acquire shares to cover.
Brokers that allow limited margin in IRAS do allow spreads, since you'd be able to exercise one option to satisfy the other with unsettled funds that way- something you can't do legally without limited margin.
#2. That is the ITM short call is assigned at expiration and you sell shares that you don't own, thus you are now short 100 shares per contract. You'll need to liquidate something else to cover that (but hey - you did sell those 100 shares at the strike price!). You could, for instance, BTC the corresponding leap. You could even exercise the long call, but that is almost certainly a bad choice, as you would be giving away whatever time value is in the contract.
If early exercise by the buyer nothing would happen to the leap, but you would still be short 100 shares per contract. You would presumably STC the leap(s) to raise the cash to buy the 100 shares you're short. This won't happen in any reasonable universe though as the early exercise has the consequence of immediately giving you the time value, and at least how I'm doing this, I'll never get ITM and close to enough to 0 time value AND expiration to actually be assigned. If this situation were arising then I would be proactively closing the position via BTC short call + STC long call.
So - when I talk about "taking assignment" on these lcc's, what that very specifically means is that I proactively BTC the short call AND STC the corresponding long call. I don't actually have to do this - I could BTC the short call alone while keeping the long call and continuing to sell lcc's against that leap. I suppose I'd be deciding whether I like the current long call better than some new long call that I would open. That's a decision for that moment - the strategy is to close both sides of that lcc, and do it prior to expiration. For now my thinking is I'd be looking for a nearly 0 time value on the short call.
heh- NOT-ADVICE!@!!You guys must be trading on margin. For next week, ATM calls and puts are at about 2% each, so even if a non-margin trader (like in my IRAs) manages to sell ATM calls at a local peak (say the Monday opening rise) and sell ATM puts at the local bottom (MMD), then the best outcome is maybe 4-5%. Congratulations to all, but I will just have to remain happy with my measly 1% (to quote Riley in National Treasure).
I am trading using leverage, and the BPS are using margin or have reserved cash to back the position (depending on the account I treat it as reserved cash either way). The BPS themselves are a form of leverage - the example I've used before is that I can either sell a $600 short put with $60k reserved (let's pretend this is an IRA) OR I can sell 6x $100 spreads. Say the 500/600, where again I get $60k reserved. Using this example and the 8/20 expiration, the 600 strike put is $2.60. The spread is $2.60 - .90 = 1.70 each. So 2.60 (short put) credit vs. 1.70*6 BPS credit or 10.20.
And heck - when that short put rises to $700, then I can sell 7 of these BPS instead of 1 short put!
On the call side, it's not too hard to find a DITM Jun 2023 long call that costs ~1/2 of what 100 shares would cost. Back to the option chain - that is pretty close to the 400 strike with a mid-price of about $360. So 100 shares costs $70k or 2 of these long dated calls costs $72k and have a delta of .87. The long calls enable me to purchase 2 for 1 vs. shares and have a 1.75 delta (or 100 delta for the shares, and 175 delta for the 2 contracts). And as a bonus the 2 long dated calls enable me to sell 2 lcc instead of 1 cc.
Or 3 calls for 100 shares can be had at the 650 strike priced at $235 (roughly $70,500 for teh calls vs. $70k for teh shares). They carry a .70 delta and you get 3 of them, so 210 delta vs. 100 delta, and 3 lcc vs 1 cc. This is a more aggressive position than I personally want to take as the 650 strike doesn't need much of a move down to go ITM.
A 5 for 2 ratio looks pretty decent. The 500 strike costs about $310 each. So $155k vs $140k for 5 contracts instead of 200 shares. The 500s have a delta of .80, so 400 delta on the contracts vs. 200 delta on the shares, and I can sell 5 lcc vs 2 cc.
Both of these are instances of leverage and while there is no margin loan, there is a cash / margin reservation in the BPS case, and a leveraged purchase in the second case. Which means that moves against are losing money faster than an unleveraged position. The 6 BPS in my made up example will be losing money roughly 6x as fast on share moves against (and making money roughly 6x as fast). The lcc are losing money roughly 2x as fast / gaining money roughly 2x as fast.
In an IRA the reserved cash shows up, at least on Fidelity, as "Pending Activity" that doesn't resolve until the day after the BPS is closed.
Totally - the long call with distant expiration paired up with a short call with near expiration is a calendar spread (not a covered call). I do have spread trading authorization in my IRA. I'm pretty sure that there are limitations on what all spreads can be traded, but I've traded these calendars, credit put spreads, and credit call spreads with no difficulties.
The put spread / call spread combos even get paired up correctly (from a cash reservation perspective) into iron condors.
On the calendars, the mechanics work the same for me to open, manage, and close (but not assignment) as covered calls. Thus our shorthand of lcc (leap covered call). When I sell the short calls in the IRA they are automatically balanced out by the long calls with no effort on my part.
corduroy
Active Member
It occurred to me there might be another possibility to deal with an assignment on a diagonal spread. If the short call went into the money and got assigned, the long call should have also picked up enough intrinsic value that you could roll it for credit and generate the cash to buy back the short position. This would allow you to retain your long call and deal with short position without selling or exercising the call.
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