Wiki Selling TSLA Options - Be the House

[corduroy]

It doesn’t seem to get much love here, but if a put spread is going seriously bad… like the US defaults on the debt limit and macros tank and it looks to be more than just a digestible dip… what about buying back the sold puts at a loss and letting the bought puts rake in a profit from the ongoing decline? If the stock keeps going down, you’d stand to make loads on the bought puts, even if the sold ones were costly to buy back.

The trick is identifying when a nasty-looking dip is going to turn around and recover of course, vs. when it jogs up and then dumps more again later… but those mega macro events might be a reliable enough hammer to the stock price to make this an option.

I thought I remembered bxr140 (the legend) talking about this. He called it pulling the rip cord.

Found it: Applying options strategy 'the wheel' to TSLA

 

[bkp_duke]

It's a Combo - so no, no official name LOL

Two ways of looking at it with the same net result:

Risk Reversal / Synthetic Long - Selling puts and buying calls. Add on spreading off the long call to limit risk, in this case making the trade "free" as long as TSLA holds above

Bullish Call Spread - Buying and selling a call to limit profit potential but raising probability of profit. Adding on a short put to finance the trade so I am at net credit instead of a net debit.

Margin requirements are the short put, and long call. I can't give you an exact number because my margin is JACKED. Your margin cost vs someone elses will vary.

Too much concentration in TSLA making incremental trades very expensive.

Very intriguing. Fidelity isn't able to calculate max gain, max loss, or break even on this trade.

But Options profit calculator gives the following.

 

[ChefBoyardee]

Very intriguing. Fidelity isn't able to calculate max gain, max loss, or break even on this trade.
View attachment 716369




But Options profit calculator gives the following.
View attachment 716370

No big deal, just 3.5 million of risk I need to catch up to you guys

 

[bkp_duke]

No big deal, just 3.5 million of risk I need to catch up to you guys

HA HA HA

That was theoretical, b/c Fidelity didn't give me any margin requirements.

 

[mongo]

No big deal, just 3.5 million of risk I need to catch up to you guys

Yeah, but that's the same risk as having 4,500 shares @ $780.
At any scale, from a downside point of view, cashing out one's TSLA and doing this is less risky than holding onto it. If TSLA drops a lot, it's like rebuying at 730 - credit.
From an upside, if you can get enough credit to cover the first $20 of rise to the $800 call, it pays out 11% more than shares afterward (5k delta vs 4,500 shares). Otherwise, it's a long slog to cover the difference with the small gain.

Also: @bkp_duke ran the table with Jan 22 options, not Oct 8th.

 

[MXWing]

Very intriguing. Fidelity isn't able to calculate max gain, max loss, or break even on this trade.
View attachment 716369




But Options profit calculator gives the following.
View attachment 716370

It's pretty easy to figure out where you need to be at for these type of trades actually.

Subtract the premium from the short put. In this case, your break even is ~710.

Caveat. You need the short put to give up ALL extrinsic value for the 710 break even. Whole trade has to be held. This is assuming the long call is max loss and short call is max profit.

Not a problem obviously if you are above 730 close to expiry and ideally we are much higher than that.

Anything above 711 to 900 is your profit range. The trade I did was more suitable for short term.

For a JAN 2022 trade, you would want to structure like:

SELL 700 Put / Buy 850 Call @ 4.20 net credit

You COULD short against the 850 and go with a more conservative put strike. However I would prefer to let the SP run a bit and leg in the short call once the trade is green a bit.

 

[bkp_duke]

It's pretty easy to figure out where you need to be at for these type of trades actually.

Subtract the premium from the short put. In this case, your break even is ~710.

Caveat. You need the short put to give up ALL extrinsic value for the 710 break even. Whole trade has to be held. This is assuming the long call is max loss and short call is max profit.

Not a problem obviously if you are above 730 close to expiry and ideally we are much higher than that.

Anything above 711 to 900 is your profit range. The trade I did was more suitable for short term.

For a JAN 2022 trade, you would want to structure like:

SELL 700 Put / Buy 850 Call @ 4.20 net credit

You COULD short against the 850 and go with a more conservative put strike. However I would prefer to let the SP run a bit and leg in the short call once the trade is green a bit.

So basically, it's an Iron Condor, without the lowest put for "insurance" against a run of the stock to zero. Correct?

 

[pz1975]

So basically, it's an Iron Condor, without the lowest put for "insurance" against a run of the stock to zero. Correct?

No because the call side is the opposite with the lower strike being long and the higher strike short (covered call portion). I don’t know what it is called but it is a bullish position both with puts and calls, where in an iron condor it is bullish with the puts and bearish with the calls.

 

[InTheShadows]

The one thing I'd add that you might not have seen yet in the option chain - if you look at the midpoint of the spread (so $50 ITM on a $100 wide spread) you'll discover that closer to the short put will enable a roll for a credit, and closer to the long put will require a roll for a debit, should you be doing a roll. My takeaway is that I have a bit of room should I go ITM to let time run and/or the share price recover, but only through the midpoint of the spread. Of course the closer to the midpoint the less and less good the roll options become, but below the midpoint they turn into debits or rolls to worse strikes.


SO - take action before the midpoint. Use a wide spread to resist that urge to use 2x as many $50 wide spreads, and retain the ability to manage the position by doubling up on a $50 spread if you need to. Or even doubling up a second time on $25 wide spreads.

This midpoint dynamic is why I stay away from the narrow spreads - the slide from max gain to max loss goes by fast on a $20 spread or something like that. The slide out of effective rolls is even faster - only $10. That can happen in a busy hour.

How do you feel about the narrower spreads at lower strikes. Say instead of 1 600/-700 spread, going with 2 625/-675 spreads. Same midpoint however longer for the stock to get to the short leg. Running that model with AH option prices gets you $889 for the 100 spread and $868 for the two 50 spreads. (Fees taken into consideration). The return is slightly better on the 100 spread however your chance of needing to manage the 50 is a lot less.

 

[Bunky]

What has been most successful as an exit strategy for BPS from all of your experiences when they end up ITM? Thinking of trying out BPS vs naked/uncovered puts but want to be comfortable with exit strategies first in the event that the sp drops and they end up ITM, given that I would likely be doing a higher number of contracts. With put selling so far I have been comfortable rolling down/out if I get caught pantsdown. I plan on starting far enough OTM that it hopefully wont be an issue but want to be prepared in any event. Do brokerages usually allow rolling of long/short puts independently? Do you have to roll the whole spread? I imagine rolling the short puts out and or down while STC the long puts might be a decent option. Definitely want to avoid assignment. Am I missing something? Would love to hear what has worked for you. Thank you all for the wisdom btw, this thread is amazing

 

[ChefBoyardee]

So basically, it's an Iron Condor, without the lowest put for "insurance" against a run of the stock to zero. Correct?

It’s basically just a fancy Covered Call

Instead of stock it’s using a split strike Synthetic Long

 

[bkp_duke]

It’s basically just a fancy Covered Call

Instead of stock it’s using a split strike Synthetic Long

Now the light bulb went off. Thank you.

 

[InTheShadows]

This is FANTASTIC sleuthing and makes sense to me. I'm sitting here wondering why my 750's WONT DIE and so much money is left on them.

Despite bullish for Oct 8, it made sense to roll my 750 down to 720 to take advantage of the volatility arbitrage.

Agree that all OCT 1 positions should be closed and not left to expire.

Haha. I was saying the same thing today. About half of my put spreads triggered today. All around the same time when there was some weird small IV dip shortly after 3pm today. I had 5 different orders trigger in that dip all with various strikes and spread sizes.

 

[juanmedina]

So Rob Maurer is estimating 251k units produced and 247k deliveries. That has to send the stock to the moon. I wonder if I should get aggressive with the BPS and load up on calls.

 

[Knightshade]

So Rob Maurer is estimating 251k units produced and 247k deliveries. That has to send the stock to the moon.

Does it though?

Not like Q1 and Q2 weren't also records.

 

[MrMoo]

So Rob Maurer is estimating 251k units produced and 247k deliveries. That has to send the stock to the moon. I wonder if I should get aggressive with the BPS and load up on calls.

You don't think it has mooned already? We are trading in the 770's while the Nasdaq is down 5.5%. You don't think people are front running this? Or do you think people are buying TSLA at 770 while the nasdaq dumps because they changed their mind from earlier this year and realized this stocks great!

 

[juanmedina]

Does it though?

Not like Q1 and Q2 weren't also records.

but this is way above the consensus and the margins have to be sweeter.

 

[Knightshade]

but this is way above the consensus and the margins have to be sweeter.

Revenue: $11.96 billion vs. $11.37 billion expected

Adjusted earnings per share: $1.45 vs. 97 cents expected


That's Q2. They beat. Heavy.

The stock closed DOWN $13 the next day after announcing it.


I've been hearing SURELY THIS QUARTER THE NUMBERS WILL FINALLY BE SO OBVIOUS WE GO TO THE MOON for.... a lot of quarters now.

I mean, eventually it should be true, so I guess people will keep saying it till it is

 

[Chenkers]

What has been most successful as an exit strategy for BPS from all of your experiences when they end up ITM? Thinking of trying out BPS vs naked/uncovered puts but want to be comfortable with exit strategies first in the event that the sp drops and they end up ITM, given that I would likely be doing a higher number of contracts. With put selling so far I have been comfortable rolling down/out if I get caught pantsdown. I plan on starting far enough OTM that it hopefully wont be an issue but want to be prepared in any event. Do brokerages usually allow rolling of long/short puts independently? Do you have to roll the whole spread? I imagine rolling the short puts out and or down while STC the long puts might be a decent option. Definitely want to avoid assignment. Am I missing something? Would love to hear what has worked for you. Thank you all for the wisdom btw, this thread is amazing

What you can do is mainly limited by how much margin you have available and when you are doing it. My preferred approach is to keep the same expiry but roll the strikes down so that they will be OTM. This will typically require widening the spread and/or increasing the number of contracts to be able to roll the BPS at zero cost. What it will cost you is your reserved margin so you will need to have a decent buffer on hand. The other issue here is timing. If left late in the week the further out bought Put has lost a lot of its value making a zero cost roll much harder than it would be earlier in the week. You can also consider a similar roll to a later week, although the strike is harder to predict then to end up OTM. There is also the option of converting some or all of the BPS into a BCS of equivalent value.

With IB I can roll the whole spread or the individual P+ and P-. Beware of trying to STC the long Puts. If you do this the P- will then become naked and if there are a lot of contracts the margin requirement will go through the roof. That's why I prefer to keep the P+ and P- number balanced, even if you end up rolling one different to the other.

 

[TheTalkingMule]

I've been hearing SURELY THIS QUARTER THE NUMBERS WILL FINALLY BE SO OBVIOUS WE GO TO THE MOON for.... a lot of quarters now.

A lot of quarters as in 1Q & 2Q?

We've all been thru this before. A few quarters go by flashing massive bull signals to folks here that the rest of the world ignores.

Until it absolutely slaps them in the face with unmistakable numbers. Pretty sure these 3Q & 4Q numbers can't be ignored or mistaken.