Wiki Selling TSLA Options - Be the House

[adiggs]

Are you mostly doing BPS while maintaining that 60-65%? That seems very sufficient, but I imagine with a rapid down move, it'll get eaten very quickly.

BCS does seem to be the missing piece in my toolbox. Being a bull, just feels harder to pull the trigger on BCS. I wouldn't want to go close close on SP, but going far away just doesn't seem worth it either.

This is where I've been with the call spreads as well. It doesn't help that one of my 2 really bad trades this year was when I added a "free" call spread onto my put spread to get into an IC. I was using a narrow spread size for me ($40 I think it was) and the shares promptly shot up and put me at the midpoint. I didn't have good management techniques learned / practiced, and went through the take-the-loss management technique. Only lost 40-70% on that trade (2 or 3 variations, opened at different times).

I still have taxable earnings from that month, but its left me more than a bit gun shy with call spreads. I went looking today and if I were to go $100 OTM for next week, with a $100 wide spread, I get like 0.50 or 0.80 credit for each contract. $50/contract and all I need to see is a $100 move in 1 week for that to go ITM - no thanks. $100 moves, or more precisely 12-15% moves, can and have happened in 2 or 3 days before.

 

[adiggs]

I think many here are within reach of the $100k/week club. Maybe not trading $100 OTM.

I'm looking forward to hearing about the $250k/week and $500k/week club.

It's what you do with the money that matters. If stress and time commitments are in check, then maybe it can be looked at as a responsibility to earn that level of money that can affect positive change in one's sphere.

It's that last bit that I'm looking forward to. What do we do with it!?!

We already know that this will be our highest personal giving year this year (actually I think it already is, and we haven't really started). It looks like one vector we're going to go down is keeping it small and local. Smaller charities with a local or maybe regional reach. Partly because we think it'll be fun and personally rewarding to help out an organization, where our help is a really BIG help. Part of our whole giving plan is that it needs to also be fun for us personally, and it'll be a lot easier to have fun with small and local outfits.

(It'll also likely be one of our lower % giving years, but that'll change as we get comfortable with the idea that I won't need to return to paycheck life - we're not there yet )

 

[adiggs]

Two things.

1. Maybe we should state this as $7000 per $100k backing cash or margin, to make it more relatable to those without multi-million dollar balances. Still impressive.
2. Don’t forget that assumes you let the options expire. More common, I think, would be to roll to the next week at perhaps 80% — more like $5650 per $100k backing. I think Lycanthrope often does close for peanuts before or after opening the next week’s allotment, but that’s not the super-low-effort scenario you described.

So let’s say we have $200k backing, roll at 80%, and expect to make a slightly more reasonable $5 per contract for $85 spread size (could also be an Iron Condor I suppose) and 45 weeks a year. If I did my math right that’s 23 contracts at $9200 per week including the early close to roll — adding up to over $400k per year income. (Doubling your money, and that’s even assuming you don’t use the proceeds to buy more contracts!). Wow.

Yeah - that. I appreciate you doing the math. You've also got the partial profit idea baked in which is where I personally would be closing anyway.

I wouldn't take this math, do a few months of this to see how it goes, and then retire on $400k and think I'm set for life. But I don't think many would - but its certainly an exciting dimension to be considering in the context of buying back one's time.

 

[pz1975]

NOT-ADVICE.

More like random musings that are likely to keep me up all night


The question about position size or backing to achieve $100k/week has gotten me thinking about an entirely different trading style than what I've been doing the last month or two. It would use the same trading strategies I've already come to know and love, but if one has access to and can make use of large amounts of cash / margin to back their trades, then going much further OTM can create positions that are a lot more autopilot.

And if the larger strategy becomes something closer to riding positions out to expiration, rather than trading in and out at desirable opportunities along the way, then actual daily and weekly effort can be significantly diminished. That latter part isn't important to everybody, but I know it is to me. I enjoy the process and learning that comes along with it a lot, but one of the vectors I think about is whether I'm doing something that I believe will be sustainable - something I'll be doing 15 years from now and have been doing weekly over those 15 years.


As backing increases, position sizes (cash / margin backing) can be used for the purpose of lowering position risk rather than increasing profit. At the example we've just been using, $2M can back 200x $100 wide spreads, and next week put spreads can yield a $5 credit using the 580/680 (680 is awfully far OTM). Management of a position is much wider - effectively down to 630ish, with more management options from there, such as the 2x contract for 1/2 spread size that probably can get you rolled down to 550-580. That'll take a REALLY steep and fast fall to make that position unmanageable. Even the Feb-April fall in the share price would have been readily handled, maybe with 3-5 weeks of no income.

But if you're collecting $100k/week the rest of the time, does 45 weeks otu of the year instead of 50 really make a difference? Really?


Which has me thinking - maybe I'm at a point in my life where I've got too many TSLA shares. I'm already overly concentrated based on standard financial advice - I own cash and TSLA shares/derivatives (really seriously NOT-ADVICE). But if I could be pretty reliably be getting $70-$120k/week with an hour or two of actual trading effort each week, along with the routine and ongoing education about Tesla that I would be doing anyway, then would I care if I'd be missing out on more than that? I really, really hope the answer to that question is "no".

The tougher question to be thinking about - would I really care if I missed a $1000 move in the share price? Like - really? It's not like I'd get rid of all the shares, but clearly cash and put spreads would be earning a lot more slowly during that $1000 share price move than owning shares or LEAPs, but again - does it matter if I'm earning that income level? Again - I really hope the answer to that question is "no".

(In both cases - my answer to that question for me; we all have different needs and wants in life, so the answer is personal. It ties into an important idea, of having some idea of what "enough" is).


This idea is somewhat resistant to changing premium and IV levels. If the premium balance shifts to be in favor of calls, then call spreads can be used instead of put spreads, and the resource (cash/margin) is unchanged in type and quantity. Or these can be combined into distant ICs where we add on some call spreads to go with the put spreads.

Heh - maybe I have "discovered" what @Chenkers has been talking about and doing all along


Critical and previously unstated assumption is that these weekly positions are effectively 100% winners. Considering the distance OTM I don't have a hard time believing in that idea. But I also have my own personal experience where 99 of my first 100 trades (according to my trade log), when I was still buying a clue, were winners. (I got paid a lot, buying that clue!). The winning rate has fallen off since then, but managing to avoid max or even big winners isn't that hard to do - especially when you start so far OTM.

Also unstated before now - $100k/week is sort of a ridiculous income or standard to be using (at least for virtually ever person on the planet). I only picked it up from the previous question.

This post has made me think about the long-term implications of using these strategies successfully. I haven’t seen anyone post yet about the compounding function on margin available that this would give over the years and how powerful that could be. Consider the following and note I am going to be very conservative in every step along the way, which will still be mind-blowing in the end. Assumption is also that TSLA shares never change in value to make calculations easier.

A portfolio has 5,000 TSLA shares worth approximately $4 million. I am using this for my example because I imagine many people here have more than this but also many have less.

Using a 50% margin room by the broker (pretty common it seems), that leaves $2 million buying power/margin. Let’s say we play it safe and use only 25% of that (to give lots of safety room to do rolls as needed) so we have $500K margin to start with each week.

We sell weekly $100 put spreads and covered calls but always stay 15-30% OTM depending on what direction the stock seems to be going. So for the last few weeks, I would do 15% OTM puts and 30% OTM calls. This would adjust as things change with the SP. We would be able to generate 50 $100 spread BPS with the $500K margin we want to use and up to 40 covered calls/BCS. 660/560 BPS (15% OTM) expiring Oct8 were $3.70 on Friday. 50 of them is $18,000. Add another $2,000 for way OTM covered calls and we get $20K profit. Again, I’m being very conservative here - this seems like a very safe profit to achieve each week. IV has been very low for a long time so these profits would likely be higher in the future when IV is higher.

Do this for 50 weeks and we get $1,000,000 profit. Assume some weeks we have small losses and some we have no income from rolls and let’s again be conservative and say we end up with $800K profit. Pay 25% taxes (that’s my capital gains rate in my corporation, yours may be different) and post-tax profit is $600K. So the total post-tax return for the year on the total available margin ($2 million, remember we only ever used 25% of that each week) is 30%. And this is being very conservative in every step.

Here is where things get interesting. Add that $600K back into the available margin (it is cash) and the margin for the next year is $2.6 million. Do everything the same in proportion and get the same post-tax 30% return to generate $780K post-tax profit. Add that in for year 3 and you have $3.38 million margin. For year 3, 30% profit is $1 million extra cash generated giving $4.4 million margin available for year 4…you see where this is going.

The compounding effect on the buying power/margin allows this account to grow exponentially! In just 10 years, just doing this and being very conservative, the account is worth almost $32 million ($27 million cash + $5 million in TSLA share value from 4,000 shares)!

Now do it starting with your current account and feel free to adjust the 30% number up or down depending on how aggressive you want to be. And then go beyond 10 years if you want.

We have stumbled onto a great thing here, everyone.

Most powerful force in the universe indeed.

Edit: Note that the increased margin could be incrementally benefitted from each week but I just added it in yearly to make things easier to calculate and visualize.

 

[InTheShadows]

Two things.

1. Maybe we should state Lycanthrope’s $100k per week as $7000 per $100k backing cash or margin, to make it more relatable to those without multi-million dollar balances. Still impressive.
2. Don’t forget that assumes you let the options expire. More common, I think, would be to roll to the next week at perhaps 80% — more like $5650 per $100k backing. I think Lycanthrope often does close for peanuts before or after opening the next week’s allotment, but that’s not the super-low-effort scenario you described.

So let’s say we have $200k backing, roll at 80%, and expect to make a slightly more reasonable $5 per contract for $85 spread size (could also be an Iron Condor I suppose) and 45 weeks a year. If I did my math right that’s 23 contracts at $9200 per week including the early close to roll — adding up to over $400k per year income. (Doubling your money, and that’s even assuming you don’t use the proceeds to buy more contracts!). Wow.

You forgot to compound that. . 1.3% weekly is roughly 100% annualized after compounding.

I laughed at the 200k/500k per week comment because of how ridiculous that amount of weekly earnings is. I’m meeting with my accountant next week to have a tax strategy meeting because I would prefer not to have to pay 50% of my earnings in taxes. Also it kinda stunts the growth of our accounts.

 

[bkp_duke]

You forgot to compound that. . 1.3% weekly is roughly 100% annualized after compounding.

I laughed at the 200k/500k per week comment because of how ridiculous that amount of weekly earnings is. I’m meeting with my accountant next week to have a tax strategy meeting because I would prefer not to have to pay 50% of my earnings in taxes. Also it kinda stunts the growth of our accounts.

THIS!!! The tax implications of recent earnings are keeping me up at night. 1st world problems, yep.

 

[adiggs]

You forgot to compound that. . 1.3% weekly is roughly 100% annualized after compounding.

I laughed at the 200k/500k per week comment because of how ridiculous that amount of weekly earnings is. I’m meeting with my accountant next week to have a tax strategy meeting because I would prefer not to have to pay 50% of my earnings in taxes. Also it kinda stunts the growth of our accounts.

If you have any ha-hah's from that tax strategy meeting, please share. There is another tax planning / strategy thread where its more appropriate, but my current tax strategy is to just pay up the 50% in the brokerage account and remind myself this is a #firstworldproblem.

Oh - and move to Washington state from Oregon. That's good for a 9 points (9% tax rate in Oregon) tax reduction!

Nothing but the very finest in tax strategy for me.

 

[InTheShadows]

This is where I've been with the call spreads as well. It doesn't help that one of my 2 really bad trades this year was when I added a "free" call spread onto my put spread to get into an IC. I was using a narrow spread size for me ($40 I think it was) and the shares promptly shot up and put me at the midpoint. I didn't have good management techniques learned / practiced, and went through the take-the-loss management technique. Only lost 40-70% on that trade (2 or 3 variations, opened at different times).

I still have taxable earnings from that month, but its left me more than a bit gun shy with call spreads. I went looking today and if I were to go $100 OTM for next week, with a $100 wide spread, I get like 0.50 or 0.80 credit for each contract. $50/contract and all I need to see is a $100 move in 1 week for that to go ITM - no thanks. $100 moves, or more precisely 12-15% moves, can and have happened in 2 or 3 days before.

I agree. I flirted with the idea of 880/980 calls today to make an IC, thinking I could close them Thursday before close. Then I looked at how little I would make and decided not to. Thursday could have a lot of surprises in store.

 

[adiggs]

THIS!!! The tax implications of recent earnings are keeping me up at night. 1st world problems, yep.

You must have a weak stomach if the tax bill on the earnings is keeping you up at night. Well - assuming that you aren't spending the tax man's share. (why isn't it ever the tax woman's share?)


Unrelated to your comment, but still on topic - I'm new to needing to do quarterly estimated taxes this year. Consider this a friendly reminder that it's that time of the quarter to be sending in your estimated taxes!

 

[juanmedina]

NOT-ADVICE.

More like random musings that are likely to keep me up all night


The question about position size or backing to achieve $100k/week has gotten me thinking about an entirely different trading style than what I've been doing the last month or two. It would use the same trading strategies I've already come to know and love, but if one has access to and can make use of large amounts of cash / margin to back their trades, then going much further OTM can create positions that are a lot more autopilot.

And if the larger strategy becomes something closer to riding positions out to expiration, rather than trading in and out at desirable opportunities along the way, then actual daily and weekly effort can be significantly diminished. That latter part isn't important to everybody, but I know it is to me. I enjoy the process and learning that comes along with it a lot, but one of the vectors I think about is whether I'm doing something that I believe will be sustainable - something I'll be doing 15 years from now and have been doing weekly over those 15 years.


As backing increases, position sizes (cash / margin backing) can be used for the purpose of lowering position risk rather than increasing profit. At the example we've just been using, $2M can back 200x $100 wide spreads, and next week put spreads can yield a $5 credit using the 580/680 (680 is awfully far OTM). Management of a position is much wider - effectively down to 630ish, with more management options from there, such as the 2x contract for 1/2 spread size that probably can get you rolled down to 550-580. That'll take a REALLY steep and fast fall to make that position unmanageable. Even the Feb-April fall in the share price would have been readily handled, maybe with 3-5 weeks of no income.

But if you're collecting $100k/week the rest of the time, does 45 weeks otu of the year instead of 50 really make a difference? Really?


Which has me thinking - maybe I'm at a point in my life where I've got too many TSLA shares. I'm already overly concentrated based on standard financial advice - I own cash and TSLA shares/derivatives (really seriously NOT-ADVICE). But if I could be pretty reliably be getting $70-$120k/week with an hour or two of actual trading effort each week, along with the routine and ongoing education about Tesla that I would be doing anyway, then would I care if I'd be missing out on more than that? I really, really hope the answer to that question is "no".

The tougher question to be thinking about - would I really care if I missed a $1000 move in the share price? Like - really? It's not like I'd get rid of all the shares, but clearly cash and put spreads would be earning a lot more slowly during that $1000 share price move than owning shares or LEAPs, but again - does it matter if I'm earning that income level? Again - I really hope the answer to that question is "no".

(In both cases - my answer to that question for me; we all have different needs and wants in life, so the answer is personal. It ties into an important idea, of having some idea of what "enough" is).


This idea is somewhat resistant to changing premium and IV levels. If the premium balance shifts to be in favor of calls, then call spreads can be used instead of put spreads, and the resource (cash/margin) is unchanged in type and quantity. Or these can be combined into distant ICs where we add on some call spreads to go with the put spreads.

Heh - maybe I have "discovered" what @Chenkers has been talking about and doing all along


Critical and previously unstated assumption is that these weekly positions are effectively 100% winners. Considering the distance OTM I don't have a hard time believing in that idea. But I also have my own personal experience where 99 of my first 100 trades (according to my trade log), when I was still buying a clue, were winners. (I got paid a lot, buying that clue!). The winning rate has fallen off since then, but managing to avoid max or even big winners isn't that hard to do - especially when you start so far OTM.

Also unstated before now - $100k/week is sort of a ridiculous income or standard to be using (at least for virtually ever person on the planet). I only picked it up from the previous question.

This is what I have found in my after tax account my 700 shares are doing none of the work "with CC's" but my little cash and the small margin I use is what has made a huge difference. When my wife quit her job and we rolled over her 401K we decided not to do what we usually do and go all in with Tesla shares. We decided to stay cash and trade options. On July 22nd we got her rolled over, $285,509 and todays balance is $368,240 after 53 trading days, $1560 a day on mostly selling premium. It is mind blowing to me that someone can possibly have a very decent income and possibly retire with $300K in cash. Maybe if the SP hits $900 I might sell some of my shares and just do credit spreads.

 

[vwman111]

This post has made me think about the long-term implications of using these strategies successfully. I haven’t seen anyone post yet about the compounding function on margin available that this would give over the years and how powerful that could be. Consider the following and note I am going to be very conservative in every step along the way, which will still be mind-blowing in the end. Assumption is also that TSLA shares never change in value to make calculations easier.

A portfolio has 5,000 TSLA shares worth approximately $4 million. I am using this for my example because I imagine many people here have more than this but also many have less.

Using a 50% margin room by the broker (pretty common it seems), that leaves $2 million buying power/margin. Let’s say we play it safe and use only 25% of that (to give lots of safety room to do rolls as needed) so we have $500K margin to start with each week.

We sell weekly $100 put spreads and covered calls but always stay 15-30% OTM depending on what direction the stock seems to be going. So for the last few weeks, I would do 15% OTM puts and 30% OTM calls. This would adjust as things change with the SP. We would be able to generate 50 $100 spread BPS with the $500K margin we want to use and up to 40 covered calls/BCS. 660/560 BPS (15% OTM) expiring Oct8 were $3.70 on Friday. 50 of them is $18,000. Add another $2,000 for way OTM covered calls and we get $20K profit. Again, I’m being very conservative here - this seems like a very safe profit to achieve each week. IV has been very low for a long time so these profits would likely be higher in the future when IV is higher.

Do this for 50 weeks and we get $1,000,000 profit. Assume some weeks we have small losses and some we have no income from rolls and let’s again be conservative and say we end up with $800K profit. Pay 25% taxes (that’s my capital gains rate in my corporation, yours may be different) and post-tax profit is $600K. So the total post-tax return for the year on the total available margin ($2 million, remember we only ever used 25% of that each week) is 30%. And this is being very conservative in every step.

Here is where things get interesting. Add that $600K back into the available margin (it is cash) and the margin for the next year is $2.6 million. Do everything the same in proportion and get the same post-tax 30% return to generate $780K post-tax profit. Add that in for year 3 and you have $3.38 million margin. For year 3, 30% profit is $1 million extra cash generated giving $4.4 million margin available for year 4…you see where this is going.

The compounding effect on the buying power/margin allows this account to grow exponentially! In just 10 years, just doing this and being very conservative, the account is worth almost $32 million ($27 million cash + $5 million in TSLA share value from 4,000 shares)!

Now do it starting with your current account and feel free to adjust the 30% number up or down depending on how aggressive you want to be. And then go beyond 10 years if you want.

We have stumbled onto a great thing here, everyone.

Most powerful force in the universe indeed.

Edit: Note that the increased margin could be incrementally benefitted from each week but I just added it in yearly to make things easier to calculate and visualize.

Two (maybe three) more exciting options to the plan you outlined above:
1. Reinvest in TSLA shares which will continue to provide increased margin.
2. Calculate at a 10%- 20% (for shits and giggles) average annual increase in share price. You will likely hit the $100m mark in 10 years.
3. My understanding is that some are doing this in tax deferred or tax free accounts.

These points reinforce the importance of being consistent. It is very easy to get impatient and greedy. But if you have a longer time period and are dealing with a comfortable nest egg, then time is on your side and consistency will be rewarded.

Those you aren't in the newly formed $100k/week club can disregard and sell aggressive premiums.

 

[pz1975]

Two (maybe three) more exciting options to the plan you outlined above:
1. Reinvest in TSLA shares which will continue to provide increased margin.
2. Calculate at a 10%- 20% (for shits and giggles) average annual increase in share price. You will likely hit the $100m mark in 10 years.
3. My understanding is that some are doing this in tax deferred or tax free accounts.

These points reinforce the importance of being consistent. It is very easy to get impatient and greedy. But if you have a longer time period and are dealing with a comfortable nest egg, then time is on your side and consistency will be rewarded.

Those you aren't in the newly formed $100k/week club can disregard and sell aggressive premiums.

I was going to do it with reinvesting 50% of profit into TSLA shares but just wanted to keep the whole calculation simple. The main purpose was to show the compounding margin leading to compounding profits.

 

[Chenkers]

Are you mostly doing BPS while maintaining that 60-65%? That seems very sufficient, but I imagine with a rapid down move, it'll get eaten very quickly.

BCS does seem to be the missing piece in my toolbox. Being a bull, just feels harder to pull the trigger on BCS. I wouldn't want to go close close on SP, but going far away just doesn't seem worth it either.

Usually it's almost entirely IC's with some BCS, CC and the odd BPS. This week I switched to BPS and added BCS later to get effective IC's and it worked quite well. A bit messier on the portfolio screen but it does allow a better entry price overall. I tend to stick with $25-30 spread widths because they generate more premium for the margin used and I'm very used to working with these spreads. However I am dealing with several hundred spreads each week so it takes a bit more effort to manage.

 

[mickle]

My long-term tax plans were to get of line of credit on my HODL shares, and just borrow money till I die, and let my estate pay the final tax bill.

Unfortunately, this option income has messed that strategy up. First, I can't do BPS in my IRA, so to trade BPS, I had to get margin in my regular brokerage accounts, which disqualifies you for a line of credit (can't have both at the same time). At some point, maybe I'll split my holdings into 2 separate accounts, one for borrowing and one for trading.

But I've been lucky so far, haven't paid any capital gains taxes since 1999! Making so much on options this year, I think I'm finally going to be using up all my carry-forward losses from the .com bust. Learned a lot since then!

 

[dc_h]

Anybody else worried about the unbridled optimism here lately?

 

[bkp_duke]

You must have a weak stomach if the tax bill on the earnings is keeping you up at night. Well - assuming that you aren't spending the tax man's share. (why isn't it ever the tax woman's share?)


Unrelated to your comment, but still on topic - I'm new to needing to do quarterly estimated taxes this year. Consider this a friendly reminder that it's that time of the quarter to be sending in your estimated taxes!

It just chaps my a$$ to pay more than 50c on the dollar to the tax man for what I make. While I love the income, somehow doesn't seem fair that I'm not seeing the bulk of that money.

 

[Yoona]

This post has made me think about the long-term implications of using these strategies successfully. I haven’t seen anyone post yet about the compounding function on margin available that this would give over the years and how powerful that could be. Consider the following and note I am going to be very conservative in every step along the way, which will still be mind-blowing in the end. Assumption is also that TSLA shares never change in value to make calculations easier.

A portfolio has 5,000 TSLA shares worth approximately $4 million. I am using this for my example because I imagine many people here have more than this but also many have less.

Using a 50% margin room by the broker (pretty common it seems), that leaves $2 million buying power/margin. Let’s say we play it safe and use only 25% of that (to give lots of safety room to do rolls as needed) so we have $500K margin to start with each week.

We sell weekly $100 put spreads and covered calls but always stay 15-30% OTM depending on what direction the stock seems to be going. So for the last few weeks, I would do 15% OTM puts and 30% OTM calls. This would adjust as things change with the SP. We would be able to generate 50 $100 spread BPS with the $500K margin we want to use and up to 40 covered calls/BCS. 660/560 BPS (15% OTM) expiring Oct8 were $3.70 on Friday. 50 of them is $18,000. Add another $2,000 for way OTM covered calls and we get $20K profit. Again, I’m being very conservative here - this seems like a very safe profit to achieve each week. IV has been very low for a long time so these profits would likely be higher in the future when IV is higher.

Do this for 50 weeks and we get $1,000,000 profit. Assume some weeks we have small losses and some we have no income from rolls and let’s again be conservative and say we end up with $800K profit. Pay 25% taxes (that’s my capital gains rate in my corporation, yours may be different) and post-tax profit is $600K. So the total post-tax return for the year on the total available margin ($2 million, remember we only ever used 25% of that each week) is 30%. And this is being very conservative in every step.

Here is where things get interesting. Add that $600K back into the available margin (it is cash) and the margin for the next year is $2.6 million. Do everything the same in proportion and get the same post-tax 30% return to generate $780K post-tax profit. Add that in for year 3 and you have $3.38 million margin. For year 3, 30% profit is $1 million extra cash generated giving $4.4 million margin available for year 4…you see where this is going.

The compounding effect on the buying power/margin allows this account to grow exponentially! In just 10 years, just doing this and being very conservative, the account is worth almost $32 million ($27 million cash + $5 million in TSLA share value from 4,000 shares)!

Now do it starting with your current account and feel free to adjust the 30% number up or down depending on how aggressive you want to be. And then go beyond 10 years if you want.

We have stumbled onto a great thing here, everyone.

Most powerful force in the universe indeed.

Edit: Note that the increased margin could be incrementally benefitted from each week but I just added it in yearly to make things easier to calculate and visualize.

This fascinated me so i made a quick weekly compounding spreadsheet.

Assuming
- one has 5000 shares and SP remains constant for 52 weeks
- one uses only 25% of available buying power
- weekly prem is minimum $3/contract
- one will BTC at 80%
- spread is $100

the account will grow by 30% after one year, or $1,174,320 gross income.

etc...

Excludes broker fees.
One spread only (ie BPS). BCS is all gravy.

If one uses 50% of available buying power, account will grow 60% with $2,360,880 gross income.

 

[stealthyc]

You must have a weak stomach if the tax bill on the earnings is keeping you up at night. Well - assuming that you aren't spending the tax man's share. (why isn't it ever the tax woman's share?)


Unrelated to your comment, but still on topic - I'm new to needing to do quarterly estimated taxes this year. Consider this a friendly reminder that it's that time of the quarter to be sending in your estimated taxes!

Note that the penalty for not doing quarterly payments is < 4% so if you think you can make better than that on the money before it is due, don’t do the quarterlies

 

[Chenkers]

It's good to see the spreadsheets getting a workout. This type of analysis is what I've been doing for a few months and had alluded to in earlier posts here. However I think some of this analysis is still a little conservative as I've been working with IC's using less margin for a higher premium.

Some may remember I posted a couple of months back that I was helping my adult sons learn to trade options. As an example my analysis showed that a starting account balance of $5,000 could be turned into $1m within a year doing weekly IC's ($4.50 premium and $1875 margin) where the profits were reinvested each week to generate more contracts. The crazy part with this exponential analysis is that if you extend it out to 2 years (without taxation) the account balance grows to over $300M. Obviously this is crazy as the shear number of contracts on the options chain couldn't be sustained before long.

However we're now 8 weeks in and both my sons are so far tracking almost exactly in line with my original analysis.

 

[buttershrimp]

It's good to see the spreadsheets getting a workout. This type of analysis is what I've been doing for a few months and had alluded to in earlier posts here. However I think some of this analysis is still a little conservative as I've been working with IC's using less margin for a higher premium.

Some may remember I posted a couple of months back that I was helping my adult sons learn to trade options. As an example my analysis showed that a starting account balance of $5,000 could be turned into $1m within a year doing weekly IC's ($4.50 premium and $1875 margin) where the profits were reinvested each week to generate more contracts. The crazy part with this exponential analysis is that if you extend it out to 2 years (without taxation) the account balance grows to over $300M. Obviously this is crazy as the shear number of contracts on the options chain couldn't be sustained before long.

However we're now 8 weeks in and both my sons are so far tracking almost exactly in line with my original analysis.

But how are you going to discipline them when they forget to do their chores? Helicopters don’t clean themselves.