And the buyer can only do that if the share price reaches that amount or higher on the exercise date, no? I was under the assumption it was automatic that I’d lose the shares of the price was at or higher on the day.
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
And the buyer can only do that if the share price reaches that amount or higher on the exercise date, no? I was under the assumption it was automatic that I’d lose the shares of the price was at or higher on the day.
No, a buyer can execute any time at any price.
The good news is that buyers almost never execute until very close to exportation, the better news is that it’s pretty stupid to execute an out of the money call, and the even better news is that it’s really stupid to actually hold a bought contract that long.
All that rolls up into a very unlikely probability that you’ll ever be executed. Sell away!
Xepa777
Member
Anyone thinking about waiting until peak inclusion (Friday Dec 18) and selling some slightly OOM calls expiring February/March for mad premium gains, hoping that it falls down once inclusion is over?
Mokuzai
Member
Yes if you hold all the way to expiration and the stock price is above the strike then you automatically get your shares called away. You automatically sell your shares at the strike price and you keep your premium. If SP is below the strike then it expires worthless and the contract closes out and nothing happens and you keep the whole premium.
As @bxr140 outlines the buyer can exercise any time for any reason but it's unlikely.
oh boy. This is uncomfortable lol. So if the price spikes up during inclusion week I could lose my shares. All my holdings are currently short term and in a taxed account. I sold a $1025 for Jan 8th for about a grand today. I want to hold TSLA for decades but figured I could make some easy worry free money. I guess I should only sell CCs at prices I’d be 100% comfortable losing my shares at. My $800 I sold for this Friday I might close out tomorrow. I’d be sad to sell at $800, How far we’ve come! lol $1025 in January I think I could deal with.
So my shares are at risk if the prices goes over the call amount at any time before expiration, not just at expiration.
Close, but if I am reading your screen shot correctly you sold the call for $40.30, and it is currently worth $62. So you will have to pay all of the money you received and another $21.70 to close it and make it go away.
Your shares are at risk from the second you sell the calls. The person who bought them can execute the calls at any time even if the price is currently below the strike.
LN1_Casey
Draco dormiens nunquam titillandus
I'm also a n00b, but yeah, I'd agree. Only put a strike price in which you'd be happy to sell at. Like, I put in 540 a week or two ago, which was over a 100$ above the SP at the time, but my shares were called away regardless. But I was still happy, since that was the price I needed to sell only 1/3rd of my shares and get my car, a price I'd been eying since February.
And I've been selling puts against the cash since, as I still don't "need" to use it just yet. My guess is your $800 11Dec is safe, there are far too many 700 and 750 calls this week to go much beyond them. That 1085 though... Maybe not, as it may drop post inclusion, buuuuut may not.
Then again, not advice is not advice!
Kinda, I'm watching for peak, or rather signs of a peak, but I'm not a huge TA fan so I'm using my "glad to sell at" prices. Like @phantasms I sold some CC's today for Jan 8th exp @$1025. I'd be so happy to sell those shares at that price and then wheel them back with puts or just take the money and run as these are not core shares.
I do think we'll have a big pull back at some point as TSLA is a roller coaster and I've been making good money off of high IV's.
Only just started with selling puts though as I had shares called away after the inclusion announcement; but was happy to sell at those strike prices (100X+ bagger). And I now have lots of dry powder if something catches my fancy.
I'm also a n00b, but yeah, I'd agree. Only put a strike price in which you'd be happy to sell at. Like, I put in 540 a week or two ago, which was over a 100$ above the SP at the time, but my shares were called away regardless. But I was still happy, since that was the price I needed to sell only 1/3rd of my shares and get my car, a price I'd been eying since February.
My guess is your $800 11Dec is safe, there are far too many 700 and 750 calls this week to go much beyond them. That 1085 though... Maybe not, as it may drop post inclusion, buuuuut may not.
Can you explain what you mean by selling puts against the cash? I don’t want to do anything that’s going to make me profit or lose a million $ overnight and I certainly don’t want to bet against this company.
And you said about post inclusion, it may drop but maybe not. That’s what my play was but now I’m concerned that if it goes above $1025 a week or two before expiration I could get my shares taken away early when the price spikes to $1200 or whatever. Am I not thinking about this correctly?
LN1_Casey
Draco dormiens nunquam titillandus
So, a PUT is a bet saying the SP will not fall below a certain price--basically, you're bullish on the SP! You can sell puts with margin, but if you have the cash to cover the purchase (strike price x 100) then it's a covered put and "safer." You may lose out some if the SP drops rapidly, such as Feb when it peaked at 900 then dropped to 350-something. If you had a 500 put you'd have missed out on the difference of 150/share, or $15k. You'd still get the 100 shares, though, just a higher cost per in the end.
A call is technically bearish, a bet saying the SP will not reach at or above a certain price.
So, this thread specifically is for the "Wheel" style of trading. Selling calls using covered shares, then when it gets called away, using the cash resulting to sell covered puts. I was selling covered calls as a way to earn a bit of cash for my Tesla purchase, and now that my call was called away at 540, I have $54k to sell covered puts. Worst thing that'll happen is the SP drops below my put, and I'll have 100 shiny new shares--hardly a down thing with SP500 inclusion happening!
And, as you add the sell price to the strike to calculate true value (A $10 call for 540 becomes 550 per share if exercised), a put lowers it the same way (A $10 put for 540 becomes 530 per share if exercises).
FOMO is real.
However, Tesla's SP likes to Ford with everyone's mind. The wonderful Q2? Eh. The wonderful Q3? Eh. Stock split? HUGE up... then abrupt drop back down a day or two later, and then only floating about the split price for a few weeks. You can always buy back your call after the inclusion, if it looks to be heading towards $1k. It may cost you in the end, but you'll keep your shares. I had to do that at a loss once, when I fat fingered a call and accidentally made it the week following the week I intended for. I'd have been down another 100 shares had I not, so the $1k I think it cost me was worth it.
As a small time investor also, I understand wanting to keep a tiny hoard to yourself. I, personally, try to not put a strike far out, because Tesla's SP is crazy, and any strike I do I am comfortable with that price for whatever reason. As I said, my shares were called away, and so now I'm selling puts for fun and profit.
Don't sell the calls if you're not prepared for them being called away, or are wanting to feel the pain of the loss. Remember though, in Jan Q4 P&D and Earnings both come out. May be a tug upwards for the SP... or the market may ignore it like it did the previous two quarters, who knows.
@LN1_Casey gave you a good explanation. My transactions are given below as example
- About 2 weeks back, I sold a Put for Dec 24th expiration @600 strike price. At the time the SP was around 550, so this was an aggressive put which I sold for $6800 premium. This cash goes immediately in my account
- The risk is that if at expiration on Dec 24 the SP is below 600, I am obligated to buy 100 shares at 600 each - so $60,000.
- The brokerage will want assurance that I have capability to pay for these shares if this happens. So they will hold $60,000 immediately from my account in reserve for that possibility. This is call the 'cash reserve to cover the put'
- You can only sell puts if you have sufficient cash to cover the possible purchase of stock - hence this is cash-covered put.
- The Share price yesterday shot up to $640, so the premium for the above if the SP is above the $600 strike price on expiration, then the Put for Dec 24 @$600 dropped to $32.
- I bought this put back at $32 to close the position. My profit was $6800 - $3200 = $3600.
In my case, I don't have sufficient cash to cover the puts I am selling. So I am using a margin account - this is much more risky. If my bet is wrong and the stock drops, I will have to buy the shares with margin money.
I recommend for you to watch the Options Alpha "Option Trading for Beginners" playlist that @adiggs suggests:
It is watchable at 1.25x speed and it will help a lot.
Anybody took advantage of the dip this morning? I could not resist and bought some 4 Dec 24 700s for 22.00 each, nearly low price of the day
I looked at those contracts just now and they are 39 each
. I am not on the top of my game lolThis morning i sold 400 contracts of the January 15th 900C for about $21. My thinking is to balance out the long calls by selling further out of the money short calls to capture some of the time/volatility premium and offset the theta decay in the portfolio. This play allows me to participate in the run up to $900, and i will have the ability to manage the position should the share price blow past that (roll out and up.)
That's roughly what I'm planning. I'll probably wait until the week after (say Wednesday after), but that's a minor timing question, and could easily be doing the selling on that day you mentioned.
I'll be evaluating nearer calls like those you mentioned as well as further out calls. As much as the 2+ year calls, looking for both a high strike and a high premium. My hope / guess is that I can lock in a good monthly result for those calls as a result of what I expect will be a high share price and high IV. The high IV may well mean that I can only get a month or 3 worth of premium.
I've begun tracking the IV on the Dec 24 900 calls - it's the position I'm most interested in and thus is a limited view into IV more generally.
It was 125% yesterday, and is 140% today. I expect this to continue climbing and considering how far OTM the call is, somewhere over 200% seems reasonable (IV increases on options the further OTM they are).
BUT that's the source of all the gains in that option yesterday and today. There are plenty more gains like that available if >200% really is on the way, but if it's not matched with share price gains and soon, then closing this position early just for the IV gains may be a good idea. I'll miss the home run in that case, but still experience a decent return (decent is a .. understatement; 2x or 3x in a few days or weeks isn't merely "decent" in any rational world).
It was 125% yesterday, and is 140% today. I expect this to continue climbing and considering how far OTM the call is, somewhere over 200% seems reasonable (IV increases on options the further OTM they are).
BUT that's the source of all the gains in that option yesterday and today. There are plenty more gains like that available if >200% really is on the way, but if it's not matched with share price gains and soon, then closing this position early just for the IV gains may be a good idea. I'll miss the home run in that case, but still experience a decent return (decent is a .. understatement; 2x or 3x in a few days or weeks isn't merely "decent" in any rational world
).
I looked at those contracts just now and they are 39 each
Yeah with IV kicking into the next gear, these are still selling for 40$(yesterday's closing price) in spite of the stock down 3%.
Remember that Vega decreases as you go away from the money, so the impact on CV by rising IV is is somewhat tempered, and total impact generally decreases the farther away you go.
All the same, I'm eyeing a 750/850 or 800/900 credit spread for 12/24. Payout right now is close to 12% and 9% on capital.
Mokuzai
Member
My $550 puts I sold for this Friday I'm thinking are still relatively safe. Sold some $570 puts for next Friday way too early and are down handsomely now...still confident those are safe but thinking I'll take those shares on margin if it comes to it and start hammering the sold calls against them.
LN1_Casey
Draco dormiens nunquam titillandus
I think there are far too many puts between here and $550 for it to close near them, and next week is triple witching AND last day to match SP500 entry. There are a lot of calls and puts near 600, so I think $570 is safe.
I will agree, those new put prices are tempting. Too bad I don't have any more cash to cover, and my account is not set for margin.
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