what are you thinking in term of monthly premiums? I was thinking about selling calls that can give me $800 per month with strikes around 1000+ with a few short term one at lower strikes. I am also trying to exercise some DITM calls that I have in my taxable account and in that account I only have 300 shares so I am going to have to go with January 23rds to be able to exercise them with addition of some margin. After they are exercised sell more call to cover the margin because I don't have the cash.
-
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
what are you thinking in term of monthly premiums? I was thinking about selling calls that can give me $800 per month with strikes around 1000+ with a few short term one at lower strikes. I am also trying to exercise some DITM calls that I have in my taxable account and in that account I only have 300 shares so I am going to have to go with January 23rds to be able to exercise them with addition of some margin. After they are exercised sell more call to cover the margin because I don't have the cash.
My target on covered call sales is a $10/month premium. In practice, this is proving impossible to get, but in reality I do quite well at $5 premium (per month). I try to think in terms of an early close at 2/3rds, so I'm really looking for $15/month, but $7-8/month provides a $5 end result, and that contributes plenty of income. I'm expecting these premiums to increase with the share price increasing, though my $/month needs won't be increasing (easier to accomplish the end result).
I also did an informal stress test using Apple options to see how this income source would work with a highly liquid, but much lower IV options market. It wasn't great, but it was still adequate to my needs (where adequate is a higher income than while working, and ability to expand lifestyle - just not as much).
I have a larger requirement that the cc strike be something I consider a desirable sale price. In practical terms this has stopped weekly cc sales, and has put a share price floor under monthly cc sales. This is a big reason why I'm looking to sell a batch of long term ccs at what I believe will be a large local peak.
And I'll still go fairly far OTM on those - maybe a 1200 strike if the shares were 1000; maybe still the 1200 strike if shares were $800. Even if I miss out on a bunch of upside, I also get cash now that cushions against a 50% drop in the shares which I consider inevitable over the next decade. Actually I consider multiple 50% drops to be inevitable - I just don't know when they'll happen.
The cash up front provides downside protection - potentially 1-2 years of living expenses from that position, and that provides lots of window to ride out a big drop. That's become more of a priority than seeing my shares called away at a high price relative to today, that also involves missing out on a lot of share price growth beyond the strike.
Hi, I am interested in this trade they were mentioning at the Roundtable thread.
Maybe sell 10 CC $1000 Sep 2021 @66.40
Does someone have a 'not a financial advice' on what is a good exit strategy for this if I don't want to reach expiration? Getting even just half of that premium is good enough for me. I'm not planning to have the shares called away.
Thank you.
I started this over in the main thread, and lost the original author and post I was replying to (sorry about that).
Continuing this idea of waiting on a roll until near 0 time value, I'm going to create an example from January options available right now (Jan '21, '22, '23), and with a couple of similar strikes.
If I had sold the '21 400 strike (whatever time in the past, and premium I received), then it would be priced at about $220 today ($213 intrinsic, $7 time value). Rolling this option now, or closer to Jan '21, is reasonably good as you're "only" giving up $7 in time value.
Same situation, but the '22 400 strike. that is priced today at about $270. That's $213 intrinsic value and $57 in time value. If I roll that today, then I give up that $57 in time value to the owner.
The '23 400 strike is at roughly $313. $213 intrinsic plus $50 time value.
The furthest strike I can roll to, today, is that Jan '23 expiration. We'll ignore a roll on the '23 above. We will roll now to the Jan '23 on the other 2 positions to compare how that goes.
First position:
We want a net credit, so we need an option priced higher than $220. The 600 strike is priced at $240, so we can roll this January's option to the Jan '23 600 strike (up from 400) and collect a net credit of $20. Not a great overall trade, but you delay the reckoning another 2 years while adding $200 to your sale price. Whether $220 gain on this position for these 2 years is worth the roll (assuming the incremental improvement in the sale price plus the net credit), or just taking the $400 you'll sell for in January is beyond this exercise to use in the meantime.
For the second option, if we roll today for a net credit (always get the net credit), then we need something above $270. The $500 strike is available at $273 (ish - the bid/ask spread on this option could yield a net debit). So let's go to the $450 for a bit more premium plus it's the next big volume strike (to the degree that any of these far away options are big volume). That's priced at $295, so we get a net credit of (295 - 270) = $25.
Another choice - keeping the strike constant and all of the net credit, the Jan '21 will pick up 313 - 220 ($93 net credit) and the Jan '22 will generate a net credit of 313 - 270 ($43).
The end result - rolling today a Jan '21 or Jan '22 to Jan '23, we could net $20 on the Jan '21 and rolling to a $600 strike.
Rolling today the Jan '22 to Jan '23 we could net $25 but only arrive at the $450 strike.
My conclusion - I'll be waiting until close to expiration OR nearly 0 time value before rolling a position.
From what I've experienced selling cc's, I would expect that premium (all time value to start) to move down slowing with the share price moving down, until the final 3 months. It'll also move up slowly (and going faster as you get close to ATM) until the final 3 months. That last 2-3 months is where the time decay starts kicking in.
IV will also be affecting the option premium, and I think there's a reasonably strong likelihood of the IV going down (good for you), at least in the short term (but I doubt it'll be enough for an early close for 50% plus gain).
Therefore - I would go into the position assuming that the earliest 50% + close opportunity will be something like 9 months into the contract, and holding until the final month won't be a significant source of discomfort.
Lastly - if you think of that position as a pre-sale of shares that you'd like to sell anyway, then selling for $1000 instead of $620 is something you're probably willing to do. Of course, there are choices available to retain the shares when expiration arrives (rolling the calls), but that's for other posts.
THANK YOU!
Your thread is just an amazing resource... Learn something new every day.
Do you (or anyone) know of a tool - i use thinkorswim - that will alert me "You have reached 50% profit, this is a reminder to close your position"?
I bet somebody does and I'd like to know as well.
I rely on Mark One Eyeball, applied regularly to my positions
IIRC, you were selling shorter term CC when you started the Wheel thread. As your experience improved do you have any more thoughts on a generic timeframe?
Around Christmas Eve, I’m also hoping to sell a few CC right on the absolute high of the year (currently predicted to be $845 in my “you must be dreaming” perfect world). My thinking is to take advantage of time decay in that last three month window, thus selling Mar21 or Apr21 1000c instead of Sep21 or even longer Jan22. The premiums are lower, maybe $25-$35, but with a decreased chance of being called away. I would probably do 6 to 9 contracts, thus clearing $15k to $30k if not called. Given Tesla’s 50% yoy growth rate, the $1000 SP could be breached in late 2021, $1500 in 2022, $2000 in 2023. I certainly don’t want to risk losing the shares given that growth rate. I don’t really need the cash now, thus the premiums would probably be plowed back into stock (filling in those pesky non-round lots of 20, 25, 40, 60 shares that I have in various accounts). Decisions.
The TDAmeritrade app has the ability to set alerts which would do that (stocks and options)
A DOTM CC is a directional play. Here's the P/L with no IV change offset added (ostensibly, lower IV means you earn faster on the contract) and an interim plot for June 21. (Pay no attention do the Dec24 $525 in the upper right--that's some weird artifact on another position that won't go away). The short story is that you're collecting ~$6.5k on the contract in exchange for limiting your upside to $1000 on the underlying.
Here's the P/L just for the -C, so you can get an idea on how the premium comes back to you. (Again with no offset for what will certainly be a decreasing IV). Feel free to play with different dates and IVs in your calculator.
The question you really need to ask is: what are you trying to achieve? The covered call is a decent return and effectively lowers your cost basis. But there's no such thing as free money, there's no such thing as easy money, and the compromise you need to be willing to make is that if TSLA goes up ~60% over the next few quarters, your shares will be at increasing risk that they will be called away from you. That's simply how it works. IMO you also need to have a CTJ on what "I don't want the shares to be called away" actually means. If that's a hard no, don't sell the call, just hold the shares.
As for actually closing early, its pretty straightforward if you're going to keep the shares anyway. Whenever you've made a comfortable profit or whenever you get most uncomfortable with increasing underlying, simply buy to close. Both directions are pretty safe, in that there's a good chance you'll always be better off than just the shares alone. (The only way you're not is if there's a huge upward spike in underlying, especially early on in the contract). You're going to make theta every day, so you're constantly earning a small amount of unrealized profit regardless of underlying movement. IV is probably pretty high right now, so as that comes down (it moves a lot slower for farther expirations, FYI), the CV will decrease and you'll earn potentially a decent amount of unrealized profit there. As underlying moves up the CV will increase as well, but because the ∆ on the contract is by definition lower than the shares, you'll at least still move up in unrealized profit. And of course, if underlying moves down the ∆ will accelerate the unrealized profit in your contract (of course, at the expense of decreasing value of your shares.
You should be able to set an alert on the contract value itself--I recommend you use the ask instead of last, as that will be more accurate. Or, if you know you want out at 50% or 80% or whatever profit, you can also just set a limit buy on the contract and it will fill whenever it fills.
If you want to go nuclear, you can also set a conditional market buy to close on the contract based on the underlying. So, if TSLA hits $1000, you automatically send a buy to close at market on the contract.
Last edited:
I do have my own thoughts, from my own experience. That experience has a broad stroke of red in it due to that one expiration day in August with the >$200 move that trading day. I had sold a weekly for that day thinking I would safely nick a few bucks of premium. Single worst trade for me selling options this year - enough bad on it's own to wipe out 4-5 months of trading profits to that point. (I ended that trade positive via roll, and a big drop back in share price, but still).
I learned then, something I keep repeating to myself and then finding a reason to violate, that I don't write ccs unless the strike is one I'm happy to sell at. Larger context - neither I, nor my wife, want to sell at all
. But I'm willing to sell now at enough of a markup that it all works out well overall.Example of that last - I've sold some Sep '23 840 calls. The shares were around $400 at the time. When I mathed that out, should they be assigned, then we keep a $124 premium AND we sell at a big bump relative to when we started. That big premium provides living expense money now, and if we end up selling at expiration, then the overall portfolio has increased from "enough" to roughly 25% more than "enough", ignoring the changes that would bring to the other accounts ("enough" = scheduled retirement date
).Thus trading away the possibility of a big move past $840 in 2 years is worthwhile, when I get such a big premium for living expenses in the meantime. And as a bonus, the income from that sale is what I'm using in that account for the purchased calls that are up by a lot.
Because of the first constraint - never sell a CC at a strike I'm not happy to sell at (i.e. - I treat these as pre-sales of shares) - I haven't been very active on the CC side for a few months now.
I HAVE transitioned away from weekly CCs to monthlies though. My rationale includes:
- I want better strikes (further OTM) and I'm willing to accept lower total and % return to get them. For CCs, the strike is my primary concern (more .05 to .10 delta, than .20 to .30 delta as I've been using with puts). Then I look at the premium - I'd like to get $7 per month (yielding $5 for an early close at 2/3rds), but that's negotiable.
- Having worked the weeklies for several months over the summer, I liked the results but I didn't like the amount of attention, energy, and time that was consuming. So I've also been moving put sales to monthlies as well, though if I were working the weeklies (now or in the future), it would be weekly puts and monthly calls. The monthly expirations that are 3-9 weeks out has enabled me to more easily ignore the short term gyrations due to being so far OTM plus having so much time for a move in my direction.
- Among option selling strategies, what I've read pretty consistently suggests that this 20-60 day window for option sales yields optimum overall results. I've seen this in the context of traders that sell options and leave them to expiration (higher volume strategy - they don't put any energy into individual positions along the way). I've seen this in the context of early closer, with higher premiums by starting positions of 1-2 month duration, and then seeing time decay kick in strongly the last 3 weeks.
My own brief experience - it seemed like I could earn more on the weeklies (i.e. 4 weeklies would beat 1 monthly). But the weeklies were a LOT more exposed to a bad move against me. And since I like to sell both puts and calls, anything that works well for me in one direction works badly for me in the other
CONCLUSION: One reason to work the weeklies, at least for a few months, is the increased rate of experience and learning that comes from it. In 5 months of weeklies, I estimate I got most of the experience of 20 months of selling monthlies. That experience is an important component (but not the primary) for scheduling my retirement date. That was really good for me.
Having had that experience though, I prefer the dynamics of the current and next month contracts.
I'm thinking about the same as you on the 12/24 CC position. I'm flexible about the duration, but I've already sold a 2 year CC position once - I'm not shy about doing that again. My guess-of-the-moment is I'll find my best balance around 1 year though (not enough incremental time value for the extra year).
Thanks. It's the reason I am trying Options aside from HODL. I am 7/7 on very small CC 95% OTM, so far. But they are all Weeklies and this would be my first 9 months out. So I'm kinda nervous about it. I appreciate all the lessons from the postings!
Thanks for that greatly informative post. I like your delta picks and will do some more research around Mar/Apr 1000c. I, too, am flexible on strike and duration but I’m more nervous about selling CCs going out farther than one or two earnings reports just to get a higher premium. Once Berlin and Austin come online or FSD income is realized, the SP should grow at 50% yoy and I want all my shares for that.
400 contracts?
We’re in a different league here. I’m lucky to sell 4 contracts, though this is in an IRA so no margin and they must be covered. I did buy 50 contracts of some OTM calls a while back, but couldn’t handle the volatility and sold most of them earlier during this week’s run up. I’m still holding a handful until the next week or two.
This idea totally makes sense to me, and is an excuse for me to emphasize the importance of taking anything any of us read here with at least an additional filter of whether some idea makes personal sense.
I am particularly interested (given that it's a good position) in going further out because the risk of a downward move in the short term (next year or two) has become more important for me to consider, while the risk of missing part of a big upward move is significantly lower. By going further out, I can lock in the good starting position for longer and realize a bigger up front chunk of cash. That was unimportant even a year ago.
On a big downward move, I'll still have that bigger chunk of cash to keep me warm at night (and the fridge stocked, etc..). The overall portfolio will still decline in $ value, but it's components will be mostly unchanged (I'll still own the same shares for instance, though I'll be spending some of the cash).
This wasn't true for me even last year, and hasn't been true for the last 8 years. In that previous time period, I'd be doing exactly the same as you (without the actual knowledge, education, or willingness to do the CC in the first place
). I'd be structuring positions to be sure I get premiums with as little risk or loss of sleep as possible, whether it was weekly or some other expiration.Over the last 8 years, I've ridden through several 1/3rd or 1/2 drops in the share price, without losing a wink. I owned the same shares before and after and the investment thesis was intact whatever the market said the company was worth. I'm not as blasé about a 50% drop today.
Pretty sure that in another 8 years, if I’m still here, I’ll be thinking much more like you. I’m definitely looking forward to having the luxury of selling CCs and not even worrying if they’re called away.
How many outstanding contracts do you all consider to be enough to be "liquid" and feel assured of closing on demand at a reasonable price? For instance, looking at Sep 2021 calls, I see:
Strike / Open Interest
$700 / 27,278
$720 / 19,175
$760 / 2,514
$800 / 3,954
$850 / 287
$900 / 266
$950 / 92
$1000 / 518
$1050 / 537
I might consider selling a $1000 covered call, except the open interest of only 518 seems quite low... what if I want to buy back to close during a dip and nobody will sell at that time?
The Open Interest for a $1000 call is WAY higher for January 2022 than September 2021 at 10,004, which suggests I might just need to suck it up and accept that the 2021 annual production & delivery numbers will be in scope -- though if I'm planning to buy back early then maybe that matters less.
Strike / Open Interest
$700 / 27,278
$720 / 19,175
$760 / 2,514
$800 / 3,954
$850 / 287
$900 / 266
$950 / 92
$1000 / 518
$1050 / 537
I might consider selling a $1000 covered call, except the open interest of only 518 seems quite low... what if I want to buy back to close during a dip and nobody will sell at that time?
The Open Interest for a $1000 call is WAY higher for January 2022 than September 2021 at 10,004, which suggests I might just need to suck it up and accept that the 2021 annual production & delivery numbers will be in scope -- though if I'm planning to buy back early then maybe that matters less.
You can ALWAYS close at market. You're not finding a seller/buyer, you're just closing a contract with a market maker. Usually the B/A spreads are so close that its not worth trying to find a "more liquid" strike that might be a few cents tighter spread; the volume of total contracts is really what's going to drive things.
Similar threads
