Wiki Selling TSLA Options - Be the House

[corduroy]

I have been game planning my "end game" for this S&P event . I want to have all the strategy decisions made then just fill in the exp dates and strikes based on the current conditions.

I too am predicting a rise to a peak, then a fall after inclusion. Based on that assumption, when I feel we have reached the peak, my current plan is to:

- Sell my short term calls (will be happy to unload those)
- Buy to close my cash secured put
- Sell CCs (probably around 2-3 months out, strikes TBD based on conditions)
- I'd like to get back on the wheel, but I'm staying away from selling any puts for a while until the SP stabilizes.

As far as capital gained (hopefully) from the sale of the calls. I was thinking of 2 options:

1. Holding the cash until a drop then buying shares or maybe LEAPs if IV is low.
2. Something I've never tried, buying puts. I've not considered a bearish strategy with TSLA before, and probably would not again, but this is a unique time/situation. Obviously that would be a more aggressive way to play an expected short term drop.

 

[adiggs]

I have been game planning my "end game" for this S&P event . I want to have all the strategy decisions made then just fill in the exp dates and strikes based on the current conditions.

I too am predicting a rise to a peak, then a fall after inclusion. Based on that assumption, when I feel we have reached the peak, my current plan is to:

- Sell my short term calls (will be happy to unload those)
- Buy to close my cash secured put
- Sell CCs (probably around 2-3 months out, strikes TBD based on conditions)
- I'd like to get back on the wheel, but I'm staying away from selling any puts for a while until the SP stabilizes.

As far as capital gained (hopefully) from the sale of the calls. I was thinking of 2 options:

1. Holding the cash until a drop then buying shares or maybe LEAPs if IV is low.
2. Something I've never tried, buying puts. I've not considered a bearish strategy with TSLA before, and probably would not again, but this is a unique time/situation. Obviously that would be a more aggressive way to play an expected short term drop.

This is my moonshot as well.

I'm ready for the price to start moving up to enable the moon shot. I'll be pretty happy with selling the short term calls for a profit, and getting a high enough share price (and IV) to tempt me into selling a longer term CC.

If we don't see the really high share price / spike, then I'm pretty sure I'll be selling a 1-2 month position at a minimum.

 

[bxr140]

- Sell CCs (probably around 2-3 months out, strikes TBD based on conditions)

Remember that if you think underlying is peaking at a high, the only logical strike for a CC is one that is DITM.

2. Something I've never tried, buying puts. I've not considered a bearish strategy with TSLA before, and probably would not again, but this is a unique time/situation.

Remember that selling calls is a bearish strategy. Selling calls is betting against TSLA.

 

[Oil4AsphaultOnly]

With all these posts about expectations of a peak, followed by a trough, aren't we approaching enough volume to induce a self-fulfilling prophecy? The only difference being "when" it actually carries out?

 

[bkp_duke]

I have been game planning my "end game" for this S&P event . I want to have all the strategy decisions made then just fill in the exp dates and strikes based on the current conditions.

I too am predicting a rise to a peak, then a fall after inclusion. Based on that assumption, when I feel we have reached the peak, my current plan is to:

- Sell my short term calls (will be happy to unload those)
- Buy to close my cash secured put
- Sell CCs (probably around 2-3 months out, strikes TBD based on conditions)
- I'd like to get back on the wheel, but I'm staying away from selling any puts for a while until the SP stabilizes.

As far as capital gained (hopefully) from the sale of the calls. I was thinking of 2 options:

1. Holding the cash until a drop then buying shares or maybe LEAPs if IV is low.
2. Something I've never tried, buying puts. I've not considered a bearish strategy with TSLA before, and probably would not again, but this is a unique time/situation. Obviously that would be a more aggressive way to play an expected short term drop.

I thought about puts, but decided they were too risky for my taste because I still believe there is a real chance that we see a jump in price, but not a huge one, and then the share price simply doesn't come back down very much. A huge spike (>1200) and I will certainly be selling with the look to buy back in, but if we only move up to 750-800, I'm not sure we will see things drop down much. Not advice, just my reading of the tea leaves for my situation.

 

[adiggs]

I thought about puts, but decided they were too risky for my taste because I still believe there is a real chance that we see a jump in price, but not a huge one, and then the share price simply doesn't come back down very much. A huge spike (>1200) and I will certainly be selling with the look to buy back in, but if we only move up to 750-800, I'm not sure we will see things drop down much. Not advice, just my reading of the tea leaves for my situation.

This is the same consideration for me regarding the buying of puts. There has to be a big enough spike that I consider the drop to both be inevitable in the very short term (say the Jan '21 options) AND I have to believe that it will be sufficiently substantial that I've got a big window for success.

I.e. - if shares were $2500 on Friday, then purchasing $2000 puts sounds like a no-brainer. There just won't be enough buying pressure after inclusion to sustain such a price, much less push it up. I only think about this scenario in my dreams at night, but hey - I do have a series of trades and positions I want to put on in such a case, even if the details are awaiting reality to arrive.


I'd also be selling CCs on my shares, as you point out, and I think that this is inevitable whether we get a spike or a swell. The difference being how far out and the strike (ITM or OTM).

 

[bkp_duke]

This is the same consideration for me regarding the buying of puts. There has to be a big enough spike that I consider the drop to both be inevitable in the very short term (say the Jan '21 options) AND I have to believe that it will be sufficiently substantial that I've got a big window for success.

I.e. - if shares were $2500 on Friday, then purchasing $2000 puts sounds like a no-brainer. There just won't be enough buying pressure after inclusion to sustain such a price, much less push it up. I only think about this scenario in my dreams at night, but hey - I do have a series of trades and positions I want to put on in such a case, even if the details are awaiting reality to arrive.


I'd also be selling CCs on my shares, as you point out, and I think that this is inevitable whether we get a spike or a swell. The difference being how far out and the strike (ITM or OTM).

I hadn't considered ITM CCs if we have a large spike. I need to ruminate on that for a while, might be a very good strategy.

With DITM CCs, it's there a substantial risk that your shares get immediately called away?

 

[pz1975]

I hadn't considered ITM CCs if we have a large spike. I need to ruminate on that for a while, might be a very good strategy.

With DITM CCs, it's there a substantial risk that your shares get immediately called away?

If your shares get called away right away, you would just buy them back and keep the time premium that you sold with the options. There may be no premium, however, if they are deep enough. The risk would be you don’t find out they are called away until after market close and the stock gaps up the next day more than the time premium you earned.

I personally am planning to sell ATM or OTM covered calls in the event of a big spike. I’d sell them for 2-3 months out to get a bigger time premium.

 

[adiggs]

I hadn't considered ITM CCs if we have a large spike. I need to ruminate on that for a while, might be a very good strategy.

With DITM CCs, it's there a substantial risk that your shares get immediately called away?

The only risk I see for immediate exercise is if the share supply is so minuscule next to the demand, then share buyers might start buying calls simply to exercise immediately, accepting the premium as the tax they need to pay at that point to yield shares. Buyers would be pretty desperate in that case . And I suspect they'll have enough shares coming out of the hands of funds that will be selling in order to maintain a position that isn't too concentrated.

Outside of this one very unique situation, likelihood of early exercise ~0. Sure it's theoretically possible, but only when time value gets close to $0.


If you sell a $2000 strike call with shares at $2500 and it's 2 years out, I'd guess there is at least $100 time value in that. Somebody that does an immediate exercise just gave you a net $100 premium (paid $600 for a $500 strike to strike gain). And if we're right about the drop, then they also have set you up to buy back in at a lower price should you decide to wait. Of course tax considerations might change the desirability of risking that early exercise.

My own experience - I sold a $600 strike Sep '21 put at the end of August; shares were something like $497 (I track this stuff), so $100 ITM. My thinking then was that $600+/share by Sep '21 would be easy mode. Or at least close enough that a buy to close would be profitable. Option premium was $225 for that 1 year option position. Worst case, I accept assignment and buy shares with a cost basis of $375, which I find highly acceptable. The downside in this position is that I have $60k/contract sequestered for a year, so that cash flow hit might be an issue. I did get $22,500 / contract to ease those concerns though

And a big enough spike, despite the time remaining, might drive the value of that put low enough for a really early close. Something I believed would be impossible before say 3 months to go. EDIT to add: As a point of interest, those puts are trading at $145 right now. That's not enough of a gain for me, to consider an early close right now.

 

[adiggs]

If your shares get called away right away, you would just buy them back and keep the time premium that you sold with the options. There may be no premium, however, if they are deep enough. The risk would be you don’t find out they are called away until after market close and the stock gaps up the next day more than the time premium you earned.

I personally am planning to sell ATM or OTM covered calls in the event of a big spike. I’d sell them for 2-3 months out to get a bigger time premium.

Whatever the strike I choose, whether ITM or OTM, the strike will be chosen first based on what I consider a reasonable pre-sale of those shares. The account I'll be selling in is taxable, so a big ITM call is preferable to me over just simply selling the shares and buying back later.

Well probably - I'd need to math out the taxes and see if there was a big advantage either way. I'm partial to generating the income and holding the shares, over selling the shares and buying back at a lower strike.

 

[bxr140]

I hadn't considered ITM CCs if we have a large spike. I need to ruminate on that for a while, might be a very good strategy.

An ITM call is basically the same as an OTM cash covered put, just with more offramps and typically a little better payout. But the idea is that most of the "premium" you collect is actually intrinsic value that's offset by the lower-than-SP strike, so you're still only looking to profit off the extrinsic value. The amount ITM the strike is just manifests as downside protection. This is especially useful if you're in a margin account because you can work the shares to your advantage, but I sell DITM CCs in my IRA all the time as volatility plays.

With DITM CCs, it's there a substantial risk that your shares get immediately called away?

No. That's not the way smart money operates. Remember that smart money does not hold short expiration long calls (say, closer than a month) for any appreciable amount of time. (Which, again, is different than day trading close expirations, or even overnight trading close expirations). And smart money does not execute on far expirations, since its a better play to hold or close the position. So, while assignment is a non-zero risk, its pretty minimal probability and, since its not smart (= big) money, the volume associated with that minimal risk is also small...further reducing probability to you.

 

[bxr140]

I personally am planning to sell ATM or OTM covered calls in the event of a big spike. I’d sell them for 2-3 months out to get a bigger time premium.

An ATM and especially OTM CC is a bullish play--unless you think the underlying will keep going up after a big spike, it goes against conventional logic to enter that kind of position at a high underlying.

Its sort of the equivalent of <ahem> buy high, sell low.

 

[adiggs]

An ATM and especially OTM CC is a bullish play--unless you think the underlying will keep going up after a big spike, it goes against conventional logic to enter that kind of position at a high underlying.

Its sort of the equivalent of <ahem> buy high, sell low.

You'll need to explain more, or I think you've accidentally gotten put and call reversed here.

Selling an OTM CC pays off in full when the share finish below the strike, which looks like a bearish play (even if a not necessarily very aggressive bearish position). It looks to me like the very best time to sell a CC is at a high underlying price (higher premium, more likely to regress to some lower underlying share price).

Selling an OTM put pays off in full when the shares finish above the strike, which looks like a bullish position to me (even if not a very aggressive one).

 

[pz1975]

An ATM and especially OTM CC is a bullish play--unless you think the underlying will keep going up after a big spike, it goes against conventional logic to enter that kind of position at a high underlying.

Its sort of the equivalent of <ahem> buy high, sell low.

Selling a covered call is always a bearish play, whether ITM, ATM or OTM. I’m not sure what you are trying to say - maybe you thought I said I was buying the call?

I remember on Feb 4 when the SP tanked, the IV also simultaneously spiked and I was still able to sell all my short-term calls I had bought during the run-up for very hefty profits. I also ended up selling some way OTM (50-80% higher than the SP) covered calls that day and the next couple days expiring 2-6 weeks out, and made a killing on those too since the IV was so high and I rightly guessed the squeeze was over.

 

[bxr140]

Selling an OTM CC pays off in full when the share finish below the strike, which looks like a bearish play (even if a not necessarily very aggressive bearish position). It looks to me like the very best time to sell a CC is at a high underlying price (higher premium, more likely to regress to some lower underlying share price).

Selling a covered call is always a bearish play, whether ITM, ATM or OTM. I’m not sure what you are trying to say - maybe you thought I said I was buying the call?

NO. Like, the hardest of NO's, and you should both seriously consider modifying your posts so as to not spread misinformation. That's not a personal attack (options are quite nuanced) but rather a plea to not feed newer traders with bad logic. And sorry about the disagrees--I don't like to disagree a post that otherwise comes from an honest place, but they are so wrong that I felt I had to flag them for others.

Selling an OTM CC is 100% a bullish play. In most cases the anchor leg are the shares, not the call, because the delta of 100 shares is going to outweigh the -∆ of the call. You absolutely want the underlying price to go UP with an OTM CC, as that is how you maximize profit. The farther OTM the call, the more bullish you are. What you want is to capitalize on a) the positive ∆ of the position, 2) [hopefully] the high volatility of the contract, and 3) the theta burn on the contract. The ideal outcome is underlying closing on expiration day just below the strike price if you wanted to keep the shares, or just above the strike price if you wanted to unload the shares. Either way, you are absolutely profiting on stock price going up. I can't stress this enough, the best time to sell an OTM CC is when you think underlying is going to GO UP. That is bullish.

Selling an ATM CC is primarily a neutral play, or slightly bullish if you want to unload the shares. All of the profit comes from the -C. The ideal outcome is that the price goes nowhere; the best time to sell is when you think the price is going to be stable. This is primarily a volatility play which of course is at odds with stability, but regardless...that's what it is. The position has downside protection at the expense of reduced profit, so usually strike gets tweaked +/- NTM to find a break even at an underlying price with some technical relevance, but big picture downside protection != bearish entry logic.

Selling an ITM CC is a neutral to bearish play, and is best entered when you know you want to unload the shares AND are worried that underlying might go down, but you still want to capitalize on time value and, ostensibly, high volatility. Again, all of the profit comes from the -C, the difference between current price and strike price is just your downside protection.

 

[adiggs]

NO. Like, the hardest of NO's, and you should both seriously consider modifying your posts so as to not spread misinformation. That's not a personal attack (options are quite nuanced) but rather a plea to not feed newer traders with bad logic. And sorry about the disagrees--I don't like to disagree a post that otherwise comes from an honest place, but they are so wrong that I felt I had to flag them for others.

Selling an OTM CC is 100% a bullish play. In most cases the anchor leg are the shares, not the call, because the delta of 100 shares is going to outweigh the -∆ of the call. You absolutely want the underlying price to go UP with an OTM CC, as that is how you maximize profit. The farther OTM the call, the more bullish you are. What you want is to capitalize on a) the positive ∆ of the position, 2) [hopefully] the high volatility of the contract, and 3) the theta burn on the contract. The ideal outcome is underlying closing on expiration day just below the strike price if you wanted to keep the shares, or just above the strike price if you wanted to unload the shares. Either way, you are absolutely profiting on stock price going up. I can't stress this enough, the best time to sell an OTM CC is when you think underlying is going to GO UP. That is bullish.

Selling an ATM CC is primarily a neutral play, or slightly bullish if you want to unload the shares. All of the profit comes from the -C. The ideal outcome is that the price goes nowhere; the best time to sell is when you think the price is going to be stable. This is primarily a volatility play which of course is at odds with stability, but regardless...that's what it is. The position has downside protection at the expense of reduced profit, so usually strike gets tweaked +/- NTM to find a break even at an underlying price with some technical relevance, but big picture downside protection != bearish entry logic.

Selling an ITM CC is a neutral to bearish play, and is best entered when you know you want to unload the shares AND are worried that underlying might go down, but you still want to capitalize on time value and, ostensibly, high volatility. Again, all of the profit comes from the -C, the difference between current price and strike price is just your downside protection.

Thank you. That's the incremental explanation I was looking for.

 

[pz1975]

NO. Like, the hardest of NO's, and you should both seriously consider modifying your posts so as to not spread misinformation. That's not a personal attack (options are quite nuanced) but rather a plea to not feed newer traders with bad logic. And sorry about the disagrees--I don't like to disagree a post that otherwise comes from an honest place, but they are so wrong that I felt I had to flag them for others.

Selling an OTM CC is 100% a bullish play. In most cases the anchor leg are the shares, not the call, because the delta of 100 shares is going to outweigh the -∆ of the call. You absolutely want the underlying price to go UP with an OTM CC, as that is how you maximize profit. The farther OTM the call, the more bullish you are. What you want is to capitalize on a) the positive ∆ of the position, 2) [hopefully] the high volatility of the contract, and 3) the theta burn on the contract. The ideal outcome is underlying closing on expiration day just below the strike price if you wanted to keep the shares, or just above the strike price if you wanted to unload the shares. Either way, you are absolutely profiting on stock price going up. I can't stress this enough, the best time to sell an OTM CC is when you think underlying is going to GO UP. That is bullish.

Selling an ATM CC is primarily a neutral play, or slightly bullish if you want to unload the shares. All of the profit comes from the -C. The ideal outcome is that the price goes nowhere; the best time to sell is when you think the price is going to be stable. This is primarily a volatility play which of course is at odds with stability, but regardless...that's what it is. The position has downside protection at the expense of reduced profit, so usually strike gets tweaked +/- NTM to find a break even at an underlying price with some technical relevance, but big picture downside protection != bearish entry logic.

Selling an ITM CC is a neutral to bearish play, and is best entered when you know you want to unload the shares AND are worried that underlying might go down, but you still want to capitalize on time value and, ostensibly, high volatility. Again, all of the profit comes from the -C, the difference between current price and strike price is just your downside protection.

I hear what you are saying and agree that when you sell a covered call, you want the SP to go up, but just not above the price of the call you sold (unless you want to sell the shares at that price).

What I was saying is that compared to not selling the covered call (just holding the shares), selling an OTM covered call is relatively more bearish than not selling it. If I own 100 shares of TSLA right now (SP 600) and the SP goes to 1,000, I’m way further ahead if I just did nothing but hold the shares vs. if I sold a covered call with an 800 strike price. Thus, selling the covered call is relatively bearish compared to doing nothing but holding. And I do understand that if the SP goes to 800 or less by expiration date then I am further ahead, but that is because the SP stayed down and the bearish part of my position remained profitable.

 

[ReddyLeaf]

NO. Like, the hardest of NO's, and you should both seriously consider modifying your posts so as to not spread misinformation. That's not a personal attack (options are quite nuanced) but rather a plea to not feed newer traders with bad logic. And sorry about the disagrees--I don't like to disagree a post that otherwise comes from an honest place, but they are so wrong that I felt I had to flag them for others.

Selling an OTM CC is 100% a bullish play. In most cases the anchor leg are the shares, not the call, because the delta of 100 shares is going to outweigh the -∆ of the call. You absolutely want the underlying price to go UP with an OTM CC, as that is how you maximize profit. The farther OTM the call, the more bullish you are. What you want is to capitalize on a) the positive ∆ of the position, 2) [hopefully] the high volatility of the contract, and 3) the theta burn on the contract. The ideal outcome is underlying closing on expiration day just below the strike price if you wanted to keep the shares, or just above the strike price if you wanted to unload the shares. Either way, you are absolutely profiting on stock price going up. I can't stress this enough, the best time to sell an OTM CC is when you think underlying is going to GO UP. That is bullish.

Selling an ATM CC is primarily a neutral play, or slightly bullish if you want to unload the shares. All of the profit comes from the -C. The ideal outcome is that the price goes nowhere; the best time to sell is when you think the price is going to be stable. This is primarily a volatility play which of course is at odds with stability, but regardless...that's what it is. The position has downside protection at the expense of reduced profit, so usually strike gets tweaked +/- NTM to find a break even at an underlying price with some technical relevance, but big picture downside protection != bearish entry logic.

Selling an ITM CC is a neutral to bearish play, and is best entered when you know you want to unload the shares AND are worried that underlying might go down, but you still want to capitalize on time value and, ostensibly, high volatility. Again, all of the profit comes from the -C, the difference between current price and strike price is just your downside protection.

Thanks for that extra explanation. Perfect. I like to think of selling the CC as selecting a bullish pre-sale price, but hoping the SP won’t quite get there, thereby keeping the premiums. Furthermore, those premiums should be highest when the SP is at a local maximum, high volatility, lots of demand for calls, essentially everyone thinking that it’s going to the moon. Not that I’m able to predict when’s the best time, but that’s my theory. I’m still working on those pesky Greeks, most are easy conceptually, just problematic due to constantly changing as SP varies and time approaches expiration.

 

[ReddyLeaf]

With all these posts about expectations of a peak, followed by a trough, aren't we approaching enough volume to induce a self-fulfilling prophecy? The only difference being "when" it actually carries out?

Yes, we all have 10,000 contracts at 12/18, 12/24, and 12/31. /s

 

[ReddyLeaf]

....snip....If you sell a $2000 strike call with shares at $2500....snip

At $2500/shr I’m done selling options and into buying tropical beaches.