Wiki Selling TSLA Options - Be the House

[doddiozil]

Not advice, but the return on capital is higher. You need to know the risks, however, as if you get ITM on a BPS you have to roll it or make another adjustment to avoid a gigantic loss. There is more risk than a CC or cash-secured put. That's why most people here are trading pretty far away from the share price, and for expirations about 7-10 days out.

That makes sense. Thank you!

 

[doddiozil]

Well here's an example, from tonights option chain, for oct22.
- one 800 put nets 11.15 credit, reserves at most around 80k margin
- a -p800/+p700 bull put spread nets $8 and reserves 10k backing

So I can sell 8 spreads, and get $64/share, or $6400 for equal margin. It's leverage.
BUT now my max loss is at 700 strike. With a naked put, max loss would be at 0.

Thats a good summary. Thank you for that. Do most of you then have significant of your account in cash for the BPS? Or do you just rely on margin? My account is 100% Tesla shares.

 

[stealthyc]

Thats a good summary. Thank you for that. Do most of you then have significant of your account in cash for the BPS? Or do you just rely on margin? My account is 100% Tesla shares.

It's a mix, some have cash, some use margin. Personally I use margin.

 

[samppa]

Thats a good summary. Thank you for that. Do most of you then have significant of your account in cash for the BPS? Or do you just rely on margin? My account is 100% Tesla shares.

I used to be 90% tsla, 10% cash. But since cash gives better backing - shares only aboit 50% margin of their value - I've been hoarding cash and not buying more shares lately.. currently my account is about 70% tsla / 30% cash. So I rely on margin from shares and cash.
Can''t sell shares because taxes would be ridiculous here..

 

[doddiozil]

It's a mix, some have cash, some use margin. Personally I use margin.

So using margin what is the biggest risk? That share price drops enough so that the BPS is in the money?

 

[Cherry Wine]

Alright, I’ll bite - 30x 10/22 950s at 0.77.

 

[bonk3125]

Wow. Have a great weekend, everyone. Wish I opened more BPS lol. Still saving some ammo for Monday/Tues.

 

[KTC Lurker]

I am definitely NOT chasing the SP up with my BPS. I'm very content to let it go further and further away from my Short leg at 720. The higher we go, the more likely a "sell the news" event could cause big losses on BPS with a 10% drop. I'm also not rolling early into 10/29 until I've seen the fall out next Thursday and Friday. Even then, I'm probably not going to open new positions until after the following weekend and open on the following Monday, when everyone has digested the news. It may cost me some potential money on decreasing IV, but my main goal is to stay safe. There are a lot of trading weeks left in the quarter after this one.

Is there a reason you roll your positions out weekly vs. closing and re-opening? Wondering if you're avoiding commissions, or have some other wisdom in the decision.

 

[stealthyc]

Is there a reason you roll your positions out weekly vs. closing and re-opening? Wondering if you're avoiding commissions, or have some other wisdom in the decision.

Rolling is just closing and re-opening (in a single transaction).

 

[adiggs]

Thats a good summary. Thank you for that. Do most of you then have significant of your account in cash for the BPS? Or do you just rely on margin? My account is 100% Tesla shares.

As others have commented it varies. I'd like to add that it varies based on each person's objective or desired outcome, as much as it does risk tolerance. Some of us are retired and are much more focused on income - we've accumulated what we believe we'll need and now the focus is on income. Many or most are accumulating and these differences in objectives / outcomes leads to different risk/reward or cost/benefit decisions / assessments.

Knowing your own objective(s) will help you make your own decision about the mix of cash / shares / far expiration call ownership that makes sense for you.


The way I think about this thread - we've got a bunch of people that have latched on a broadly similar approach (seling options). But we've got different objectives and risk profiles. So we're learning together; the goods, the bads, the uglies. If the best teacher is an expensive lesson, and the next best teacher is an inexpensive lesson, then this thread is also creating the possibility to learn from other people's lessons. We also get to celebrate the many profitable lessons people are learning as well (what could be better than being paid to learn!).

This is also why you see so many posting about trades they're making. The way I see it, the real value in the trade posts isn't that a trade was being made. It's that there's a trade and why that trade, at that time. The size of the trade isn't relevant (which is why I don't include my own trade sizes - I don't include that info, or I normalize it to something). The trades aren't there for anybody to mimic / follow - they're there along with the rationale and alternatives considered to go into the hopper that each of us has for making decisions.


And at the end of the day - we all make our own decisions and we experience our own consequences. A recent theme has been that several people have reported 'rebalancing' their portfolio towards more cash than they've previously held. I'm one of those, but again I've got an income focus rather than a capital appreciation focus.

 

[stealthyc]

So using margin what is the biggest risk? That share price drops enough so that the BPS is in the money?

Same usual risk of margin equity dropping to the point of requiring a call and liquidation of shares. The risk you stated is just a generic risk for BPS whether it be margin or cash backed.

 

[doddiozil]

As others have commented it varies. I'd like to add that it varies based on each person's objective or desired outcome, as much as it does risk tolerance. Some of us are retired and are much more focused on income - we've accumulated what we believe we'll need and now the focus is on income. Many or most are accumulating and these differences in objectives / outcomes leads to different risk/reward or cost/benefit decisions / assessments.

Knowing your own objective(s) will help you make your own decision about the mix of cash / shares / far expiration call ownership that makes sense for you.


The way I think about this thread - we've got a bunch of people that have latched on a broadly similar approach (seling options). But we've got different objectives and risk profiles. So we're learning together; the goods, the bads, the uglies. If the best teacher is an expensive lesson, and the next best teacher is an inexpensive lesson, then this thread is also creating the possibility to learn from other people's lessons. We also get to celebrate the many profitable lessons people are learning as well (what could be better than being paid to learn!).

This is also why you see so many posting about trades they're making. The way I see it, the real value in the trade posts isn't that a trade was being made. It's that there's a trade and why that trade, at that time. The size of the trade isn't relevant (which is why I don't include my own trade sizes - I don't include that info, or I normalize it to something). The trades aren't there for anybody to mimic / follow - they're there along with the rationale and alternatives considered to go into the hopper that each of us has for making decisions.


And at the end of the day - we all make our own decisions and we experience our own consequences. A recent theme has been that several people have reported 'rebalancing' their portfolio towards more cash than they've previously held. I'm one of those, but again I've got an income focus rather than a capital appreciation focus.

Thank you. Yes this thread is very valuable. I am in my mid twenties so I have a long way to go, but was lucky to invest in Tesla in 2019 and hold ever since. Earlier today I sold a Oct 22 $860 covered call, which I already regret doing. We'll see how this goes.

 

[stealthyc]

As others have commented it varies. I'd like to add that it varies based on each person's objective or desired outcome, as much as it does risk tolerance. Some of us are retired and are much more focused on income - we've accumulated what we believe we'll need and now the focus is on income. Many or most are accumulating and these differences in objectives / outcomes leads to different risk/reward or cost/benefit decisions / assessments.

Knowing your own objective(s) will help you make your own decision about the mix of cash / shares / far expiration call ownership that makes sense for you.


The way I think about this thread - we've got a bunch of people that have latched on a broadly similar approach (seling options). But we've got different objectives and risk profiles. So we're learning together; the goods, the bads, the uglies. If the best teacher is an expensive lesson, and the next best teacher is an inexpensive lesson, then this thread is also creating the possibility to learn from other people's lessons. We also get to celebrate the many profitable lessons people are learning as well (what could be better than being paid to learn!).

This is also why you see so many posting about trades they're making. The way I see it, the real value in the trade posts isn't that a trade was being made. It's that there's a trade and why that trade, at that time. The size of the trade isn't relevant (which is why I don't include my own trade sizes - I don't include that info, or I normalize it to something). The trades aren't there for anybody to mimic / follow - they're there along with the rationale and alternatives considered to go into the hopper that each of us has for making decisions.


And at the end of the day - we all make our own decisions and we experience our own consequences. A recent theme has been that several people have reported 'rebalancing' their portfolio towards more cash than they've previously held. I'm one of those, but again I've got an income focus rather than a capital appreciation focus.

Adding on to this to clarify my vague statement about using margin. I have a TSLA position in my taxable account that I do not wish to liquidate, but rather add on to. As such I use margin backed by that (and some other) positions to sell options to generate additional cash for the purposes of growing my TSLA position. I also have an IRA that sometimes I will convert things to cash and sell options, but ultimately I turn it back into TSLA+LEAPS when I feel the time is right.

 

[CHGolferJim]

Well here's an example, from tonights option chain, for oct22.
- one 800 put nets 11.15 credit, reserves at most around 80k margin
- a -p800/+p700 bull put spread nets $8 and reserves 10k backing

So I can sell 8 spreads, and get $64/share, or $6400 for equal margin. It's leverage.
BUT now my max loss is at 700 strike. With a naked put, max loss would be at 0.

Thank you, and how do the benefits compare for an account without margin availability, e.g., a Roth?

 

[adiggs]

Is there a reason you roll your positions out weekly vs. closing and re-opening? Wondering if you're avoiding commissions, or have some other wisdom in the decision.

The terminology I've settled on for myself - a roll is a specific transaction where the purpose is to buy time on a marginal or ITM position. It is mechanically a single ticket with two transactions - close the current position and open the new position. There are circumstances in which transitioning between the two makes the roll ticket necessary (ask me how I know ).

Even in those circumstances one can probably close / open a subset of the contracts a few at a time in order to transition into the new position.


The other transaction is closing a winner, and opening a new position. I've used the roll ticket for these as a convenience, but these are just "take the winner" and "open a new" transaction. I use different terminology as much for my own benefit as anything else, even if I use the roll transaction ticket for the convenience.

I am certain that there is no commission savings - at least with US brokers as it really is two transactions under the hood, and you get to pay for both.

 

[bkp_duke]

Rolling is just closing and re-opening (in a single transaction).

With BPS, I'm not a big fan of rolling. I like to close BPS out on an up-trend, and open the new BPS for the following week on a down trend. Sometimes there is at least a day between these.

 

[AquaY]

Another amazing week. Had trouble closing my 10/15 845 calls.
Finally changed my limit order to a market order @3:57PM and closed them out for 10 cents.
Didn't think I was being cheap when I put the order in but I didn't get filled even though others did, and then when it popped up again I decided I better get out so made it a market order.
I do not want to be short 845 calls with the stock closing @ 843.
Also closed out my 760 Puts for 2 cents. You never know what will happen in that 1 1/2 hours after the close.

 

[CHGolferJim]

Thank you. Yes this thread is very valuable. I am in my mid twenties so I have a long way to go, but was lucky to invest in Tesla in 2019 and hold ever since. Earlier today I sold a Oct 22 $860 covered call, which I already regret doing. We'll see how this goes.

Don’t just let it die ITM though. Learn to roll, e.g., on Oct 20-22 buy-to-close (BTC) the 102221C860 and sell-to-open (STO) something like a 102921C880, probably for a net credit, but preserving $20 x 100 = $2,000/100 shares. Keep rolling until the CC has a chance to expire OTM, and you preserve all the capital gains and hold your shares. Good luck!!

 

[bkp_duke]

Thank you, and how do the benefits compare for an account without margin availability, e.g., a Roth?

I do this in my Roth with Fidelity. Requires "Level 2 +" as they call it, and "limited margin". Everything is backed by cash, but the portion of the portfolio that is doing TSLA BPS has been destroying everything else in the account. I'm starting to liquidate some long term positions that I have held for 10+ years (PYPL, NVDA, etc.) to add to the cash horde to increase the overall account rate of return.

TL;DR - it can be done in a Roth if you back it with cash.

 

[bkp_duke]

Another amazing week. Had trouble closing my 10/15 845 calls.
Finally changed my limit order to a market order @3:57PM and closed them out for 10 cents.
Didn't think I was being cheap when I put the order in but I didn't get filled even though others did, and then when it popped up again I decided I better get out so made it a market order.
I do not want to be short 845 calls with the stock closing @ 843.
Also closed out my 760 Puts for 2 cents. You never know what will happen in that 1 1/2 hours after the close.

Good call. We are now at 845.20 after hours, and still on an up trend.