AFAIC, the only reason that an investor should sell a standalone short put is to acquire shares at a better price. OK, check that box ---> you want more shares at a lower price.
What I'm considering is selling PUTs at 350, expiry in 150 days, or even 300 days. From what I've read they're most likely to expire as whoever bought them would just sell them to someone else and if TSLA stays above 350 at the time of expiration, I would have accumulated 0 shares. Doesn't sound right to me, what's your take.
That's not how it works. The $350 put will expire if TSLA is at or above $350 at expiration. If below $350, it may be exercised by the owner before expiration and will definitely be automatically exercised by the OCC at expiration (and you will be assigned).
If TSLA remains above $350, you'll collect a fat premium but no shares for your long term bullish outlook. OTOH, if this market collapse continues, you'll acquire additional shares for about $230 to $330, depending on the expiration that you sell. Buying shares each week gets you your shares now but with current market risk. So that's your trade off. Shares now with full upside potential and full downside risk or much less risk via put selling with the possibility of getting shares, or not.
What month to sell is a trickier decision. Time decay is non linear. As a loose rule of thumb, for at-the-money options, option premium is related to the square root of the time remaining. For example, with no change in option pricing variables other than time, a 9 month option that costs $3 will lose 1/3 of its value in 5 months, another 1/3 of it's value in the next 3 months and then the last 1/3 of its value in the last month. Therefore, sellers of premium should sell nearer expirations in order to have the faster decay rate and buyers should buy further out in order to have the slower decay rate.
This square root principle is applicable to ATM. For OTM options, it's distorted and this reward relationship for nearer expirations is poorer. However, these are not normal times. Implied volatility is through the roof. TSLA's IV is normally in the 40 to 50 area and now it's 100 to 200+, depending on the expiration (near term expirations are higher) That's some really fat premium. So OK, all of this option pricing explanation stuff isn't keeping it simple. So how to do that without having to become a Black Scholes pricing quant (g) ? Look at the $350 puts for various expirations:
Compare the respective dollar amounts that you'll receive
Determine your cost basis if assigned ($350 minus the premium received)
Calculate the premium per day that you'll receive (more per day for nearer expirations)
Look at the trade offs. Which choice are you most comfortable with? For example:
Sell next week's $350 put for $16. That's $1600 for a week or paying $334 for the stock if assigned.
Sell a one month $350 put for $36. That's $900 per or paying $314 for the stock if assigned.
Sell a four month $350 put for $68. That's $400 per week or paying $282 for the stock if assigned.
What's more important to you?
- Receiving a larger premium per week, or
- Buying shares at a lower cost if assigned?
Try to find a balance between those two and you'll be able to figure out which expiration to sell.
In normal times I'd suggest that you consider selling vertical spreads instead of short puts so that you have some risk management in place. Yes, the premium is less but the spread levels out the poor asymmetric risk/reward of a short put. The current problem now is that with the huge market volatility, B/A spreads are Holland Tunnel wide and it's hard to get a decent fill on a spread (poorer R/R ratio than usual).