Heads up, traders. Resolution for the mindless meander in Tesla Motors Inc (NASDAQ:TSLA) is nigh.
The automotive and energy storage company has spent its summer frustrating bulls and bears alike. For the past two months Tesla stock has dithered despite more than a few attempts to run one way or the other.
But a quick glance at Tesla’s stock chart brings hope. A clean trendline has formed, bringing an actionable setup to spectators rooting for a new trend to emerge.
Divining direction, while always a difficult endeavor, becomes even trickier when trends are lacking. And that explains TSLA stock in spades these days.
Just look at the 20-day, 50-day, and 200-day moving averages. All three are drifting, firmly fixed in sideways mode. And yet, Tesla’s chart has taken on the form of a symmetrical triangle, complete with clean trendlines providing easily identifiable entry and exit points for spectators.
Traders looking for buyers to eventually wrest control should watch for a breach of the descending trendline currently perched near $230. A pop above that level is as good a sign as any that a new up-leg is kicking off for Tesla stock.
The Tesla Stock Trade
With Tesla’s ongoing slumber (as well as the entire market’s, really), demand for options has fallen off a cliff. The IV rank for TSLA options sits at a lowly 1%, making derivative prices the lowest they’ve been all year long. Purchasing call spreads may be the way to go here.
Buy the Oct $230/$240 bull call spread once Tesla’s prices rises above $230. You should be able to buy the spread for less than $4. The max risk is limited to the initial cost and will be forfeited if the stock is below $230 at expiration.
The max reward is limited to the spread between strikes minus the net debit ($6, if you pay $4 for the trade) and will be pocketed if Tesla stock can rise above $240.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
