Let Everyone Else Worry About Tesla Motors Inc (TSLA) Stock

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It’s no secret that I am not a fan of Tesla Motors Inc (NASDAQ:TSLA). I like the cars, but not the stock. I think that Wall Street has priced in several perfect scenarios. I am not one to bet on pure “hopium” and risk money with aspirations that all goes well.

TSLA Stock Chart
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Luckily, the options market makes it possible to trade TSLA without betting the farm one way or the other. As opposed to risking my money at current prices, I can structure options trades with room for error.

I have good results trading TSLA using ranges. Whenever possible, I sell risk against those ranges. So in essence, I sell lottery tickets to other hopeful traders. I do my homework and set the trades outside of the ranges then let time do the trick. When selling spreads, theta is my friend.

Since I don’t want to reinvent the wheel, today I will reset the same trade that paid me last time. I collected about 80 cents per contract for selling a TSLA iron condor. The trade was a complete win without any trouble.

The Trade: Sell the TSLA March $160/$155 credit put spread. This is a bullish trade for which I collect 55 cents per contract. If successful, this trade yields 12% on money risked. The 20% price buffer gives this trade a 90% theoretical chance of success.

Usually I like to hedge my trades. In this case I want to find an opposing bearish trade to balance my TSLA portfolio.

The Hedge (Optional): Sell the TSLA March $255/$260 credit call spread. This is a bearish trade for which I collect 45 cents per contract. To win, I need TSLA stock to stay below the spread. With the current price buffer, I have a 90% theoretical chance of succeeding. The potential yield on this side alone is 9% on money risked.

Taking both trades leaves me short an iron condor. This is a range-bound trade where I need TSLA stock to stay between both spreads sold through expiration. If successful, the overall yield of the iron condor jumps to over 20% on money risked. Why? Because I can only lose on one side or the other. The drawback of having both sides is that I would risk loss in either direction.

The Twist: The March contract would include a TSLA earnings report. For some people this is a scary proposition. So I can set a similar trade, but for the Jan. 27 contract. The buffer from current price would need to tighten but would still be viable. An example would be TSLA Jan. 27 iron condor. I sell a $180/$175 credit put spread opposed a $235/$240  credit call spread. I collect a net premium of about 90 cents per contract.

I am not required to hold these trades through expiration. I can close either for partial gains or losses at any time.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

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Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/tesla-motors-inc-tsla-stock-profit/.

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