Tesla Inc (NASDAQ:TSLA) shares soared to a new all-time high Monday amid much fanfare. Elon Musk’s flagship tagged $299 for the first time in history. TSLA stock has since followed through to surpass the $300 mark in early morning trading today.
Volatility lovers are flocking to Tesla shares in droves. And why shouldn’t they be? It’s a thrill seekers dream offering monster movement. The stock is up 20% in the past two week’s alone.
Stocks that are notching all-time highs are notable for numerous reasons. For starters, it means that 100% of all (long) TSLA shareholders are sitting with a profitable position. Talk about an environment where longs have little motivation to sell. Even the dumbest of dumb money is pleased as punch with their Tesla holdings right now!
And on the flip side, 100% of speculators currently short Tesla stock are sitting with a losing position — one that is becoming increasingly difficult to maintain due to the daily increase in pain. Stocks perched at unseen heights give short sellers a mountain of motivation to buy to cover their positions.
We could also go on and on about how any previous owner of TSLA is now looking on with mega-regret for having sold their shares too soon.
Throw it all together, and you can see why it’s hard to be anything but optimistic on Tesla these days.
From a price chart perspective, TSLA stock is breaking out of a three-year base. And technicians are taking note. The old saw, “the longer the base, the higher in space” comes to mind here. Stocks breaking from long-term consolidation patterns are some of the best buy setups known to chart watchers.
How to Trade TSLA Stock
Despite its breakout, Tesla is a bit overbought in the short run. So don’t be surprised if we see a bit of backing and filling as the stock digests recent gains.
We can structure a trade designed to profit if the stock doesn’t retrace too far from its current perch. If you’re willing to wager TSLA sits above $270 at May expiration, consider selling the May $270/$265 bull put spread for $1.20.
The max reward is limited to the initial $1.20 and will be pocketed if Tesla stock sits above $270 at expiration. The max risk is limited to the distance between strikes minus the $1.20, or $3.80, and will be forfeited if the stock sits below $265 at expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
