Mighty Tesla Inc (NASDAQ:TSLA) has fallen from grace. After an incredible 28% rally in 28 bars, TSLA stock has since completely given it back, less a small recent bounce.

Click to Enlarge A large part of Tesla’s success on Wall Street is the charisma of its CEO Elon Musk. Ironically, the most recent damage was due to his tweets about the company stock valuation. This is not his first time doing this, but that’s a good thing — the last time it happened, traders eventually shrugged it off.

This too shall pass.

Fundamentally, I cannot justify owning Tesla stock at these levels. I believe the company will need several miracles for it to grow into the expectations that Wall Street has placed upon the stock.

I also realize the story isn’t limited to the auto industry, however, which is why I’m not shorting TSLA. The bullish thesis that is in play has a long shelf life before it starts to stink, so we can’t prove it dead for months on end.

Therein lies the perception of value.

I usually like to sell puts below value levels where I don’t mind owning stocks. While I don’t believe in the value of TSLA stock, it doesn’t mean I can’t trade it. However, instead of selecting the levels where I see value, I look for areas where other people love it. This means I can sell puts below other investors’ value lines.

I don’t care where profits come from as long as there is premium to cautiously collect.

Technically speaking, Tesla stock is vulnerable. Prices around $305 are important to hold. If bears succeed in breaking shares lower, then they would establish a bearish head-and-shoulder-like pattern with a 10% downside target from there.

The next level of contention likely would be $265. There is a stopover level around $285, but the big breakout from March started lower, near $265.

Also important to note is that around July 5, TSLA stock fell on large value. The move was a marked flip that week from green to red, and on good news no less.

Consequently, the loss of an ascending trend line brought it down near $300, where it found some support. But Tesla’s not out of danger yet. This could be the right shoulder of the aforementioned pattern.

Let’s look at the trade.

How to Trade TSLA Stock

The bet: Sell the Nov $205 put naked and collect $2.75 per contract, where we have a 90% theoretical odds of retaining the whole premium for maximum gains. But if price falls below my strike, then I must own it at that price regardless. I would accrue losses below $202.25.

Earnings are coming soon, on Aug. 2, and the short-term reactions to those can be violent in either direction. So to moderate the margin risk, I could sell a spread instead.

The alternate bet: Sell the Nov $210/$205 bull put spread with about the same chances of success. Here I have a limited risk profile but still can deliver 11% in yield. Compare this with buying the stock at face value and without any room for error, then expecting a rally into earnings. I prefer selling the risk for income knowing I have a 11% buffer from current price.

I am not a permabull on TSLA stock. I’ve been on record poking holes through Tesla’s plans. I’ve also shared a few bearish trades. But what is important to note is that I trade it with no emotions. This is an inflammatory ticker, and I can catch people trading it emotionally.

Investing is risky, so never bet more than you can afford to lose.

Learn options as easy as 1-2-3 here. 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.