Runners are easy to spot on slow summer days. While the rest of the market waffles around unchanged, these momentum darlings are popping 2% to 3% more. Take Tesla Inc (NASDAQ:TSLA) for example. The stock is galloping 3% higher in early morning trading on strong volume. Apparently, last week’s earnings gap didn’t deliver enough gains to TSLA stock owners. They want more, dang it.
Today’s pop provides a perfect excuse to take a fresh look at Tesla shares to discover if there’s a trade to be had.
Hint: There is.
Tesla Bulls Are Back, Baby!
The electric-vehicle maker entered its latest earnings release in desperate need of a positive catalyst. Previous to the report Elon Musk’s brainchild was on the ropes. Early summer selling had carried Tesla stock well below the 50-day and 20-day moving averages. The rug pull reversed the short-term trend and just about upended the intermediate-term trend.
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It turns out the slip was a ruse — a bit of trickery to shake out the weak hands.
Last week’s earnings quieted short sellers while emboldening buyers. And that brings us to Tuesday. TSLA stock has now rallied 18% since bottoming the day before earnings, and it has hopped back above the 20- and 50-day MAs in the process.
I see no reason why Tesla can’t re-test its summer highs of $387, which is another $20 higher from here. In case the stock falls, the next support level is the unfilled earnings gap at $343.
On the momentum front, the Relative Strength Index (RSI) indicator has returned to bullish territory at 63. This further confirms buyers have wrested back control of the trend.
Bet on a Retest in TSLA Stock
If you’re looking for a cheap way to capitalize on Tesla’s return to record heights, I suggest purchasing bull call spreads. Buy the Sep $380/$390 bull call spread for $3.15. Because we’re using out-of-the-money options, the cost (and thus risk) is minimal. The max loss is $3.15 and will be forfeited if Tesla sits below $380 at expiration.
The max gain is $6.85, but TSLA stock needs to rise above $390 by expiration to capture the entire reward.
To increase your odds of escaping with a profit, I suggest exiting if the value of the spread doubles to $6.30.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
