TSLA – Rev Up the Profits With This Tesla Motors Credit Spread

by John Kmiecik | December 27, 2013 10:15 am

There are probably more than a few of you that were dreaming about receiving a new car for the holidays. It also pretty safe to assume that most of the dreamers did not receive what they oped for.

Here is a trade idea on a company — Tesla Motors (TSLA[1]) — whose car might have made a few wishes come true. And if not, Tesla will at least provide a chance to profit using options.

Tesla Motors (TSLA – 155.50): Put Credit Spread

The trade: Sell the January 135/140 Put Credit Spread (selling the January 140 put and buying the January 135 put) for 0.75 or better.

The strategy: The maximum potential profit for this trade is $0.75 if TSLA stock is trading above $140 at January expiration. The maximum loss is $4.25 (5 – .75) if TSLA is trading below $135 at January expiration. Breakeven is $139.25 at expiration based on a credit of $0.75.  

The rationale: Tesla Motors is looking to expand into China. The electric car maker is looking to open more showrooms in Chinese cities with affluent buyers. The country has yet to establish any charging stations for the Tesla vehicles but early demand has been high from Chinese buyers. The company is still trying to figure out a name to use in China because the accurate translation of the name has been trademarked since 2006 and the owner is refusing to give up the name.

But Tesla Motors also received good news recently in the United States. The company’s flagship vehicle, the Telsa Model S, retained its 5-star rating for crashworthiness — the reviewer’s highest designation — despite recent fires. All of these bits of good news have moved TSLA stock higher as of late.

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Taking a look at the chart, Tesla stock just recently moved above its 50-day simple moving average. It had been trapped below the moving average since the beginning of November. It is now above all its major moving averages. In addition, TSLA closed above previous pivot levels (significant highs and lows around $154) on Thursday — levels that had acted as support and resistance areas for the stock the last several months.

Tesla stock also has potential support at $140. TSLA tested that area several times but was unable to find any momentum to the downside before it moved higher. If any or all of these potential support areas hold, this trade idea looks like a smooth rise to profitville!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get afree trial of John’s live options trading room here[2].

  1. TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA
  2. free trial of John’s live options trading room here: http://markettaker.com/options_insider_trial/

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