Tesla Motors Inc (TSLA) is in free-fall mode today following news of a downgrade by Deutsche Bank. Shares of the red-hot electric car maker tumbled 5%, exhibiting extreme relative weakness.
Previous to today’s swoon TSLA stock has been a champ, rallying in the face of all the Greek drama plaguing the rest of the market. The outperformance has been impressive, to say the least.
While today’s downdraft maybe a bit unsettling to TSLA shareholders, little technical damage has been inflicted. With the stock previously pushing into overbought territory a pullback was coming one way or the other.
And, hey, look at the bright side — those who were reticent to chase TSLA stock now have the opportunity to catch it on a dip.
Support levels aplenty loom beneath the stock. Keep an eye out for the 20-day moving average as well as the prior support pivot around $260. If the stock can remain above these levels then the uptrend remains firmly intact.
If you’re a believer in the TSLA story and are looking for the stock to close in on the $300 mark in the coming months consider using today’s news as an opportunity to enter a bullish play.
Despite the slight uptick in volatility TSLA options remain relatively cheap these days. Buying a call vertical spread isn’t a bad way to go here to position yourself for a triple-digit return if TSLA stock can rebound going forward.
Buy the Sep $270/$290 call spread for $6.90 or better. The risk is limited to the initial $6.90 debit and will be lost if TSLA remains below $270 at September expiration.
The maximum reward is limited to the distance between strikes minus the net debit, or $13.10, and will be captured if TSLA can climb above $290. By using September options we’re giving TSLA stock plenty of time to recover from today’s setback and continue its quest for new all-time highs.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
