Nasdaq stocks stole the show Monday. While the rest of the U.S. indices dithered, tech stocks like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB) powered higher over 2%. One of the most compelling constituents of the Nasdaq, however, is Tesla Motors Inc (NASDAQ:TSLA). If yesterday’s surge is any indication, TSLA stock is about to break out of a three-month channel.
Rather than suffering swift rejection at the upper end of its channel, Tesla stock has flagged nicely over the past week. The shallow decline suggests the stock has absorbed any and all selling pressure striking the stock during last week’s resistance test. And really, the volume during the drop was about as benign as it gets.
If TSLA stock can build on Monday’s gains even a little bit, a breakout will ensue. Would-be Tesla can use a breach of the $228.50 zone as confirmation. Additional volume coming into the stock on such a break would certainly be a welcome development.
If you’re looking for a shorter-term swing trade, consider using Monday’s low of $218.30 as your stop-loss.
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Breaking that level would invalidate the bull flag setup, leaving little reason to remain in the position. With a stop at that threshold, you’re looking at about $10 risk per share, which isn’t terribly high for a high-octane stock like TSLA.
The next resistance level sits at $242, making that a logical target here. However, given the $10 of risk, it would be ideal if the stock could pop to $248.50 to generate a $20 gain.
The TSLA Stock Trade
Those wishing to traverse the options route with this setup might consider buying the Sep $230/$240 bull call spread. Due to the elevated price of Tesla options, I like the idea of a spread to cut costs. You should be able to purchase the position around $3.50, which represents the max risk of the trade and will be forfeited if Tesla sits below $230 at expiration.
The max reward is $6.50 and will be captured if the stock can rally above $240 by expiration. Tesla is slated to report earnings on Aug. 3, so consider bailing if you score a modest profit before the event.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
