My best results in Tesla Inc (NASDAQ:TSLA) trades have come from selling premium against extreme opinions. But in this uber-bullish market environment, I am left only wanting to go long momentum stocks like TSLA or Netflix, Inc (NASDAQ:NFLX).
Fundamentally, Wall Street seems to have given up looking at Tesla as a car company. The majority of traders I know perceive TSLA as a technology company centering around the battery and sun power.
Although fundamentally, TSLA is a difficult stock to recommend at these levels, technically I can argue it wants to retest the all-time highs soon. Luckily, the options markets give me several ways I can enter long trades while building healthy buffer zones.
TSLA Stock Trade Idea
Click to Enlarge The Trade: Sell the TSLA Sep $200 put. This is a bullish trade priced for $11 per contract to open. The 22% buffer from current levels gives me an 80% theoretical chance of success.
If TSLA falls below my strike price, I could be put the stock, so I only sell the naked put if I am willing and able to own it at that level. In that case my breakeven price would be $189 per share.
The Hedge — Optional: Sell the Sep TSLA $340 call and collect an additional $5.50 per contract. This trade has an 80% theoretical chance of success. I need TSLA stock to stay under my sold leg or be open to losses. Taking both trades would put me in a sold strangle and widen my breakeven zone to $182 vs. $357.50 per share. I am not rushing to enter the hedge at this time.
Selling naked options on a high dollar stock is definitely not suited for everyone. So I can modify the trade to diffuse its risk.
The Alternate: Sell the TSLA Sep $200/$195 credit put spread. This is still a bullish trade for which I collect $1.20 per contract. I still need TSLA to stay above my spread to win. Yield on this trade if successful would be 25% on money risked. Theoretically, this also has an 80% theoretical chance of success.
This alternate trade could be hedged by selling TSLA Sep $340/$345 credit call spread. This would potentially give me an additional 65 cents per contract thereby lowering my dollars at risk. If both sides of the alternates are successful, the sold iron condor would yield 55% on money risked.
As I mentioned earlier, TSLA stock is looking technically frisky, so a very bullish play on that would be to sell the puts and buy near-the-money calls to really profit from a rally for free.
Note that earnings are coming soon, and those add an extra layer of chance into the mix.
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.
