Tesla Inc (NASDAQ:TSLA) has been a great trading vehicle in the options market. While most retail traders are scared to chase TSLA stock on rips or catch the falling knife on dips, I’ve had success doing both.
In the past few months I went long Tesla potential and caught dips, and I will repeat performance on today’s dip!
Tesla stock is a momentum play, and those usually run fast and long so they are tricky to trade using the underlying. Options allow me to structure trades that allow for margin of error. It’s like putting its price action in slow motion, so that I can get in and out of positions with little risk.
Click to Enlarge Fundamentally, I have been outspoken against TSLA as a car company, but I have accepted the fact that Wall Street wants to appraise its prospects as an alternative energy company.
This is a fact that is obscure enough that it’s not shortable since the fruits of the efforts are not expected near term which is the definition of hopium.
Amazon.com, Inc. (NASDAQ:AMZN) has been demolishing its perma-bears for over a decade, but this year I bet TSLA stock takes that honor as the most painful to short.
However, this alone is not a reason to chase the stock since, after all, we are talking about hopium. Thereby TSLA stock, by definition, is fraught with risk.
This doesn’t mean that I have to avoid it as I like to have some speculation in my portfolio. But instead of risking $300 per share at face value and without any room for error I will use options to structure a better mouse trap.
The Bet: Sell the TSLA 2018 Jan $220 put and collect $12 to open. There I have an 80% theoretical certainty that the premium will expire worthless for maximum gains. However, if TSLA falls below my strike I must be prepared to own the shares and suffer losses below $208 per share. For temporary insurance, I like to buy cheap sacrifice puts to cover the crash scenario for the next few months.
Selling naked puts near all-time high is scary and not suited for all investors. Selling a credit put spread instead would limit the risk yet still yield 11%.
E-mail sellspreads@gmail.com with questions or join me to learn more about options in a personal 1on1 webinar here. 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.
