Tesla Inc (NASDAQ:TSLA) has been driving higher. There’s also little reason to think shares are about to idle, let alone shift into reverse. However, for those looking to hop on board, a test drive of sorts using a TSLA stock bullishly targeted butterfly, may be a better option to own in lieu of shares. Let me explain.
I don’t consider myself part of the Tesla cult, but I have been consistently bullish on Tesla this year. Most recently and a couple weeks after TSLA stock’s corporate confessional, while others pooh-poohed larger-than-expected losses, I offered up a bullish opinion based on the company’s growing ability to execute on more than a few key metrics, as well as an equally supportive price chart.
One look at the daily chart of TSLA stock and it’s easy enough to appreciate that the bullish outlook has been good to shareholders. In fact, shares of Tesla are up 15% since our write-up. At the same time, a detailed options spread has gained nearly 60% and $1.80 in profit despite the somewhat surprising bit of extra zoom Tesla has witnessed.
Now and with the rollout of the Model 3 less than a month out, I wouldn’t be surprised to see TSLA stock accelerate and hit a few more bears trying to fade the momentum, along the way. The event itself could ultimately become a “sell the news” scenario, but for now both off and on the price chart, Tesla continues to look good for bullish positioning.
Tesla Stock Weekly Chart
As discussed back in mid-May, TSLA stock has earned 2017’s racing stripes and relative strength after breaking out from a massive, corrective base nearly 2.5 years in the making. Bearing that in mind, Tesla’s post-earnings pullback test, was greeted rather optimistically.
Currently and with shares having raced higher, but with no serious bearish divergences or grotesquely overbought Bollinger or stochastics conditions, the bullish trend in TSLA stock continues to look promising.
Looking forward and as expressed, my one concern near-term for TSLA stock would be shares rallying aggressively into early July’s Model 3 rollout as an anticipated overbought condition would be ripe for a sell-the-news reaction or profit-taking.
Based on a conservative measured move from the former base, which looks a lot like a bullish inverse head and shoulders pattern, a move into the $400 area would set up that sort of topping liability for shares.
TSLA Stock Bullish Targeted Butterfly
As mentioned, our last TSLA stock spread has gained nearly 60% and $1.80 in profit. It’s also potentially at risk based on our current and more bullish outlook as Tesla launches its Model 3. As such, I’d look to adjust.
Given what’s been addressed above and after reviewing the TSLA options board, a modified 30 June $375/$390/$400 call butterfly appears to be a good fit for new or even adjusted positions. Priced for $2.35 with TSLA stock at $359.65, this spread requires a modest rally of less than 5% before the strategy begins to realize a profit at expiration.
With the modified butterfly, profits are available above $377.35 at expiration. The sweet spot is if TSLA lands on $390, as profits nearing $12.65 would be possible.
Also nice, if momentum gets carried away, which for this spread would be above $400, the trader would still capture a profit of $2.65. That feature is the result of the wider 15-point embedded bull call spread compensating for the loss associated with the tighter $390/$400 bear call spread.
Lastly, as this TSLA stock spread expires immediately in front of the event, momentum is anticipated to help build profits, but without having to worry about how investors actually react to the news.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.