Tesla Inc (NASDAQ:TSLA) earnings served as a springboard for TSLA stock from its July swoon. Tesla shares rallied 20% on even more “hopium” for Elon Musk to deliver on his promises.
“Hopium,” as ridiculous as it sounds, is a term embodied best by TSLA stock. It basically means Tesla is running on premium expectations and not much else. Case in point, investors were quick to gobble up the company’s junk-rated debt offering.
Wall Street has a crush on Musk and it’s definitely buying what he has to sell. I want to sell puts for profits from such fanfare.
So for now, TSLA stock has support. And against my inner fundamental trader’s advice I will sell downside risk into said support. If I pick levels low enough to keep the TSLA stock price above my risk, I can generate income with zero out-of-pocket expense.
Click to Enlarge Fundamentally, Tesla has its challenges. The company needs several miracles to fall into place for Musk to grow its valuation. Looking at it with strictly auto manufacturer lenses, it looks terrible.
I’ve come to accept it as a play on energy, however, with a very ambiguous future. So long as Musk is heading the efforts, I bet that Tesla will remain immune to negative headlines. It will bounce from dips and that’s the kind of support I want to leverage.
Technically, I have to note the range is tight and a move could ensue. So I have to consider there could be a retest of $340 should the bears prevail.
TSLA Stock Options
The Setup: Sell the TSLA Sept $305 put and collect $2 to open. Here I have an 85% theoretical chance price stays above my strike, so I can book maximum gains. Otherwise, I must own the stock and losses would come below $303.
Selling naked puts into a high dollar stock is risky enough. Add to it the fact it’s a speculative company and that makes it all the more daunting. To get around that, I can sell spreads instead.
The Alternate Setup: Sell the TSLA Sept $310/$305 credit put spread, which has about the same odds of success. Even with a limited risk profile the spread can yield roughly 6% or more.
Both of these setups allow a 15% buffer from current price. This is an easier pill to swallow than to, say, risk $360 buying Tesla stock outright and hoping for another rally to profit. My profits can come with no out-of-pocket expense.
As I’ve said before, I expect TSLA stock will need divine intervention for it to grow into what traders expect from it. So this would be the safest way I’d like to bet long on a security I don’t really trust in the long term.
Remember: Selling options is risky, no matter how careful you are … so never risk more than you can afford to lose.
Learn how to generate income from options 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.