The nascent uptrend in Tesla Inc (NASDAQ:TSLA) is under assault. This week’s pullback has bulls on their heels, but I suspect buyers will ultimately prevail. And that provides a silver lining. Spectators who missed the recent breakout now have the chance to grab TSLA stock at a much more attractive entry point.
Compared to many other tech stocks, Tesla stock has had a lackluster back half of the year. While the likes of Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL) continued to dominate, TSLA stock fell by the wayside.
This month has brought a modest recovery, lifting Musk’s flagship back above its 50-day moving average. Buyers who left TSLA stock in search of greener pastures back in September are now returning.
The jump from $300 to $347 added a quick 16% back to Tesla’s share price. And a handful of resistance levels were shattered in the process. This week’s retreat has returned TSLA to its 50-day moving average as well as an old resistance level.
If the principle of polarity holds true, we can expect buyers to show up turning this zone ($325ish) into new support.
Seasonality is also providing a reason for optimism. The Santa Claus rally is upon us giving stock bulls a tailwind, which should aid them into year-end.
Profit From a Super-Charge in Tesla
To embrace the odds, let’s build a high probability trade that will pay out even if Tesla doesn’t rip higher. Using bull put spreads we can structure a wide profit range that still delivers a respectable 16% return. Sell the Jan $300/$295 bull put spread for 75 cents. Consider it a bet that the stock will sit above $300 at January expiration. With the puts sitting 10% out-of-the-money, we’re essentially betting Tesla won’t fall more than 10% over the next four weeks.
Given the technical posture of Tesla, I think we have an excellent chance of being right.
The max reward is 75 cents, and the max risk is $4.25. To minimize the damage if wrong, exit if the stock falls to $300.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.