Recently the stock market has been in turmoil due to the threats of global tariffs. Today we actually had the first wave of them imposed on $34 billion worth of Chinese imports into the U.S.
Moreover, President Donald Trump promised that he is willing dial it up to all $500 billion of their imports. So there is reason to worry for those who own stocks. Global tariffs are anti growth, so the threat is real.
Tesla (NASDAQ:TSLA), on the other hand, has its own set of problems. Of late, investors have been more interested than ever in actual delivery numbers for the Model 3. Up until now, Wall Street had given Elon Musk loose reins when it comes to promises versus actual deliveries.
There were also recent claims of shortcuts in brake testing procedures and tent production facilities, so the overall picture is temporarily shaky. Consequently, the stock has seen a tremendous fall from its recent spike.
But therein lies a swing trade opportunity. I believe that Tesla stock fans will once again step in and buy the dip.
But this does not mean that I buy the shares outright and risk $307 per share with absolutely no room for error. Instead I use Tesla options, where I can build a buffer between the current price and my level of risk.
Fundamentally, Tesla’s bullish thesis is muddled. Most experts can’t pin it down. Most often it’s presented as a car company, but true bulls insist that it is so much more than that.
I am not a super-fan but I am not a hater either. I think the jury still out. I don’t like its current fundamentals as a car company — it is valued to perfection and it needs several miracles in order to grow into those valuations. So I consider this a speculative trade, not an investment into value.
This is a rinse-and-repeat setup from early June which paid quickly as TSLA spiked 30% after a brief period under $300 per share.
Technically, this most recent dip brings it back into a well-consolidated zone, and those are often support on the way down. On Thursday, TSLA stock emphatically rejected the $295 level, thereby looking like it’s a bottom of sorts.
By using options, I don’t need to be surgically accurate with my entry points as long as I can get the swing correctly. My conviction in the upside potential is decent, however my conviction in the downside support holding is much stronger.
With today’s set-up, I can profit even if TSLA fails to rally. I retain my maximum potential gains as long as the price holds above support through 2018.
TSLA Stock Trade Idea
The Bet: Sell the TSLA SEP $200 put and collect $5.25 per contract to open. I have a 85% theoretical certainty so that I retain maximum gains. Otherwise, I will accumulate losses below $194.75.
Selling naked puts carries big risk especially for a stock as frothy as TSLA. For those who want to mitigate it, they can sell a spread instead.
The Alternate Bet: Sell the TSLA SEP $200/$205 credit put spread, which would deliver over 12% in yield but with much smaller risk. Both setups have about the same odds of success and neither require a rally to win.
Click here for more of my market thesis and get an ongoing free copy of my weekly newsletters.
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 as @racernic on twitter and stocktwits.
Legendary Investor Louis Navellier’s Trading Breakthrough
Discovered almost by accident, Louis Navellier’s incredible trading breakthrough has delivered 148 double- and triple-digit winners over the last 5 years — including a stunning 487% win in just 10 months.
Learn to use this formula and you can start turning every $10,000 invested into as much as $58,700.
Click here to review Louis’ urgent presentation.
