[Options] Leaning into the Recent Low in $TSLA

Sean McLaughlin
December 22, 2021

What a difference a few days makes, eh?

On Monday morning, if you were on twitter or watching the teevee you'd have assumed the stock market was about to get cut in half and the pitchforks were going to be lining up outside the Federal Reserve building in Washington, D.C.

Then, the market did what the market does and now here we are with the S&P 500 looking like it wants to make another run at all-time highs.

Forget about market volatility --- how about trader's emotional volatility?!

With this in mind, there is still some nice options premium being priced into individual names that offer us some unique tactical opportunities for some quick gains.

One of the names the team here likes for one such tactical trade is Tesla.

Here's a fun little chart of $TSLA  JC shared on twitter this morning:

JC might be a little tongue-in-cheek on the "to the moon" part of this chart. But one thing we like is that the breakaway gap from this autumn was filled and then the stock found support. And it has rallied hard off Monday's intraday low, leaving us with a clearly defined risk management level we can lean against.

So while I'm not wildly bullish in $TSLA here. I do believe Monday's low is likely to hold for the next few weeks which should give us an opportunity to sell a put spread to collect some premium as the volatility cools off and/or the stock holds this level or trades higher.

Here's the Play:

I like selling a $TSLA January 900/850 Bull Put Spread for approximately $11.00 here. This means I'll be short the 900 puts and I'll be protected by an equal amount of 850 puts. The most I can lose in this spread if I'm dead wrong and $TSLA collapses is $39 (the difference between the strikes minus the premium collected), so I'll size my position accordingly.

As long as $TSLA holds above $900/share, we'll have no trouble hitting our profit objective. I'll be looking to close this spread for a profit when I can buy it back for a $5.50 debit -- exactly half of the premium I collected upfront. I don't want to hold this position all the way until January's monthly options expiration if I can help it.

Meanwhile, if $TSLA reverses on us and closes below $900/share, that will be my signal that we're wrong and it's time to exit the trade -- win or lose. My thesis is Monday's low holds. If it doesn't, I'm wrong. No sense sticking with a trade that is no longer behaving the way I think it should.

If you have any questions on this trade, please send them here.

ASO subscribers who missed last week’s live Jam Session, you can catch it here.

~ @chicagosean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991

 

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