TSLA Stock Bull Put Spread Earnings Trade

Tesla (TSLA) stock has spent the last few weeks consolidating around the 845 level but that could all change with the company reporting earnings this week.


TSLA earnings are set for Wednesday after the close with the consensus for a gain of $1.11 per share on revenue of $9.98 billion. The options market is pricing in an 8.40% move in the stock in either direction. With so much uncertainty around the earnings announcement, implied volatility remains elevated at 71%.

High volatility results in high option premiums which can be good for bull put spread traders.

A bull put spread is a defined risk option strategy that profits if the stock closes above the short strike at expiry. To execute a bull put spread an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.

Bullish TSLA Stock Option Trade

Traders who think TSLA stock will rally or at least not drop by too much could look to sell a Jan. 29 840 put and buy a Jan. 29 835 put.

As of Friday, this spread was trading for around $2.55 which means a trader selling this spread would receive $255 in option premium and would have a maximum risk of $245.

That represents a potential 105.76% return on risk in five days as long as TSLA stock remains above 840.

If TSLA stock closes below 835 on the expiration date, the trade loses the full $245.

With this being such a short-term trade, there is no chance to adjust the trade if it goes bad. Trading options over earnings can be risky so for that reason, keeping position size small is a good idea.

I view these as fun trades that either work or they don’t and you have to be prepared to take the full loss if the stock drops.

Either way, it’s a good idea to have a plan for how you will trade Tesla earnings this week. Other big companies reporting earnings this week include Facebook (FB), Apple (AAPL), Mastercard (MA), McDonald’s (MCD) and Chevron (CVX).

It’s important to remember that options are risky and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ


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