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Cruise to Free Income from Tesla Inc (TSLA) Stock

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While equity markets were hesitating recently from highs, Tesla Inc (NASDAQ: TSLA ) was powering to new all-time highs. Breaking $300 per share seemed like an impossible feat back when it was under $200 as recently as December.

I have been outspoken against TSLA's success as a car company. I still think that it needs several miracles for it to grow into its valuation. But all along, I set aside my feelings and successfully traded the price action. I went long Tesla upside potential and I successfully caught it as a falling knife .

Click to Enlarge Yes, I recently shared a short TSLA trade just before the spike, but you can call back the posse. Even that trade made me money. Why? Because just as I did in all other successful Tesla trades, I used the perceived value of TSLA stock to generate income.

Selling puts to finance my recent attempt to short it saved me from incurring any losses. In fact, if I exit the setup, I net a credit of 50 cents per contract.

How to Trade TSLA Stock

I will stick with what has been working for me all year. I will sell downside risk against perceived value but I will also hedge it by selling opposing upside risk as well.

The Long Side: Sell TSLA Jan 2018 $210/$200 credit put spread for $2 per contract or better. This trade has an 85% theoretical chance of success. I need Tesla stock to stay above $210 per share this year.

To balance the trade, I will do the opposite on the bearish side.

The Short Side: Sell TSLA Jan 2018 $440/$450 credit call spread for an additional 80 cents per contract. Taking both trades means that I would have sold an iron condor with an 85% chance of yielding 35% on money risked. I left myself more than a 30% buffer on either sides of current levels.

This rally has been so impressive that I can expect it to continue. And for that reason, I want to cover the potential spike situation off earnings by spending a few bucks on buying cheap temporary debit call spreads.

Learn options as easy as 1-2-3 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 .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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