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Tesla Inc (TSLA) Stock Is Charged and Ready to Go

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Tesla Inc (NASDAQ: TSLA ) and Twitter Inc (NYSE: TWTR ) may not be competitors, but you can trade them as if they are. Let me explain.

I am a fundamentally driven trader. Meaning I like to set my risk based on solid fundamentals. Tesla and Twitter are both perceived as risky bets. This is not a slight against either of them; I am merely saying that their fundamentals have yet to grow into their valuations. Tesla has a few obstacles ahead it. I get the potential but for now it's a speculative play in my book.

A few days ago I suggested closing TSLA long profits and roll into TWTR longs . I did so because I didn't have room for both speculative trades in my portfolio. The move turned out to be an instant win as that day marked the high in TSLA and a coincided with a spike in TWTR.

Click to Enlarge Tesla Stock has a cult following. But on Thursday it caught a downgrade that caused a 3.9% drop.

It won't be long before TSLA fans start touting great entry points. Personally, I reiterate my skepticism in its fundamentals so I won't be buying the stock.

On the other hand, I remain a fan of the TSLA stock price action. So, I like selling risk in Tesla options.

I am always looking for opportunities to cautiously catch the falling knife. The easiest way I can do it is by repeating what has worked in TSLA, which is to sell risk against extreme opinions. I am not reckless so I always leave plenty of room for error since I never assume that I will pick the perfect time of entry. In this case, I will nibble with a first tranche trade then add to it as price unfolds.

The Trade: Sell TSLA Jan 2018 $185 put. This is a bullish trade for which I collected $11.50 to open. The 30% price buffer gives me an 80% theoretical chance of success. My breakeven point is $173.5 per share. Selling naked puts is dangerous and is not suitable for all investors especially on a speculative high-priced stock. So I can modify this trade to carry less overall dollars at risk.

The Alternate: Sell TSLA Jan 2018 $185/$180 credit put spread. For this collect $1 to open. If successful, this trade yields more than 25% on money risked. Selling a spread limits my maximum risk to the width of the spread less what I collect to open.

I am not required to carry these trades through expiration. I can close them at any time for partial gains or losses. Selling naked puts is dangerous especially in markets hovering at all time highs. I only do it if I am willing and able to own the stock at the strike sold.

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 post Tesla Inc (TSLA) Stock Is Charged and Ready to Go appeared first on InvestorPlace .

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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