A massive earnings disappointment and more-of-the-same optimistic showmanship have Tesla Motors Inc (NASDAQ: TSLA ) stalling on the price chart. And for investors anticipating a gear change into reverse for Tesla stock , a bearish spread may rev up the portfolio without breaking the bank.
As an EV manufacturer a week ago and now a diversified alternative energy outfit, Tesla announced its latest earnings release . Importantly and much to chagrin of Tesla stock's battleground bulls, the report also failed to jump-start Tesla stock at the expense of heavy short interest.
Net, net a much-wider-than-expected loss, disappointing sales, increased debt tied to its controversial SolarCity Corp (NASDAQ: SCTY ) deal and continued promises of a bright future from Elon Musk - or Edison, Tony Stark and P.T. Barnum rolled into one - has found Tesla stock losing its momentum story, both off and on the chart.
Tesla Stock Daily Chart
Looking at the daily chart of TSLA, following a strong rebound off the February corrective low, shares have established a series of lower highs and lows. The bearish channel action suggests Tesla stock's upside is finished near-term, setting up a short opportunity.
On the other hand, given price patterns aren't laid in stone, as well as an existing bullish Golden Cross and heavy short interest which has failed to crater Tesla stock, I am cautiously respectful of TSLA's upside potential.
That said, designing a more conservative spread for bearish positioning makes sense.
TSLA Bear Put Spread
Reviewing Tesla stock's calls and puts, one favored bearish spread is the Sept $220 / $205 put vertical.
Priced for $5 with TSLA shares near $225, the trader's max risk per spread is just over 2% of Tesla stock and cuts the cost of the purchased put by about 40%. The vertical also sidesteps the associated and theoretically unlimited losses Tesla stock's short interest is exposed too.
Should TSLA skid lower into September, this bearish trader has the opportunity to cash out for $10, or a return of 185% if shares fall below $205 or roughly 9% at expiration.
Bottom line though, and bypassing the described P.T. Barnum-like returns which are currently more promotion than reality, making smaller and efficient adjustments when available goes a long ways towards successfully navigating Tesla stock to profits.
Investment accounts under Christopher Tyler's management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
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