Tesla stock options trading. As of July 28, 2024, Tesla is trading around $220. Over the past year, Tesla is down around 20%.
So what is the best way to trade Tesla so that you can earn a profit?
It's worthwhile to sell a put option with a strike price of $180 with an expiration of 4 weeks into the future; by making this trade you'll be able to collect around $125 dollars for every contract that you sell.
If this position gets challenged you could roll the $180 strike to below $165 by simply extending the duration out by an additional month.
If Tesla falls below $180, it may be worthwhile to take ownership of the stock, run the wheel strategy and profit from the capital appreciation.
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My Tesla Option Strategy
Using options is much more capital efficient than owning stock. There are different types of margin when trading options: portfolio margin and Regulation T. Portfolio margin is about 5x more capital efficient than Regulation T because it factors in the overall volatility and risk of your entire portfolio.
Most brokers require a minimum account size of ~$150,000 to enable portfolio margin.
Even if you're using Regulation T, it's still significantly more capital efficient than owning stocks (about 2.5x more efficient).
When trading spreads, there is little difference in the margin requirements between Regulation T and Portfolio Margin - as a result, I believe that most people who are using Regulation T should trade vertical credit spreads.
With TSLA, if you'd like to go long the stock, you can use options to create a "bull debit spread" and then finance it by selling put options.
For example, you can buy the $240 call option and sell the $270 call option, and then finance it by selling a few of the $180 put options.
In this situation you'll be able to participate in the upside of the stock while also agreeing to take ownership at $180 / share (you can also open this trade for a net credit).
There are good reasons to be a long-term bull on Tesla:
- Elon Musk and Tesla receives tens of billions of dollars of free advertising every year
- Elon Musk has good relationships with many government officials and is able to influence electric vehicle laws, regulations and policies
- Tesla has strong brand equity
- Their cars will likely be used as "robotaxis"
- Tesla is one of the leaders in full self-driving
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Is Tesla a Buy? Conclusion
Is Tesla a buy?
It's performed poorly over the past year, recently the stock's price action has been strong.
In general, I'm not a fan of companies with "Rockstar CEOs", however I do believe that TSLA is a good investment, as a long-term hold, if you're able to buy shares around $180.
Using options to trade Tesla can provide you with a much more capital efficient structure to profit from TSLA.
**IMPORTANT** - This article is NOT investment advice. Trading options and / or investing in stocks carries risk. This article simply shares my thoughts and should never be considered investment advice.
Frequently Asked Questions (FAQs) - Tesla Trading Strategy
Is Tesla a good long-term investment?
In my opinion, yes it is. While it's risky due to Elon Musk's celebrity and Rockstar CEO status, Tesla has advantages that other car companies do not have. However, it's important not to overpay - acquiring shares around $180 would be best.
How Can I Learn More About Options Trading?
What about Tesla robotaxis and full self-driving?
They will eventually arrive to market, however Elon Musk has a tendency to miss deadlines with robotaxis and full self-driving.
How do I buy Tesla LEAPS?
In general, the best time to buy LEAPS is once the stock is oversold.
If you are bullish on TSLA's future then purchasing a slightly in-the-money LEAP that expires in 12+ months would be ideal.
You can also purchase TSLA calls that expire in a few years, these options are expensive though.
How should I trade Tesla calls?
I would purchase a debit call spread and then finance the calls by selling put options at a strike price where I'd want to own the shares (that way I can run the wheel strategy - you can read about the pros and cons of the wheel strategy here).