TESLA trade idea

 

4 Jun

Stock just pulled back 10 percent, most blaming Elon latest comment about laying off 10% of the workforce later clarified to 10% of salaried workers and worrisome feeling about economy. regardless of reasons the stock is at 700 now.

-heres the scenario im assuming: that you have at least 100 shares or long a Leap at 700strike or lower and you expect stock to rebound from here. not a big surprise but the trade will be a call ratio spread.

-also of note that the big down move on friday caused a 30 point gap from about 743-775ish give or take. 

a call ratio spread is buying one call and selling two higher calls. that second call is not naked, it is paired with either the 100 shares or the leap you already have. so no added buying power is needed by your broker. i want to target the 775 area with the presumption that the gap will get filled. no guarantee that the gap gets filled during this opex, could happen next trading day, or week after. Gaps almost always fill at some point. its just a matter of time. but you have to make a call at some point.

Buy the JUN 730 call, sell two 775 calls - currently after hours quote is for a small credit. profit range at opex  is 730-820 on just THIS spread. but your stock/leap is gaining as well so you are pretty much gaining 2x on the up move. yes, if stock is above 820 at opex you start to technically lose money on this spread but your stock has gained 120 points, your stock is gaining as the spread is losing if it continues higher.. there is a breakeven way above 1000 but its not really practical to consider. easier to just to say that your profits are capped at 820 at opex.

you can widen the strikes if you want and pay a debit but i select my strikes in order to have tiny credit. the credit is not important, i just dont want to pay for the trade in case im wrong or timing is off. Historically i undershoot the strikes, ie the stock goes higher than i expect

the two 775 short calls have to decay away so initially if stock rebounds the trade will be a mark to market loss, the closer to opex the more the trade will move in your favor. just plan on holding till thursday / friday of opex week

Best case the stock is near 775 on friday opex , youve gained maybe $4000 on this spread. i referenced that gap earlier.. thats whats driving the strike selection for me on this trade. you may have other levels that you see, maybe other technical indicators, or you want to use a different time frame. the further out in time you go the wider you can make the strikes and still get a credit.. but of course you have to wait longer. just an idea . here is the gap from friday, 5min chart