How To Ride Tesla (TSLA) Into Earnings
Tesla, Inc. Credit Spread (Nasdaq: TSLA)
TheOptionPlayer.com sets up a Tesla (TSLA) short-term (8-day) option strategy. Investors could simultaneously:
Sell the November week-one expiration TSLA $155 put for $1.21 (yesterday's closing price)
Buy the $150 put at $.71 (yesterday's close)
The difference between funds received and paid out is a $.50 per share credit which we keep if Tesla stock closes above $150 on Friday November 1st, but immediately exit the position if it appears the price will end up lower. If the price gaps lower in the morning open the trade using lower strike prices. See Guidelines page at www.theoptionplayer.com/ for explanation on how trade is set up.
Why we recommend it:
Tesla, Inc. (NasdaqGS: TSLA) stock crashed this week on analyst comments suggesting the shares are overvalued and due for a fall. Despite the recent pullback Tesla is still up nearly 400% this year. The financial talking heads love trying to rain on the Tesla parade. Generally the more this company is doubted, the stronger the rallies on good news as shorts have been getting squeezed. Tesla has around 21 million shares short or around 27% of the float. With around 106% of the float owned by institutions, there aren't a ton of free-trading shares to go around. Tesla announces earnings on November 5th and a positive report could easily trigger another squeeze, forcing shorts to rush to cover their short positions and catapulting the price back toward recent highs.
As highlighted in the chart below, Tesla shares recent slide was held in check by its support level where investors stepped in to bid the price back up. As highlighted in the chart the current support level has held firm since the end of the summer when the price broke through to new highs. Every time Tesla price pulled back to support investors viewed that as an opportunity to 'buy the dip'. Already the stock is starting to surge as shares are up big today and in after hours trading. Traders will probably bid the price higher as investors make bets ahead of Tesla's November 5th earnings announcement. Tesla stock has not been below the price target since August and at the very least there is a high probability that Tesla, Inc. stock will continue to trade above $155 for another week.
52-Week High: $194.50
52-Week Low: $27.02
Average Volume (3 month): 10,488,700
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.