Mike Khouw's Put Fly Trade In Tesla

On CNBC's Options Action, Mike Khouw suggested an options strategy in Tesla Motors Inc TSLA.

He said that the stock has been in a decline in 2016 and he added its chart looks like the stock is in a downtrend. He thinks that it is going to trade lower and he expects it to drop to $170.

To make a bearish trade he wants to buy the December 190 put for $9, sell two December 170 puts for $3.50 each and buy the December 150 put for $1.20. The whole structure is called a put fly and it costs $3.20. It breaks even at $186.80 and it can maximally make $16.80 if the stock trades to $170 at the December expiration. The profit starts to decrease below $170 and the trade loses money between $153.20 and $150.