As Tesla's Big Run Hits The Brakes, This Bearish Option Trade Could Return 17%

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As Tesla's Big Run Hits The Brakes, This Bearish Option Trade Could Return 17%

Blockhead12-19

Tesla's (TSLA) phenomenal run looks like it might be coming to an end with the stock down over 8% Wednesday. With the stock under pressure, I'm willing to bet that it will trade sideways at best over ...

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class=\"meta\">\n\n\n2024-12-19 21:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.investors.com/research/options/tesla-stock-bearish-option-trading/><strong>Blockhead</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Tesla's (TSLA) phenomenal run looks like it might be coming to an end with the stock down over 8% Wednesday.\nWith the stock under pressure, I'm willing to bet that it will trade sideways at best over ...</p>\n\n<a href=\"https://www.investors.com/research/options/tesla-stock-bearish-option-trading/\">Source 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GROWTH PORTFOLIO \"AD\" (USD) INC","LU0348723411.USD":"ALLIANZ GLOBAL HI-TECH GROWTH \"A\" (USD) INC","BK4554":"元宇宙及AR概念","BK4592":"伊斯兰概念","TSYW.SI":"TESLA 3xLongSG261006","SG9999015952.SGD":"LIONGLOBAL DISRUPTIVE INNOVATION \"I\" (SGD) ACC","LU1861559042.SGD":"日兴方舟颠覆性创新基金B SGD","BK4534":"瑞士信贷持仓"},"translate_title":"随着特斯拉的大涨踩刹车，这种看跌期权交易可能会回报17%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TSLL":1,"TSLA":1,"QCOM":1,"TSYW.SI":0.6},"content_text":"Tesla's (TSLA) phenomenal run looks like it might be coming to an end with the stock down over 8% Wednesday.\nWith the stock under pressure, I'm willing to bet that it will trade sideways at best over the next few weeks.\nToday, I'm looking at a bear call spread that assumes Tesla will struggle to get above the 520 level, which would be 6.4% above the all-time high.\n\n\n\n↑\nX\n\n\n\n\nWhat Is A Bear Call Spread?\n\n\nSee All Videos\n\n\n\n\nNOW PLAYING\nWhat Is A Bear Call Spread?\n\n\n\n\nA bear call spread involves selling an out-of-the-money call and buying a further out-of-the-money call.\nThe strategy can be profitable if the stock trades lower, sideways, and even if it trades slightly higher, as long as it stays below the short call at expiry.\nTesla Volatility Offers Advantage\nWith volatility through the roof, we can also place our strike further away from the stock price than usual.\nA Jan. 17 expiry bear call spread on Tesla using the 520-525 strike prices could be sold for around $0.75 late Wednesday.\nUsing the 520 strike as the short call gives plenty of margin for error if Tesla does bounce from here.\nTraders selling the spread would receive $75 in option premium, which is also the maximum possible gain. The maximum loss would be $425.\nPotential Return Of More Than 17%\nThat represents a potential return of 17.65% between now and Jan. 17.\n\nThe spread will achieve the maximum profit if Tesla stock closes below 520 on Jan. 17. In that case the entire spread would expire worthless, allowing the trader to keep the $75 option premium.\nThe maximum loss will occur if Tesla closes above 525 on Jan. 17, which would see the premium seller lose $425 on the trade.\nWhile some option trades have the risk of unlimited losses, a bear call spread is a risk-defined strategy, and you always know the worst-case scenario in advance.\nManaging Tesla Trade\nA stop loss could be set if Tesla trades above 500, or if the spread value rises from $0.75 to $1.50.\nBecause this is a bearish position, traders who think Tesla could move higher from here should not enter this trade. The position starts with a delta of -1, meaning it is roughly equivalent to being short 1 share of Tesla.\nA bear call spread can also act as a small hedge for long stock holders.\nAccording to the IBD Stock Checkup, Tesla is ranked No. 1 in its industry group. It has a Composite Rating of 94, an EPS Rating of 78 and a Relative Strength Rating of 98.\nTesla has already reported Q3 earnings, so this trade should have no earnings risk.\nThe last bear call spread we looked at, Dec. 10 on Qualcomm (QCOM), is working well so far.\nPlease remember that options are risky, and investors can lose 100% of their investment.\nThis article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.\nGavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ\nYOU MIGHT ALSO LIKE:\nAn 8% Discount Or $625 In Premium: Two Ways This KKR Stock Option Trade Wins\nTaiwan Semiconductor Stock Doesn't Need To Break Out To Make Money\nFedEx Bull Put Spread Collects $95 Immediately\nCoca-Cola Option Trade Could Return 5.6%, Boosting Stock's Yield","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}