Tesla Jumped 4.81%: Bull Spread Strategy for the Ride Up!

In the competition of the AI war, $Tesla Motors(TSLA)$ might not be getting as much attention as $NVIDIA Corp(NVDA)$ or $Microsoft(MSFT)$, but Morgan Stanley thinks Tesla holds a "key card" that could make it a major player in the next round of AI investments.

Tesla's CEO, Elon Musk, revealed at the annual shareholder meeting that they'll start "limited production" of the Optimus in 2025 and test humanoid robots in their own factories next year. He even predicted that they'll have "over a thousand, maybe even thousands, of Optimus robots up and running next year."

Musk said Tesla's future is "exhilarating" and painted a rosy picture for shareholders, including the potential for the Optimus robots to produce up to 100 million units per year, earning Tesla a whopping $1 trillion in profits!

Musk believed Tesla's market cap could exceed $33 trillion, ten times that of the most valuable company right now!

To catch that Tesla wave, we're going with a bull spread strategy in the options market.

What's a bull spread strategy?

A bull spread strategy involves selling a put option while buying another put option with the same expiration date but a lower strike price (on the same underlying asset). Since the premium for selling a put option is higher than the premium for buying a put option, the investor usually earns a net human rights premium.

When investors expect the market price to rise, but the rise is limited, and investors do not want to suffer the consequences of a sharp fall in the market, they can use the bull spread strategy.

What are the perks of bull spread strategy?

1.Low-risk way to earn premiums: If you're looking to earn some premium income with less risk, this is your go-to strategy.

2.Get stocks at a lower price: It's a clever way to buy stocks at an effective price lower than the current market price.

3.Profit in a volatile market: When the market drops, selling puts can be risky. But with this strategy, you limit your downside and still earn in a volatile market.

Take Tesla as an example

In the case of Tesla, the trading price of Tesla was $196.37 in the pre-market on June 26. One options trader expects it to trade as high as $195 in a month, but he is also concerned about potential downside risk to Tesla.

As a result, the trader sold a put option with a target price of $205 with an expiration date of June 28, trading at $9.08 and receiving a payout of $908.

At the same time, buy a put option contract with a target price of $192.5, trading at $1.27 and paying a premium of $127, also expiring on June 28.

At the time of strategy establishment, since each option contract represents 100 shares, the options trader's net royalty income is: 908-127 = $781.

When the option expires a month later, losses are greatest when the stock price is lower than the long put option, which is $192.50. Conversely, the greatest gain occurs when the stock trades above the strike price of the $205 put option.

Compared to just buying calls, a bull spread strategy limits your downside risk and improves your chances of winning. In addition, you can choose your own selling point, so you can adjust your hedging strategy based on different market cycles.