Musk Sets a New Milestone as World’s Richest Person! How to Ride Tesla's Rally Using Options?

On Wednesday, Tesla ($TSLA) surged 5.93%, reaching a new all-time high and topping the U.S. stock market with a trading volume of $42.676 billion. CEO Elon Musk became the first person in the world to achieve a net worth exceeding $400 billion, marking a significant milestone as the world’s richest individual.

Key Catalysts Driving Tesla’s Performance

1. SpaceX Internal Stock Sale: An internal stock transaction at SpaceX contributed significantly to Musk’s net worth, increasing it by approximately $50 billion, pushing his total to $439.2 billion.

2. Tesla’s Cybertruck Potential Entry into China: Tesla’s Cybertruck was recently listed on China’s Ministry of Industry and Information Technology (MIIT) energy consumption query website. Although passing the energy consumption declaration is just one of the many requirements for entering the Chinese market, this signals Tesla’s intention to bring the Cybertruck to China.

3. Strong Sales in China: Tesla sold 21,900 units in China from December 2 to 8, demonstrating strong market demand.

Option Strategy to Ride Tesla’s Momentum: Selling Cash-Secured Puts

For investors bullish on Tesla’s outlook, a cash-secured put strategy is an effective way to generate income or acquire shares at a discount.

What is a Cash-Secured Put?

• Selling a put option involves agreeing to purchase the underlying asset (Tesla stock) at the strike price if the option is exercised.

• If the stock stays above the strike price at expiration, the seller keeps the entire premium as profit.

• If assigned, the seller buys the stock at the strike price, with a net cost lower than the current market price due to the premium received.

Tesla Cash-Secured Put Example

Current Tesla Stock Price: $428
Trade Setup:

• Sell a $420 put expiring on December 20.

• Premium collected: $14.10 per share or $1,410 per contract (100 shares per contract).

Profit and Loss Analysis

1. Maximum Profit:

   • $1,410 (the premium received).

   • Condition: Tesla’s stock price stays ≥ $420 at expiration, and the option expires worthless.

2. Maximum Loss:

   • Theoretically unlimited since the stock price could drop to $0.

   • Loss formula: (Strike Price − Stock Price) × 100 − Premium Received.

     • Example: If Tesla’s stock drops to $390:
       Loss = (420 − 390) × 100 − 1,410 = $3,000 − $1,410 = $1,590.

3. Breakeven Point:

   • $405.90, calculated as (Strike Price − Premium per Share).

   • Below this level, the seller incurs a net loss.

When to Use This Strategy?

1. Bullish Sentiment: You believe Tesla’s stock will remain above $420 or won’t decline significantly before December 20.

2. High Risk Tolerance: This strategy exposes investors to substantial downside risk and is suitable for those with a strong risk appetite.

Advantages and Disadvantages

Advantages:

• High premium income, ideal in relatively stable or slightly bullish markets.

• Potential to buy Tesla shares at a discount if assigned.

Disadvantages:

• Unlimited downside risk: Requires careful monitoring of Tesla’s stock price.

• Margin Requirements: Cash must be set aside to cover the purchase of Tesla shares if assigned.

Tesla’s rally has created exciting opportunities for options traders. Are you ready to capitalize on Musk’s milestone and Tesla’s momentum? Let’s discuss your trading strategies in the comments!