To The Moon

$Tesla(TSLA)$ stock made it 11 consecutive gains on Wednesday (July 10) by the skin of its teeth. Investors digested news about market share and from Wall Street.

Goldman Sachs analyst Mark Delaney increased his price target on Tesla stock to $248 from $175, and kept his Hold rating.

Price target bumps typically help stocks. Battling target price increases is news that Tesla’s market share in the U.S. fell below 50% for the first time since it started selling electric vehicles, according to data provider Cox Automotive.

Here are two distinct options trading strategies applied to Tesla stock against the backdrop of heightened Implied Volatility (IV). Each is designed to exploit the IV environment to potentially benefit from the volatility contraction after consecutive gains.

Bullish Strategy: Short Put Spread

In the first trade setup, the above screenshot presents a short put vertical spread on TSLA, which is an options strategy entailing the sale of a put option while simultaneously purchasing another put with the same expiration date and a lower strike price. Here's the detailed setup:

• Sell to Open: 1 Put with a Strike Price of $272.5, Expiry 19-July-2024

• Buy to Open: 1 Put with a Strike Price of $252.5, Expiry 19-July-2024

‌$TSLA 240719 252.5P/272.5P$

Financial implications:

• Maximum Risk (Max Loss): The max risk you're exposed to is $1032.5. This scenario unfolds if TSLA's price plunges below $252.5 by the expiration date, causing both puts to be in-the-money. The loss is the spread between the strike prices ($20) minus the premium received ($9.65 per share).

• Maximum Profit (Max Gain): The max profit is capped at the premium of $965. You achieve this if TSLA stays above the sold strike price of $272.5 by expiration, rendering both puts worthless.

• Break-even Point: The break-even for this trade is $262.20, which is the higher strike minus the premium received per share ($272.5 - $10.3).

Strategic summary

This bullish position on TSLA implies a forecast that the stock will not decrease significantly and is likely to maintain or increase in value, staying above the break-even level. By employing this credit spread, you're taking advantage of the received premium, which provides a cushion against modest drops in the stock price. Your obligation is to purchase TSLA shares at $272.5 if it falls below this level, but you've hedged with the right to sell at $252.5. The net credit received bolsters your stance as long as TSLA's price stays above $252.5 by expiration.

Bearish Strategy: short call spread

The above screenshot shows a bearish trade setup on Tesla Motors Inc. using a short call vertical spread. Here's what your trade looks like:

• Sell to Open: 1 Call with a Strike Price of $250, Expiry 19-July-2024

• Buy to Open: 1 Call with a Strike Price of $270, Expiry 19-July-2024

$TSLA 240719 250.0C/270.0C$

Financial implications:

• Maximum Risk (Max Loss): Your maximum risk is determined by the difference in the strike prices ($20.00) minus the premium received ($10.6 per share). On a per-contract basis, that's $(2,000 - 1060) = $940.00.

• Maximum Profit (Max Gain): The maximum profit you can achieve is the credit received, which is $1,060.00. You'll secure this if TSLA is below the lower strike price of $250 at expiration.

• Break-even Point: Your break-even for the trade is the strike price of the short call plus the premium received, which is $250 + $10.6 = $260.60.

Strategic summary:

By initiating a short call vertical spread, you're indicating a bearish stance on TSLA, expecting the stock to trade below $250 by expiration. You benefit from both time decay and a drop in implied volatility, provided TSLA's stock price doesn't rise above your break-even point. It's essential to manage this position actively, particularly if TSLA starts to rally, as that could threaten your maximum profit scenario and push towards the maximum loss.