To The Moon

Overview

On July 11, 2024, I initiated a vertical put option strategy on Tesla (TSLA) $Tesla Motors(TSLA)$   by selling a put option at a strike price of $210 and buying a put option at a strike price of $205, collecting a net premium of $50 per contract. At the time of opening this position, TSLA stock was trading at $247.

Initial Market Conditions and Strategy Rationale

The rationale behind this strategy was to capitalize on the relatively high stock price of TSLA and to benefit from the time decay of the options, given that the stock was trading well above the sold strike price. The vertical put spread limited my potential losses while providing a defined profit if TSLA remained above $210 at expiration. This conservative approach seemed appropriate given the prevailing bullish sentiment around Tesla, particularly driven by optimism surrounding its artificial intelligence initiatives.

Developments and Market Reactions

On the same day, TSLA stock closed at $241.03, influenced by the news that Tesla is delaying its planned robotaxi unveiling to October from August to allow more time for additional vehicle prototypes. This delay raised concerns among investors about potential delays in Tesla's AI and autonomous vehicle projects, leading to a minor decline in the stock price.

The next day, UBS Group downgraded Tesla's stock, expressing concerns that the shares had risen "too much, too soon" due to optimism over its AI plans. This downgrade contributed to additional downward pressure on the stock.

Reflection on Strategy Performance

The combination of the robotaxi unveiling delay and the UBS downgrade led to a reduction in TSLA's stock price, which impacted the initial value of my vertical put option strategy. While the stock price decline brought TSLA closer to the sold put strike price of $210, it remained well above this level, indicating that the strategy was still in a favorable position.

Key Insights and Considerations

Market Sensitivity to News: The immediate drop in TSLA's stock price following the news about the robotaxi delay and the UBS downgrade highlights the sensitivity of the stock to market news and analyst opinions. This volatility must be factored into any options trading strategy involving Tesla.

Risk Management: The vertical put spread provided a degree of risk management by limiting potential losses while still allowing for a premium collection. Despite the negative news, the strategy remained relatively secure as long as TSLA stayed above $210.

Timing and Market Conditions: The timing of the option trade was crucial, given the high initial stock price. However, external factors such as delays in product development and analyst downgrades can significantly impact the stock's short-term movements.

Future Outlook: The delay in the robotaxi project and analyst concerns suggest potential short-term volatility. Nevertheless, Tesla's long-term prospects in AI and electric vehicles remain strong. Monitoring future developments and adjusting positions accordingly will be essential.

Conclusion

The vertical put option strategy on TSLA was designed to capitalize on a high stock price environment while managing risk. Despite the immediate downward pressure from the robotaxi delay and UBS downgrade, the strategy remains viable with TSLA still trading significantly above the $210 strike price. This experience underscores the importance of considering market sensitivity to news and maintaining a balanced approach to risk management. Moving forward, staying informed about Tesla's developments and market sentiment will be crucial for optimizing option trading strategies.

$TSLA VERTICAL 240802 PUT 205.0/PUT 210.0$