Pulling a U-Turn on Tesla

So this Tesla (TSLA) piece is making me look pretty good right now.

Fundamentally, nothing has changed. This is still the ridiculously overpriced stock of a badly managed company with dim long-term prospects that could levitate even higher near-term on a short squeeze.  

But with the stock now above the upper limit of the recommended options spread trade, it’s time to declare a partial victory and change the playbook a bit.

The $270 November call I recommended back in April at $56.55 was bid at $108.65 earlier today (and you might be able to get a slightly better price within the bid/ask spread). I’m selling it in the portfolio, but not buying back the $370 November call.  That one still has way too much time premium, reflecting risk of a continuing short squeeze.

So this is now just a short trade with characteristically unlimited downside and the upside of the call expiring worthless. On the other hand, TSLA would have to close at $436.90 or above at the November expiration to drain the profit from the call option we’re selling today as well as proceeds from the call option sold. And there’s still a pretty good chance it will close below $370.

If you’re unwilling to bear all that risk, I wouldn’t blame you. In that case you could buy back the $370 call today for around  $41.90 (as of recently). You net return from the entire spread trade would amount, at those prices, to 60% in under two months; not too shabby.

But I’m going to be greedy in our (paper, remember) portfolio. I’m after the psychic satisfaction of profiting from Elon’s many failings, or at least from common sense and the law of gravity prevailing before November.

Please note too that previously recommended call and put options on HCA Holdings (HCA) and Molina Healthcare (MOH) expire today, and you should sell the calls before the close to avoid being assigned the stock. I’ll update the closing prices for these trades based on today’s market close.

And if you’re playing along with this Tesla trade I’d love to know how you’re doing so far and whether you’re planning to short, liquidate or stick with the original spread trade.

Stock Talk

Curtis H

Curtis H

Hi Igor, I bought on May 4 and sold on June 1. Net gain was $1281 (Bought at 42 and sold at 54.81) on one contract. I was very happy. I am not getting back in for now. Thanks, Curt


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