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In a recent Seeking Alpha article, I presented what amounts to the bull case for investing in Tesla Motors (TSLA). If you believe in the company's future like Morgan Stanley does, I suggested going long the stock on the anticipation that it provides Apple (AAPL)-like returns. Even if you stand bullish on Tesla's long-term prospects, near-term risks exist.

I discussed these risks in my initial commentary on Tesla. The company itself warns that it might experience a downturn in electric vehicle (EV) sales in the period between an anticipated lull in its Roadster sales and the production of its second offering, the Model S. There's no telling how Tesla will weather this potential storm. An increase in agreements to supply other automakers with EV components could provide a buffer, but that's hardly a guarantee.

Pursuant to these concerns, I offer several ways you can approach TSLA through options. Keep in mind that TSLA options trade at a premium thanks, in large part, to implied volatility in the 60s on many TSLA contracts.

Selling Puts. By selling TSLA puts, you can take advantage of the high IV by collecting those hefty premiums. This strategy also makes sense if you want to own TSLA shares long-term, but find the present valuation too high. Maybe you expect a pullback on the above-mentioned decrease in sales, but a rebound once full-scale sales of the Model S begin.

In any case, pick a strike price and a month you are comfortable with. You need to be willing to buy 100 shares of TSLA for each put contract you sell at the strike price you select on or before the expiration date of the contract. For instance, if you would be okay buying TSLA at $25.00 on or before June 18, 2011, you could sell the TSLA June $25 put and collect a premium of about $2.25 for each contract sold, as of mid-morning Friday. If TSLA drops below $25.00, you run the risk of being put the shares at $25. The person who buys your put effectively pays you $2.25 per share for the right to sell you 100 shares of TSLA at $25.

Risk Reversal. If you are more bullish about Tesla's near-term prospects, you can make a riskier play. By selling puts, you can finance the purchase of call options. If you are wrong, but still bullish on TSLA long-term, you effectively hedge your near-term long call and potentially pick up TSLA shares at what a long-term bull would might view as a discount.

For example, you could sell the TSLA May $25 puts and collect a premium of $1.75 per contract, as of intraday Friday. Using the proceeds from the sale of the puts, you could partially finance the purchase of the TSLA May $27 call, for instance, which would cost you about $2.75. Your net debit amounts to $1.00, which places your breakeven point at $28.00. TSLA shares rallied to pass $28.00 after the Morgan Stanley upgrade on Thursday and Friday.

Strangle. Options traders often use strangles when they are uncertain about the direction a stock will take. Traders generally employ strangles ahead of a big event such as earnings. Tesla reports on May 2, 2011. If you are unsure about what to expect from earnings, but anticipate a large price swing in either direction, you could look into a strangle.

With a strangle, you open a long position in both a call and a put option. You purchase an out-of-the money call and an out-of-the-money put. Again, this strategy works best if the stock moves considerably on news, which TSLA likely will after its next report. It would be best to wait until later in April to see where TSLA trades at that point. Assuming the shares trade for $27.00 apiece, you could buy a TSLA May $25 put for $1.75 and a TSLA May $30 call for a $1.60, as of intraday Friday. It would cost you $3.35 to initiate this position. If TSLA moves considerably beyond either strike, the still OTM option will likely be worth little, if anything. You will be in a position to take profits on your ITM contract. In some rare cases - though not so rare with many of today's high-flyers - you can actually profit on both ends of the strangle if you time it right. I have done this personally with Amazon.com (AMZN) and have seen it happen with stocks such as Chipotle Mexican Grill (CMG) and Priceline.com (PLCN), all within a span of 24 to 72 hours.


Disclosure: I am long AAPL.

Source: Using Options to Play Tesla Motors