As of lately, Tesla has been on a run that defies any imagination . We are not gonna get into a debate of what drove that run or any emotional arguments about the merits of it.
As a rational trader, you have to wonder whether there's any money to be made along the way, and what would be the best way to do it.
If you think the next move in the stock would be to the downside the best way to make money is to short the stock. Now we know that doesn't always go as intended and Tesla shorts have been fried before. Big time! In fact, a lot of this big rally has been attributed to a giant short squeeze, but like I said, we are not going there.
Options provide the opportunity to take a position with limited risk, and Tesla has a very active and liquid options market. You can find options going all the way to Sep 2022 (Leaps) and ranging widely starting all the way from 1$. Yes! some traders think Tesla could be worth $1 or less come Jan 2022, or June 2022, based on the volume of trades, and open interest on those dates, which is huge.
I tend to be not that far from those traders and my trade is a debit put spread for Jan 2022 at the 10/5 strikes level. More exactly I bought several of the $10 puts and sold the $5 puts. All for a $5 debit per spread. That's my max loss in case TSLA is above $10 at expiration. The max potential payout is $500 per spread or the width of the spread. In other words, spend $1 to make $100.
Now this trade doesn't have to pay all of its potential win in order to be profitable. It can easily double, triple, or pay tenfold your money and still be profitable. And one great way to play it would be to take some early lesser profits (if any) and let the rest run on the house's money. In fact, as I write this, the spread already trades at $10, so a double.
All in all this is a great way to participate in trading TSLA with limited risk and a great potential reward. Leave some comments if you have any questions, and good luck!
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.