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Tesla Motors Double Top or New Break Out?

Published on August 18, 2014

Tesla Motors Double Top or New Break Out?

August 18, 2014

Tesla Motors (TSLA) just hit another all time high and then quickly slipped below the previous 52 wks high. Points from such extremes are of importance.

Is TSLA going to make a new high or making a double top?

TSLA Double Top or New BreakOutFrom technical charting perspective, there can be both bullish as well as bearish case. However, as I see it, I see a quick pullback trading opportunity.

This is how I plan to trade it –

– Sell to Open Sept Monthly 270 Call
– Buy to Open Sept Monthly 275 Call

This vertical credit spread will generate $152 credit for every $348 investment. The maximum risk is limited to $348 while maximum gains are limited to$152 or +43% ROM. This trade has 3/4 chances of being profitable by Sept expiration. Let me show you how –

  1. If TSLA moves sideways, this will be profitable
  2. If TSLA drops, this trade will be profitable as it is a bearish vertical trade
  3. If TSLA rises but stays below $$271.5, this will breakeven or be profitable.

It will lose if TSLA starts to rally. Since TSLA might also break-out, I will use a stop loss at $269 i.e. if TSLA closes above $269, I will close my vertical spread for whatever profit or loss be at that time. From profit perspective, I will book my first profit at $245+/-

No one can predict where markets are going, at least in the short-run. All we can do is increase our PROBABILITY of success. Options trading gives us that edge by aligning more chances in our favour. We can still be profitable even if we are wrong, not just too wrong though.

Should you have any questions, kindly write those in the comments sections and I will be glad to answer.

Disclaimer– As of this writing I am not in this trade as markets are closed. I might open, change strikes, close etc, anytime without prior notice. Please do your due diligence before investing any money based on the ideas listed here. These are for educational and information purpose only.

3 Comments

  • Avatar Frank says:

    The trade is losing money because TSLA went up without ever going down today. How could you have made money? Set up the trade around $1.50 credit its now $170 a loss of $20 x 10 contract= $200

  • Avatar OptionPundit says:

    @Frank,

    Thank you for your comment. You’re absolutely correct, assuming the Trade was opened on Aug 18th market open, then NOT CLOSING it until Aug 25th market close i.e. today while waiting for it to hit $245 as mentioned in the post. So if you were following the above post as it is, then yes as of last mid quote price it is $1.62 vs $1.50.

    However, since my post, TSLA dropped to $252+/- in the following sessions, we quickly booked the gains instead of waiting. I shared this in the FB msg/tweet too.

    Hope that clarifies. Pls feel free to share your comments or ask questions.

    Regards.

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