Tesla: Time For A Pause

Three months ago, when Tesla (TSLA) was trading at $173 per share, we placed a bullish bet on the company (Trade Alert: EVs).

In that post, we wrote,

The first one is the most obvious one, Tesla (TSLA -0.61%↓). Its shares are down about a third year-to-date (YTD). First it missed its Q4 earnings, and then it posted an 8.5% year-over-year decline in 1st quarter deliveries, driven in part by shutdowns of its Giga Berlin factory. Tesla shares were trading at close to $250 at the end of 2023; our bet below is that they’ll be trading at over $205 next January, and if we’re right, we’ll make a ~200% gain.

Flash forward to July 10th, and Tesla shares were up 52% since then. We’re still bullish on the stock long term, and are still holding our bet that the stock will be above $205 in January, but Tesla’s looking a little overbought here, with an RSI (Relative Strength Index) approaching 88.
 

Our trade today is a bet that Tesla pulls back about 3% by the end of next week. If we’re right, we’ll make a profit of about 150% on the money we risk.

Thursday Afternoon Update

Our trade below filled before 10am today. Currently, it’s in the black with Tesla down about 6.5% on the day, thanks to news the company had delayed its robotaxi demo until October.

Details on our trade that filled this morning below.

Our trade is a vertical spread on Tesla expiring on 7/19/2024, buying the $257.50 strike calls and selling the $255 strike calls for a net credit of $1.50. The max gain on 2 contracts is $300, the max risk is $200, and the break even is with TSLA at $256.50. This trade filled at $1.50.

Exiting This Trade

No exit, like the Sartre play. We’ll just hope Tesla closes below $255 on 7/19, so these options expire worthless.

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A Quick Tesla Update

Before we get to tonight’s Top Names post, a quick update on our Tesla (TSLA ) trade from this morning. In that post, I mentioned that although I remained bullish long term on Tesla, I was betting on a modest (~3%) pullback over the next several trading days.

As it happened, we got an 8.44% drop in Tesla today, putting our trade on track for a 150% gain next Friday if Tesla stays below $255 by then. I’ve removed the paywall on this morning’s trade alert, so you can read it below, but let me quickly explain why I placed this trade. No, I didn’t know Tesla would postpone the development of its robotaxi, but I knew this:

1. Tesla’s RSI (Relative Strength Index) of 87 indicated the stock was overbought.

2. After closing in the green for 11 or 12 straight sessions, the stock seemed like it was ready for a pullback.

3. The net credit available on this call spread so close to the money was too good to pass up.

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