If You Are Bullish TSLA, Here Is A Credit Put Spread To Consider Expiring on Dec 22
Tesla (TSLA) is on a bullish streak, climbing 8.3% in one month while the broader market is up 4.9%.
Source: Market Chameleon
One way to capitalize on Tesla's potential upside is a bull put spread strategy. If you're trading option spreads, you probably already know that manually analyzing different option legs for a put spread can be a tedious and daunting task.
To streamline this process, we turned to MarketChameleon's "Trade Ideas" tool, driven by a sophisticated algorithm for identifying promising options strategies.
The Trade Ideas tool found an inticing TSLA bull put spread expiring on Dec 22, 2023 with significant upside potential, a theoretical trading edge and defined risk.
Let's go over:
- The steps of how to find a bull put spread setup in TSLA
- Why we find this particular spread compelling
How To Find A Bull Put Spread Strategy In TSLA
To help us quickly find option put spread opportunities for TSLA, select bull put spreads from the dropdown menu using the MarketChameleon "Trade Idea" Tool.
Source: Market Chameleon TSLA Bull Put Spread Trade Idea's Tool
This tool ranks the current top three bull put spreads in TSLA that imply a trading edge and meet our risk-reward criteria.
Here Is A TSLA Bull Put Spread Our Tool Found
As you can see from the bottom section of the trade idea card, this strategy involves selling the 22-Dec-23 237.5 put and buying the 22-Dec-23 232.5 put.
Here Are The Highlights Of The Strategy
Market Price (Credit): $2.10
Theoretical Value: $1.72
Theoretical Edge: 13.2%
Yield Potential: 72.4%
What Needs To Happen And How Much Can You Make?
TSLA Needs To Remain Above $237.5
At the time of writing, TSLA was priced at $238.29. To achieve maximum profit from this spread, the stock must maintain a closing price above $237.5 on the option expiration date of December 22, 2023.
Max Profit of $2.10 Equates To A 72.4% Potential Return
In such a scenario, both puts would expire worthless, and you would retain the full credit received from selling the spread, which amounts to $2.10. When expressed as a percentage of the total amount at risk, this put spread has the potential to yield a return of +72.4% ($2.10/$2.90).
What Is The Estimated Success Rate Of This Put Spread?
An Estimated Success Rate Of 68%
Historical stock behavior implies that this particular put spread has an estimated success rate of 68%, but there is no guarantee or way of knowing TSLA's future performance with certainty.
What Is The Risk And How Much Can It Lose?
TSLA Stock Could Decline
Since this a bullish strategy, it carries the risk of a stock decline. In this case, the break-even point on the downside is $235.40.
Max Loss of $2.90 On Stock Decline Below $232.50
If, at the option's expiration, TSLA's price drops below the $232.50 strike, both put options will be in-the-money, causing the spread to be valued at $5. In such a scenario, the max loss would amount to $2.90, assuming no exercise or assignment risks.
The benefit of the TSLA bull put spread is that you have limited risk in the event of a significant stock decline.
What Else Makes This TSLA Put Spread Trade Attractive?
Appears To Have A Theoretical Trading Edge
Using a historical data-driven model, the tool estimated the spread's value at $1.72. When we compare this to the market prices at which you can sell, which is $2.10, it implies a theoretical edge of 13.2%.
In Summary
What Makes This Opportuntiy Compelling? This TSLA bull put spread, set to expire on Dec 22, 2023, appears to have a theoretical trading edge and has a potential to generate significant returns while limiting risk.
When Should You Do This TSLA Bull Spread? It is important to remember that the outcome is uncertain and that the strategy is of a bullish outlook. The stock has to stay above the 237.50 strike at expiration to fully payoff.
As always keep in mind that all investments carry risk, and success is never guaranteed.
Contact Information:
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About the Publisher - Marketchameleon.com:
Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.
NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated And may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices And were Not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.
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