Tesla Earnings Trade Ideas Using Options

• Posted by Greg Harmon
• on February 19th, 2014

These trades were given to subscribers at 1:30 today

Tesla, $TSLA

Tesla, $TSLA, has been moving higher since finding support at the lower Bollinger band and 50 day Simple Moving Average (SMA) in mid January. The bounce set up a harmonic Crab pattern with a Potential Reversal Zone at 242, still short of the target at 275 on an AB=CD pattern. It has an RSI that is bullish but falling with a MACD indicator that is leveling. There is no resistance higher over 206 and support lower comes first at 194 and 182 followed by 170 and 156 before 135. The reaction to the last 6 earnings reports has been a move of about 12.28% on average or $24 making for an expected range of 170 to 220. The at-the money February Straddles suggest a similar $23.25 move by Expiry with Implied Volatility at 200% above the March at 74%. Short interest is high at 34%. There were sellers of the 190/210 Call Spread at 410 yesterday, for protection to 200, and open interest for Friday favors the Call side but is large at 190, 200 and 210.

Trade Idea 1: Sell the February 185/205 Strangle for a $14.60 credit. Gives a range from 170.40 to 219.60.

Trade Idea 2: Sell the February 185/205 Strangle and buy the March 190/200 Strangle for $13. Looks for a tighter range through Friday and then a move.

Trade Idea 3: Buy the February28 195/200 Call Spread for $2.60 and sell the February 165 Put for $2.55, for a near free trade. You risk being put the stock at 165 next week on a severe drop and this takes margin.

Trade Idea 4: Buy the February/March 225 Call Calendar for $3.80. A bet that the options range and historical range holds through Friday.

Trade Idea 5: Buy the February 190/March 165 1×2 Put Diagonal (buy Feb and sell March twice) for a $0.40 credit. This takes margin and risks that you will be put the stock at 165 in March, but with a basis of 140 should it drop hard from the report.

My preference is #3 or #4, for upside. #2 gives a good range for this week and the ability to sell weekly strangles a few more times between now and March.

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