Tesla Takes Off: Maximizing Returns with Options
On July 1st, $Tesla (TSLA.US)$ 's Q2 delivery data exceeded market expectations, leading to consecutive days of significant stock price increases and the highest bullish sentiment among option investors in three years.
This article aims to explore how to capitalize on Tesla's ongoing uptrend using options to maximize returns.
To begin with, the key isn't just timing the market entry, but strategizing the approach to ensure a smooth entry.
This article aims to explore how to capitalize on Tesla's ongoing uptrend using options to maximize returns.
To begin with, the key isn't just timing the market entry, but strategizing the approach to ensure a smooth entry.
From a technical standpoint, Tesla's stock has broken above its 250-day moving average (shown by the blue line in the chart), marking the first time in six months. The skew in volatility (measuring the premium of call options over put options) is at its highest since February 1, 2021.
Emotionally, market sentiment has reversed significantly compared to three weeks ago, with trading volumes surpassing $200 million during this period and Tesla's stock price already up by 34%.
Given these factors, the expectation is for continued upward momentum in Tesla's stock price. This bullish trend is ideally suited for employing long call options to capture gains swiftly.
What is a long call and how does it work?
Long Call involves purchasing the right (but not the obligation) to buy an underlying asset (such as stocks or futures) at a specific price (strike price) within a specified period in the future.
If the price of the underlying asset rises above the strike price, the investor can choose to exercise the option, buying the asset at a lower price and potentially selling it at a higher market price, thus realizing profits. Therefore, with Tesla's stock poised for a surge, the profit potential for investors is theoretically limitless. ![]()
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How to execute?
For instance, if Tesla's closing price on July 1st was $209 and the opening price on July 2nd surged to $218, it indicates that we are in the early stages of an uptrend, making it opportune for long call strategies. If funds are limited, consider purchasing an out-of-the-money call option, such as buying a call option with a strike price of $240 expiring on September 20th for a premium of $20.45. As Tesla continues to rise above $240 later on, you can sell the underlying stock for profit and potentially buy back the shares at $240 to lock in gains.
However, timing of buying and selling remains crucial! With Tesla's stock price currently soaring and strong emotional backing, it's important to avoid greediness that could lead to excessive losses.
Additional considerations:
Looking ahead, Tesla will release its Q2 earnings report on July 23rd. Historically, Tesla's stock tends to perform on average nearly 10 percentage points better in the two weeks following earnings compared to the preceding two weeks (specifically, averaging a 6.7% increase post-earnings versus a 2.9% decrease pre-earnings). Hence, there is still time to get on board before the potential surge in stock price.
How to execute?
For instance, if Tesla's closing price on July 1st was $209 and the opening price on July 2nd surged to $218, it indicates that we are in the early stages of an uptrend, making it opportune for long call strategies. If funds are limited, consider purchasing an out-of-the-money call option, such as buying a call option with a strike price of $240 expiring on September 20th for a premium of $20.45. As Tesla continues to rise above $240 later on, you can sell the underlying stock for profit and potentially buy back the shares at $240 to lock in gains.
However, timing of buying and selling remains crucial! With Tesla's stock price currently soaring and strong emotional backing, it's important to avoid greediness that could lead to excessive losses.
Additional considerations:
Looking ahead, Tesla will release its Q2 earnings report on July 23rd. Historically, Tesla's stock tends to perform on average nearly 10 percentage points better in the two weeks following earnings compared to the preceding two weeks (specifically, averaging a 6.7% increase post-earnings versus a 2.9% decrease pre-earnings). Hence, there is still time to get on board before the potential surge in stock price.
In conclusion, as Tesla's valuation continues to rise, and with increased volatility expected around earnings announcements, investors should stay vigilant of price movements and related news, adjusting their investment strategies flexibly to adapt to varying market outcomes.
What are your thoughts on Tesla? What strategies do you plan to employ? Feel free to join the discussion in the comments section!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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