Trade Update April 12th, 2013, 9:55 am: TSLA just filled its gap at 44.34 which was my initial target for a rally off of $40 support. Given my quick gains and the fact that the stock hit my target, I’m going to take the trade off here. I will look to re-enter a long biased position if the stock makes it back down to near $40.
Action: Sold the TSLA ($44.60) June 42 / 47 Call Spread at $2.10 for a $0.70 gain
Original Post April 3, 2013: New Trade $TSLA – Electric Slide
I highlighted my technical thoughts on TSLA on Monday in my CotD post. Since then, the stock’s been on a quite a ride. But it’s an interesting set up now for a new trade.
The $40 level is long-term resistance that was clearly breached this week. Now that TSLA has sold off back to near that level, I think it’s a good entry for a long position. I focus a lot on the technicals in TSLA since it’s such an early stage company with little earnings history. It’s a sentiment story with passionate positions on both the bull and bear side (witness the 40%+ short interest in the stock). As a result, the stock is driven much more by psychology than fundamentals. With that in mind, this is a nice technical setup to play for a bounce off that long-term resistance that should now act as support.
Trade: TSLA ($41.40) Bought the June 42 / 47 Call Spread for $1.40
-Bought 1 June 42 Call for 2.27
-Sold 1 June 47 Call at 0.87
Break evens on June Expiration:
-Losses of up to 1.40 between 42 and 43.40, max loss of 1.40 at 42 or below
-Profits of up to 3.60 between 43.40 and 47, max profit of 3.60 at 47 or above
Trade Rationale: Given TSLA’s breakout, I expect some strength going forward. I want to give myself enough time for the stock to retest its highs from this week, where I’ll likely look to take at least partial profits. If the stock breaches 39 on the downside, I’ll probably take the trade off for a loss.