Trade Update – $TSLA: Closing Calendar Call Spread for a Gain

by Dan May 29, 2013 10:31 am • Commentary

TSLA price action is getting a tad whippy for my liking, feels like at any movement it could be up or down $20.  I am going to take my profits in the Calendar Call Spread that I bought on May 17th, but continue to closely watch the stock because the movement if likely to continue to offer trading opportunities in the options market without having to take a strong directional view.

ACTION: Sold to Close TSLA ($102) June / Sept 100 Call Spread at  $7.90 for a 2.90 gain



Enis highlighted TSLA’s monster technical break-out in his Chart of the Day (below) back on April 3rd, a couple days after the company stated they would post their first profitable quarter in their history.  Since then we have been fairly adamant about not trying to be contrarian in the face of what could be a a legitimately revolutionary story.

Back on April 5th I debated my Options Action cast mate Mike Khouw when the stock was about $41 as to the merits of the breakout and why the stock should still work given a variation of fundamental and technical factors.

That week I rode Enis’ coattails and bought a June 42/47 Call Spread (read here, closed here as we clearly did not expect the sort of price action to come) to play for further upside.

Again last week on Fast Money responding to a viewers question whether or not to short the stock I had the following to say:

Well here is the deal, the company appears to be hitting on all cylinders, but the stock is practically un-ivestable given the recent run.  Trying to call a top of when this sort of price action will end is a fools errand.  The top 5 holders, including the founder Elon Musk own close to 60% of the shares outstanding, top 10 holders own almost 75% of the shares outstanding, and more than 40% of the total shares are short.

Last night the company priced a 3.39 million share secondary and a convertible note that raised over $1 billion, of which founder Musk purchased himself 1 million shares.

After such a massive run, and the new equity issuance, I would expect the stock to consolidate a bit, but I think the story is far from over.  Despite the fact the future of this company is anything short of cloudy, I would be very surprised given their new found financial footing and the potential for geographic expansion that the story will end anytime soon.  Who knows whether or not $90 will be a good entry point for bulls, but one thing is for sure, the high implied volatility in the stock will offer plenty of trading opportunities for options traders.

MY TRADE: I want to play for near term consolidation, with resistance at that nice round number of $100, and set up to own longer dated calls that will capture the company’s next definable catalyst, Q2 earnings in late July.

TRADE: TSLA ($91.74) Bought June / Sept 100 Call Spread for $5.00

-Sold 1 June 100 call at 5.00

-Bought 1 Sept 100 call for 10.00

Break-Even on June Expiration:  The main goal on June expiration is to have the stock at or near 100 and I will look to sell a higher strike call against the Sept 100 call that I own to play for further upside over the summer.

-If the stock is 100 or below I own the Sept 100 call for 5.00. Above that I will make the difference btwn the option I am short and the one that I am long.  Below 100 I will be out the difference btwn the 2.  But, my max risk is the $5 premium that I paid, see payout diagram below.

Trade Rationale:  Short dated implied vol is through the roof, as the stock has had a massive run in the past month, in a very volatile fashion.  However, after the secondary offering, there is now more potential supply, reducing the likelihood of big rips in the near future, and the secondary signals that there is clear demand from institutions for the stock, so pullbacks are more likely to be bought by those who missed the secondary.  TSLA will remain a more volatile stock than most names, but we are selling June at 71 implied volatility and buying Sept at 61 implied volatility, so plenty of cushion.

Payout Diagram on June expiry:

Approximate Profit or Loss on position if Sept implied volatility remains constant on June21st expiry, Courtesy of Bloomberg
Approximate Profit or Loss on position if Sept implied volatility remains constant on June21st expiry, Courtesy of Bloomberg





Original Post April 3, 2013:  Chart of the Day – $TSLA Breakout

At first glance I thought the news out of TSLA this morning was a cruel April Fools joke aimed at the 50% short interest in the shares, but the company stated that their Model S sales have exceeded previous expectations, and they actually expect to turn a profit in the first quarter.  The news sent TSLA up more than 20% at one point today, and it’s still up 16% as I write.

I actually had a bullish trade structure on TSLA that I took off last month for a profit when the stock stalled near the $40 resistance level.  My profit was nothing compared to what I would have made if I still held the trade today.  But hindsight is 20/20.  The stock could have been down 20% today and my options would be worthless.

Leaving the past in the past, what’s more important is whether there is a good trade in TSLA going forward.

Here’s the lifetime chart:

Lifetime daily chart of TSLA, Courtesy of Bloomberg
Lifetime daily chart of TSLA, Courtesy of Bloomberg

The $40 level (annotated with a red line) was resistance in 2012 and 2013, and it gapped through that resistance level today, on its largest volume since the stock’s IPO (lower panel).  I anticipate that $40 will be important support going forward, as all of those who missed out on buying the breakout will look for an entry in the 40-41 level.  For now, the stock is in unchartered territory, and with on reference points, I have little inclination to initiate a new trade.  But if the stock does offer a pullback opportunity to near breakout support, I’ll be ready to put on another bullish TSLA trade.