Trade Update $TSLA: Closed Half Dec27th 150 Puts for A Double, Letting Other Half Ride

by Dan December 19, 2013 2:02 pm • Commentary

Last Friday I did something that we don’t usually do, bought puts outright in a very high implied volatility stock, TSLA.  The trade was merely a near term defined risk bet that the stock’s battery might be running low as it approached its 50 day moving average as it re-traced 30% of the sell off from the Sept 30th highs.  I am now going to close half the position for a double and let the other half ride, but keep on a close leash.

Action: TSLA ($140 ) Sold to Close Dec 27th 150 Puts at $11.00 for a $5.50 gain




Original Post Dec 13th, 2013:  New Trade $TSLA:  Electric Slide?

TSLA has had a very quiet rally of late, at least from the standpoint that every tick in the stock has not been broadcast on financial TV with dramatic images of fiery cars or Elon Musk, as was the case on the stock in late Sept.  The stock has retraced half of the move lower from the highs and now is approaching a fairly interesting (potential) near term resistance level at its 50 day moving average (purple) below:

TSLA 6 month chart from Bloomberg
TSLA 6 month chart from Bloomberg

Despite the stock’s movement since the highs, implied volatility (blue line below) has actually come in as realized volatility (white below) has picked up due to what could be a certain level of equilibrium reached among bulls and bears on the story.  What does this mean?  Simply that options prices are cheaper than they have been in while for those looking to make directional bets.

TSLA 30 day at the money IV (blue) vs realized vol (white) from Bloomberg
TSLA 30 day at the money IV (blue) vs realized vol (white) from Bloomberg

While we remain very positive on the TSLA story, and think it has legs, the stock, up 345% year to date makes us a tad queasy and we would not be buyers here as the valuation does not make any sense for those who care about such things in stocks they own.

On a near term basis, I like the idea of playing for a stall in the stock after a big run at near term resistance. With options prices relatively low, I simply want to buy one to express my view, with an eye towards spreading on a move lower or a jump in IV.

TRADE: TSLA ($151) Bought Dec 27th 150 Puts for 5.50

Break-Even on Dec 27th expiration:

Profits:  below 144.50

Losses:  btwn 144.50 and 150, lose up to 5.50, above 150 lose full 5.50 or about 3.5% of the underlying