One of the worst things you can do in trading a declining market from the short side is targeting a stock that you think is overdue for a substantial pullback but only getting a small portion of that potential move before closing and moving on. We’ve stuck with a TSLA short over the past few months and tried to be patient and stick with it. Sticking with the trade can be tough but doing it by rolling options can keep you in the trade idea.
We initially targeted TSLA in late November (read here) with a bearish leaning calendar put spread. That put spread targeted the $200 level when TSLA was $220. Here was the original trade:
*TRADE: TSLA ($220) Buy Dec 31st / March 200 Put spread for $9
We didn’t really get move down to $200 over the next few weeks but it since we did a calendar spread that was fine. In mid December we were able to roll the calendar into a Jan/March calendar spread (closing the Dec short put and selling a Jan put). That left us with this position:
New position: Long TSLA ($220) Jan/March 200 put calendar for 6.40 (currently worth 7.90)
The roll of the calendar worked again and we finally started to see TSLA move lower towards $200. So on Janaury 11th, with TSLA at $206 we were able to roll the short put once again, using the proceeds of the calendar up to that point, to reduce the cost to next to nothing on a March Vertical spread targeting a break of the $200 level (read here). Here is the trade we are left with since Jan 11th:
New Position: TSLA ($206) Long March 200 / 175 put spread for $2.50 (the previous cost of the put calendar less the credit of today’s roll).
Now with the stock $182.50, the March 200/175 put spread that we are long for $2.50 is worth $14.00. We’re going to finally take the profits and move on:
Action: TSLA ($182.50) Sell to Close March 200/175 put spread at $14 for an $11.50 gain