Earlier, we previewed Tesla’s (TSLA) Q2 earnings due after the bell and detailed a roll of prior bearish trade idea from early June when the stock was near its all time highs. In both cases, the rolls took some profits off the table from the recent selloff and extended that view for the stock to continue lower. But the stock has sold off into the print and some may be looking to go the other way, with defined risk, for TSLA to resume its move higher and
But the stock has sold off 15% into the print and some true believers might think that this is the perfect trade set up for a quick snap back towards the prior highs after what might prove to be a brief shakeout.
WIth short dated options prices pumped, those looking to play for a sustained rally into September might look to finance longer dated out of the money calls but selling shorter dated (weeklies) of the same strike at the implied move to help finance the bullish bet.
So What’s the Trade?
Buy the TSLA ($319) Aug4th/ Sept 340 call calendar for $7
- Sell 1 Aug4th 340 call at 3
- Buy 1 Sept 340 call for 10
Breakeven/Rationale – The most that can be lost on the trade is $7. The trade does best with a move higher in the stock towards 340 (very near the implied move of 6.5%, or $20). A big move lower and the trade could essentially be worthless, but any sideways or move higher and it’s in good shape. If the stock does move higher, but below the 340 the short weekly calls will expire worthless, leaving a cheap Sept call for a continued move higher. If the stock moves substantially higher than 340 before this Friday there is risk that the trade is a loser, despite getting direction right. But the strike chosen is close to the implied move to the upside for the event.