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You'd have to be living under a rock not to know about the incredible year Tesla Inc. (NASDAQ: TSLA) is having. You could've picked up shares for a mere $73 at the March low. As of Dec. 2, they were over $559 per share. That's a 665.8% gain in just over eight months.
It's not stopping there.
Tesla is slated to be included in the S&P 500 this month, meaning index funds will have to buy up more shares of the stock, while Tesla will be thrust onto the radar of even the most conservative investors.
That has traders salivating at the opportunity to make money on Tesla. Today, we'll show you exactly how to trade options on Tesla stock to make the biggest gains over the next few months.
But first, here's why the stock is on such a run…
Why Tesla Shares Are Soaring
Tesla is square in the middle of the latest and greatest technology, from storage farms for solar energy to sending rockets to Mars. It's a nerd's paradise, and we mean that in the best way possible.
Plus, its flagship electric vehicles are turning heads. These aren't the sleepy looking electric cars of the past; they're high-powered, luxury monsters that have helped push Tesla into the black.
And now that the company has proven it can sustain actual earnings for the five consecutive quarters demanded by the S&P committee, it is finally slated to be added to the S&P 500 on Dec. 21. Since the news was released after hours on Nov. 16, the stock soared nearly 50% from its already lofty levels.
A nice gain is to be expected once a stock gains admittance to the benchmark S&P 500 too. Fund managers have to add it to their tracking portfolios, and that includes popular ETFs like the S&P 500 SPDR (NYSEArca: SPY). That adds a ton of demand for shares, and prices naturally get a boost.
But a 50% boost on a stock that was already big enough to be in the top 11 by market cap in the Dow Jones is a lot. As of today's trading, it would be number three in the Dow.
Does it deserve such a rich valuation? Perhaps. Perhaps it deserves even more because it is involved in autonomous vehicles, artificial intelligence, and green energy. It is a rather consequential company.
The question for traders is how to make money on this stock when the share price is so high. The answer is options.
Not only can options control the stock with a much lower up-front cost, but their risk is also limited.
And with the right strategy, you can reduce your cost and risk even further.
To help you do just that, we turned to one of the leading options experts to show you how to use Tesla options to make a big gain…
The Best Tesla Stock Options Trade Now
Money Morning Millionaire Trader Andrew Keene has a strategy that actually pays you to buy the stock.
Andrew says this is a stock to own right now, especially ahead of it getting added to the S&P 500. But the stock price is expensive right now. And because this is such a high-flying, popular stock, options are expensive too. Overpaying for stocks and options isn't how you make money.
Instead, by selling put options on Tesla, you collect a premium (money from the sale) right out of the gate. Since options prices are high right now, that's even better for you.
The best part is, if the stock pulls back, which is a decent bet based on recent trading action, you have the chance of locking in a lower price for the stock instead of having to buy it at today's price. The risk here is the stock could never slow down and you miss out on buying it, but you still get to keep the premium.
Andrew suggests a short-term trade, such as selling Dec. 24 or Dec. 31 puts with strike prices below the current share price. You'll want to make sure these are cash-secured puts, so make sure you have enough cash in your account to buy 100 shares of Tesla at the strike price you use. After all, your goal here is to eventually buy into the stock; you're just getting paid to name your price on it.
That's the second thing to focus on here. With recent trading near $559 per share, you could look at the $540 or $550 strike prices. Or you could pick the entry point you missed earlier this year. If you're thinking Tesla is a bit too pricey right now, pick the price where you'd think it's an opportunity.
Just remember, the lower your strike, the less premium you will collect, and the less likely the stock will fall that low. On the other hand, you might have to endure a drawdown and pay more for the stock when your put is exercised against you if you choose a strike price that is too high.
He Made Millions Trading for an Hour Before Breakfast
Andrew Keene was living with his parents. Two years later, he had $5 million to play with – all because of this one strategy.
The crazy thing is you can do it in less than 90 minutes a week.
To see how easy your life could be, click here.