When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
(TSLA) – TAKE PROFITS
SELL the Tesla (TSLA) February 2023 $95-$100 in-the-money vertical bull call spread at $4.80 or best
Closing Trade
1-24-2023
expiration date: February 17, 2023
Portfolio weighting: 10%
Number of Contracts = 25 contracts
It's a good rule of thumb that when you make 71.4% of the maximum potential profit in only five trading days, you take the money and run. You especially do that the day before an earnings report which is expected to be weak.
We know Tesla fell short of its 2022 sales target by 100,000 vehicles and that has to feed into earnings. In addition, we are already a massive 46% in-the-money on this spread. The risk/reward of continuing another full month until the February 17 options expiration is no longer favorable.
Therefore, I am selling the Tesla (TSLA) February 2023 $95-$100 in-the-money vertical bull call spread at $4.80 or best.
As a result, you get to take home $1,250, or 11.62% in only 5 trading days. Well done and on to the next trade!
The $101 bottom in Tesla shares is looking more solid every day. Elon Musk retreating as a seller is a major help. So are his other businesses, which are exploding in value, which Musk can raid as a piggy bank at any time.
The China reopening is accelerating and may well head off a global recession. Letting everyone get Covid and achieving heard immunity turned out to be the key. It’s demolished the entire January selloff scenario. This is crucial for Tesla as the Middle Kingdom is where its sales have been the weakest.
DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
Simply enter your limit order, wait five minutes, and if you don’t get done, cancel your order and lower your offer by 10 cents with a second order.
Call spreads this far in the money trade all over the map but give this your best shot.
Tesla Q4 sales came in short, delivering 405,278 and 1.3 million for all of 2023. The slight miss took the shares down an astounding 14%, a huge overreaction. The stock is now selling for 22 times 2023 earnings and 11 times 2025 earnings, compared to an average of 17 times earnings for the top four tech companies. That’s an eye-popping 35% discount to big tech. It’s certainly worth taking a risk going long here for a company that is still growing earnings by 40% a year.
Tesla shares plunged last year because Elon Musk sold an additional $3.6 billion worth of shares in December, bringing his total for 2023 to a mind-numbing $40 billion, according to SEC filings.
An onslaught of new Tesla positives will hit the market in 2023. The new Cybertruck comes out and there is a two-year waiting list out the gate and deposits in hand for 1.5 million vehicles.
The company is generating such enormous cash flows that it is likely to carry out $10 billion in share buybacks, especially with the Price this low. There are no real competitors on the horizon, except for a handful with minimal production at big losses outside of China.
All the new negatives are now in the price, the China lockdowns, the product recalls, the Shanghai shutdown, recession fears, and even Elon Musk himself going from a premium to a discount are now in the price. At the end of the day, Tesla really is a consumer discretionary stock.
With this trade, I was willing to bet that Tesla shares will not fall an additional 31% in 31 trading days with Elon Musk out of the market. I was also betting that a company that is growing sales at 50% year and earnings expanding at an incredible 40% a year will see its share price fall only 83% from its all-time high at $424 a year ago, which seems reasonable.
You will never see this again.
Twitter will remain a distraction, but only so much of a distraction. A now $10 billion company can only drag down a former $365 billion company so much. Elon Musk has been chastised severely. Soon he will appoint a new Twitter CEO who knows the social media industry cold and the distraction will go away.
I have known Elon for 25 years, back when he was asking ME for money, and when he realizes he has made a mistake, he pivots fast, faster than any other Fortune 500 CEO.
Tesla will remain the top EV maker for the next decade easily.
To make this trade really perfect, I would love to see the Volatility Index (VIX) well above the current $19. But Tesla implied volatility is already trading at a sky-high 71%, triple the market volatility. But you have to strike while the iron is hot. Tesla trades in its own world anyway.
This was a bet that the Tesla (TSLA) would not trade below $100 by the February 17 option expiration day in 23 trading days.
Here are the specific trades you need to close out this position:
Sell 25 February 2023 (TSLA) $95 calls at……….................…$48.00
Buy to cover short 25 February 2023 (TSLA) $100 calls at….$43.20
Net Proceeds:………………………….…….........................….………$4.80
Profit: $4.80 - $4.30 = $0.50
(25 X 100 X $0.50) = $1,250, or 11.62% in 5 trading days.
If you are uncertain about how to execute an options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep-in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
