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) March 2023 $250-$260 in-the-money vertical bear put debit spread at $9.90 or best
Closing Trade
3-6-2023
expiration date: March 17, 2023
Portfolio weighting: 20% double weighting
Number of Contracts = 25 contracts
News that Tesla is cutting prices for its Models S and X hit the shares this morning. Tesla offered me a $20,000 discount on a new Model X P100D three weeks ago, which is why I add this position.
The bad news gives us an opportunity.
Always leave the last ten cents of a move for the next guy. That's what my late mentor Barton Biggs taught me decades ago.
So here we are with my Tesla vertical bear put debit spread at $9.90 with only ten cents to go. It’s time to say “Thank you” Mr. Market and move on to the next trade. The risk/reward of continuing is no longer favorable.
When the single most volatile stock in the market doesn’t move for 9 days, you take the money and run.
Therefore, I am selling the Tesla (TSLA) March 2023 $250-$260 in-the-money vertical bear put spread at $9.90 or best.
As a result, you get to take home $2,500, or 11.23% in only 9 trading days. Well done and on to the next trade.
DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
Simply enter your limit order, wait five minutes, and if you don’t get done, cancel your order and lower your offer by 5 cents with a second order.
After markets have big moves like we saw in January, you tend to get no moves for a couple of months. With the highest implied volatility in the market at 78%, a short Tesla strangle is far and away the best way to play this. This is the first leg in that strangle.
We also have the autonomous driving recall of 360,000 Tesla vehicles here to trade against. A Volatility Index ($VIX) back up to $24, incited by today’s 500-point plunge in the Dow is further icing on the cake.
The selloff was prompted by rising fears of a debt default by the House of Representatives this summer which have taken interest rates dramatically higher. As a result, Tesla has had to raise interest rates on company-financed new sales from 2.0% to 5.0%.
Strong residence on the charts at the 200-day moving average at $223.13 also provides a further argument for the short-term bear case for Tesla.
Tesla is now the most widely owned stock in the world and accounts for a staggering 6% of the options market.
Elon Musk really checkmated the rest of the EV industry with his 20% price cut, which is 35% after adding in newly qualifying government subsidies. This morning, Tesla will still be the most profitable auto company in the world, even after the price cuts.
Tesla Q4 sales came in short, delivering 405,278 and 1.3 million for all of 2023. Put spreads this far in the money trade all over the map but give this your best shot.
With this trade, I was willing to bet that Tesla shares would not rise above $250 by the March 17 option expiration in 19 trading days.
Here are the specific trades you need to close out this position:
Sell 25 March 2023 (TSLA) $260 puts at…………….....…….…$61.00
Buy to cover short 25 March 2023 (TSLA) $250 puts at…….$51.10
Net cost:………………………….……….……………..............…………$9.90
Profit: $9.90 - $8.90 = $1.00
(25 X 100 X $1.00) = $2,500, or 11.23% in 9 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.
