Options Trading: Consider A Bull Put Spread For Tesla Stock Ahead Of Q1 Earnings Report

Tesla stock is due to report earnings on Monday after the close.


Tesla (TSLA) is currently above the 21-day, 50-day and 200-day moving averages, and the stock’s Relative Strength Rating is holding steady at 94.

TSLA stock also boasts an impressive Composite Rating of 94 and is one of the top holdings in the ARK Innovation ETF (ARKK).

Traders that expect a positive earnings result could look at a bull put spread expiring at the end of next week.

A bull put spread is a defined risk option strategy that profits if the stock closes above the short strike at expiry.

To execute a bull put spread, an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.

Bullish Tesla Stock Option Trade

Traders who think Tesla stock will rally or at least not drop by too much could look to sell an April 30 put spread with the short strike at 710 and the long strike at 705.

Yesterday, this spread was trading for around $2.50 which means a trader selling this spread would receive $250 in option premium and would have a maximum risk of $250.

That represents a potential 100% return on risk in 19 days as long as Tesla stock remains above 710.

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If Tesla stock closes below 705 on the expiration date the trade loses the full $250.

With this being such a short-term trade, there is no chance to adjust the trade if it goes bad. Trading options over earnings can be risky so for that reason, keeping position size small is a good idea.

The consensus estimate for TSLA earnings is for a gain of 78 cents per share on revenue of $10.24 billion.

The options market is pricing in a 10.9% move in the stock in either direction.

These types of earnings trades are quite risky, so I usually keep position size small.

It’s important to remember that options are risky and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.


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