American electric vehicle and clean energy company, Tesla Inc. (NASDAQ: TSLA) has been on a steady uptrend since the past several months. This was fueled by the expectation that Tesla would unveil some major improvements in battery technology on September 22, dubbed Battery Day.
Tesla’s statement on Tuesday could be huge, resulting in a major stride that would revolutionize the entire EV market. Alternatively, the announcements may also end up being disappointing. At any rate, TSLA stock is expected to have a volatile reaction for a few days.
Here are 5 ways to trade TSLA ahead of the upcoming Battery Day.
#1 TSLA Bullish Trade: Entry Levels and Target prices as per Technical Analysis
At present, TSLA looks ready for an upmove due to the various positive indications on its charts.
#1 Unbroken Uptrend: The daily chart shows that the stock’s uptrend is unbroken, as it has been forming higher highs and higher lows for the past several months. This is a possible bullish sign.
#2 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX line and (+DI) line is above (-DI) line, and ADX line has started rising from below both (+DI) and (-DI) lines.
#4 Bullish RSI: The RSI is moving up from oversold levels and is currently above 50.
This is also a possible bullish sign.
#5 MACD above Signal Line: In the 15-minute chart, the MACD (light blue color) is currently above the MACD signal line (orange color).
This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of TSLA at either the nearest short-term support area of $430 or above the nearest short-term resistance level of $455. This is marked as purple color and orange color dotted lines in the 15-minute chart of TSLA.
Note: The long-term support level of TSLA is around $328.
TP: Our target prices are $480 and $520 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at $400 (for entry near $430) and $439 (for entry near $455). Note that the stop loss is on a closing basis.
Our target potential upside is 5% to 21% in the next 3-6 months.
• Entry near $430: For a risk of $30.00, our first target reward is $50.00 and the second target reward is $90.00. This is a nearly 1:2 and 1:3 risk-reward trade.
• Entry near $455: For a risk of $16.00, our first target reward is $25.00 and the second target reward is $65.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider: The stock may reverse its overall trend if it breaks down from the support area with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
As discussed earlier, in case the Battery Day announcement is not favorable for TSLA’s stock prices, instead of using stop loss, you can take advantage of TSLA options. Below are some strategies that could be used, depending on your risk appetite.
Assumptions: You already own TSLA stock. You are bullish on TSLA.
#2 TSLA Bullish Trade + Buying ITM/ ATM Put Option
This strategy is mainly for limiting substantial losses from the bullish trade in case there is a huge price decline for TSLA stock.
ATM/ITM Put Strategy: Purchase an At the money (ATM) or In the money (ITM) put option.
For example, TSLA’s closing price on Friday was $442.15. For this trading strategy, you could purchase the put option for the strike price of, say, $440 (for Sept 25 expiry), which was last traded for $38.50.
By purchasing the ITM/ ATM put, you are basically attempting to limit the losses caused due to any massive decline in the price of TSLA.
Unlimited profit from Stock; Unlimited profit from Options: Please keep in mind that if the stock surges ahead, the potential profit from the stock is unlimited, and if the stock declines substantially, the Potential profit from the purchased put option is also unlimited.
Note: It is assumed that you are already holding the stock.
#3 TSLA Bullish Trade + Buying OTM Put Option
This strategy is also for limiting losses from the bullish trade in case there is a huge price decline for TSLA stock. Here, the money to be spent on purchasing the put would be lower than the earlier strategy. However, the price protection it offers would be lower.
OTM Put Strategy: Purchase an out of the money (OTM) put option.
For instance, TSLA’s closing price on Friday was $442.15. For this trading strategy, you could purchase the put option for the strike price of, say, $400 (for Sept 25 expiry), which was last traded for $18.67.
By purchasing the OTM put, you are attempting to limit the losses caused due to massive decline in the price of TSLA, without spending too much on buying the put option.
Unlimited profit from Stock; Unlimited profit from Options: Please keep in mind that if the stock surges ahead, the potential profit from the stock is unlimited, and if the stock declines substantially, the Potential profit from the purchased put option is also unlimited.
Note: It is assumed that you are already holding the stock.
#4 TSLA Bullish Trade + Buying ITM/ATM Put Option and Selling OTM Put Option
This strategy is for offering some protection from the possible losses from the bullish trade in case there is a huge price decline for TSLA stock, while reducing the money spent on options.
Buy/ Sell Put Strategy: Purchase an at the money (ATM) or in the money (ITM) put option and sell an out of the money (OTM) put option.
For instance, TSLA’s closing price on Friday was $442.15. For this trading strategy, you could purchase the put option for the strike price of, say, $440 (for Sept 25 expiry), which was last traded for $38.50; while selling the put option for the strike price of, say, $420 (for Sept 25 expiry), which was last traded for $27.93. Therefore, the net premium paid for the option pair would be ($38.50-$27.93) $10.57.
By selling an OTM put and buying an ITM put, the effective amount spent on options would be substantially lower.
Unlimited profit from Stock; Limited profit from Options: Please keep in mind that if the stock surges ahead, the potential profit from the stock is unlimited, and if the stock declines substantially, the Potential profit from (buying + selling put) options is limited to $440.
Note: It is assumed that you are already holding the stock.
#5 TSLA Bullish Trade + Buying OTM Put Option and Selling OTM Call Option
This strategy also reduces the total money to be spent on options while offering protection from the possible losses from the bullish trade in case there is a huge price decline for TSLA stock.
Buy Put/ Sell Call Strategy: Purchase a slight out of the money (OTM) put option and sell an out of the money (OTM) call option.
For instance, TSLA’s closing price on Friday was $442.15. For this trading strategy, you could purchase the put option for the strike price of, say, $430 (for Sept 25 expiry), which was last traded for $33.10; while selling the call option for the strike price of, say, $480 (for Sept 25 expiry), which was last traded for $26.42. Therefore, the net premium paid for the option pair would be ($33.10 -$26.42) $6.68.
By selling an slightly OTM put and buying an OTM call, the effective amount spent on options would be substantially lower.
Limited profit from Stock; Unlimited profit from Options: Please keep in mind that if the stock surges ahead, the potential profit from the stock is limited (to $480, because of the call sold at strike $480), and if the stock declines substantially, the Potential profit from (buying put + selling call) options is unlimited.
— Tara Young
Disclaimer: This article should not be construed as investment advice at any time.
How I Trade Tesla for $4,100 in Income
With this trade, you can make money if the stock goes up… if the stock trades sideways… and even if the stock drops as much as 20%.