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May 2020: TSLA $770 – $775 Bull Call Spread

Stock

TSLA

Trade Structure

$770 - $775 Bull Call Spread

Trade Date

05/01/2020

Price Paid

$253

Expiration Days

06/05/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

This is a post earnings trade. Earnings cause a reset in the stock's direction and momentum, and for good reason. All my earnings trades are 'continuation trades' not my regular mean reversion trades. TSLA 'pulled a rabbit out of their hat' with their earnings and gave Wall Street a positive surprise. When I saw a pullback in TSLA, I put on this $770 - $775 Bull Call Spread as a continuation trade. However, the very next day, Elon Musk tweeted that TSLA stock is probably too high (along with a bunch of other jumbled non-sensical tweets). This caused the stock to drop 11%. If you have followed TSLA stock for some time, you will remember that this is not the first time Elon has tweeted like this and it is also not the first time the market has reacted this irrationally to his tweet. But, we have a full 35 days for this trade to play out. And this will be an amazing demonstration of how cool debit spreads are if this trade works out. All we need is that TSLA should expire above $775 on June 5th and we will still double our money. If you had bought a $770 call instead, you would get destroyed with that call. But spreads are different, they are more resilient to price movements when expiration is far away and also they don't bleed money because Theta doesn't affect them like it affects naked calls.

Trade Selection Criteria

Overall market movement

We are experiencing unprecedented volatility in the markets due to the ongoing Coronavirus scare. We put on this trade, when we saw a pullback in the market and TSLA.

No Earnings or Significant News

Earnings were just announced on 4/29 and are behind us

Bollinger Bands outside Keltner Channels

N/A – For post earnings trade my regular indicators don’t apply.

RSI Analysis

N/A – For post earnings trade my regular indicators don’t apply.

ADX Analysis

N/A – For post earnings trade my regular indicators don’t apply.

Trade Analysis

This was a very interesting trade. We put on the $770 - $775 Bull Call Spread and TSLA dropped another $100 the very next day. We held on to the trade and ended up booking 91% profit on it. This is another cool feature of debit spreads, if you look at how TSLA has been whipsawing for the last 30 days, if you had bought a call here, you would have been completely wiped out by now due to Theta decay.

Trade Outcome

WINNER

Profit/Loss

$232

Beginning Account Balance

$3,200

Ending Account Balance

$4200

To follow along the strategies we use in the $25K challenge, we recommend that you get the strategy book which explains the whys and wherefores of our method. Get it here=> https://amzn.to/2MUOCE5

2 Comments

  1. Nadeem Usmani

    When the profit was only $232, how did the balance jump from $3200 to $4200?

    Reply
    • Nishant

      I have many other trades at the same time. The balance doesn’t go up just because of this trade. It is constantly fluctuating. Sometimes, you will see it go down to because other trades may be losers.

      Reply

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