Market Rebound: Tesla Stock Sees 8.2% Surge
After a tumultuous Tuesday, the market saw a welcome rebound on Friday, led by Tesla’s impressive 8.2% gain. This sudden upswing has many investors wondering if the mini downtrend is finally behind us.
A Conservative Approach to Playing Tesla Stock
For those looking to capitalize on Tesla’s momentum without taking on excessive risk, consider employing a bull put spread strategy. This defined-risk approach provides a clear understanding of the worst-case scenario upfront, making it an attractive option for conservative investors.
How the Bull Put Spread Works
By selling a February 21-expiration 350-345 bull put spread, traders can generate around $125 in premium, or $1.25 per set of options. This involves selling the higher-priced 350 strike put and buying the lower-priced 345 strike put for protection on the downside. With Tesla’s 50-day moving average now at 357 and strong technical support at 375, this trade could prove profitable even if the stock trades sideways or slightly lower.
Key Metrics and Risks
The maximum risk for this trade is $375, while the break-even point is 348.75. If the spread expires worthless, the premium seller stands to gain a 33% return in just seven weeks. However, if Tesla stock closes below 345 on February 21, the maximum loss of $375 would be incurred. To mitigate potential losses, consider setting a stop loss at $125, equal to the premium received.
Tesla’s Strong Fundamentals
According to IBD Stock Checkup, Tesla boasts a Composite Rating of 91, an EPS Rating of 78, and a Relative Strength Rating of 96, solidifying its position as a top performer in its group.
Important Reminders
Options trading carries inherent risks, and investors can lose up to 100% of their investment. It’s essential to exercise caution, conduct thorough research, and consult with a financial advisor before making any investment decisions.
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