Tesla (TSLA) stock is finally pulling back and is now on my radar for a long entry.
One bad thing about TSLA stock is that it doesn’t pay a dividend. But what if we could use options to manufacture our own dividend?
Let’s say I have $40,000 that I want to invest into TSLA stock, I could simply buy some shares and hope the stock rises. But if I want a more conservative play, I could sell a Jan 21, 2022 put with a strike price of 400 and set aside the $40,000 in case I am assigned on the short put.
That 400 strike put generates around $4,400 in option premium in just under 11 months. So, my $40,000 investment into TSLA is giving me a 13.59% annualized “dividend.”
What’s the catch? Well, much like owning TSLA shares, if the stock keeps dropping, I’m going to lose money in the short-term.
If Tesla is below $400 next January, then I will be forced to buy 100 shares at $400. But, if Tesla stays above $400 then I achieve a 13.69% per annum return when the put expires worthless.
Bullish Options Trading Strategy for TSLA Stock
Cash secured puts are a bullish strategy but are considered less bullish than owning Tesla stock because the potential gains are limited to the premium received.
The 400 strike put currently has a delta of 12, so selling this put gives an exposure roughly equivalent to owning 12 shares of TSLA stock, although this will change as the stock moves up and down.
One method which can help cut the risk is to turn it into a spread and buy a $200 strike put. This turns the trade into a bull put spread.
There’s lots of interesting scenarios you can create with options — which is why I love them!
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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
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