You doubled your money on Tesla. Repeat the trade to double it again this week

On October 25th, we recommended buying a straddle on Tesla because the absurd valuation (over a trillion dollars, or 30x revenue — four times the global electric car market) combined with an ongoing short squeeze is creating eye-watering volatility.

Usually, market volatility sends stock options soaring. However, using a vertical spread takes advantage of the volatility.

We were able to open two $50 spreads for $20.15, giving a potential upside of 146%. However, we recommended placing a limit sell order, so it closed at 40.30 for a 100% profit.

Amazingly, the stock actually went UP rather than down.

This makes the trade even MORE compelling. So let’s do it again.

Double your money in five days with the same 4-leg trade

Tesla (NASDAQ:TSLA) closed at 1,114.00 and traded as high as 1,128 in after hours trade. We doubt the stock will remain in this narrow band for the whole of next week. It is MUCH more likely to move out, either below 1100 or above 1150.

As long as it moves at least $24 out of this range, we’ll be making money.

Right now you can buy TSLA 1150/1200 call spread for 13.50. Similarly, you can buy a 1100/1050 put spread for 16.05. The cost of the two legs is 29.55.

This is a too expensive in our view. However, the cost will likely fall during trading on Monday if the shares move sideways. If so, then it’s worth paying up to $23.50 for this trade. This is a bit more than last week’s trade because the percentage movement necessary to break even has fallen. at $22.00 the expected return is similar.

So peel off half of the $4,100 you made on Friday to reinvest in this one. Don’t worry if the money hasn’t shown up in your account. It can take a business day to settle accounts because options settle at T+1.

If TSLA moves more than $50 from where it is currently, you’ll make your money back. I expect it will move at least $100 up or down. If it closes at least $75 up or down on Friday when the options expire, then they’ll be worth $50, which is a juicy 150% profit.

Just to make sure you book the profit in, set up an automatic offer to close out the position for $40.30 — a 100% profit. You’ll probably get hit on this on Friday during trading, which is better than the shares suddenly jumping back to where they are now for a total loss.

For a $4,000 bet, buy to open two (2) 1150/1200 vertical call spread contracts expiring on November 5 for 11.50 ($1150 per contract) and simultaneously buy to open two (2) 1100/1150 vertical put spread contracts expiring on the same day for 12.00 ($1,200 per contract), or 23.50 for both contracts. Make it a limit bid and good for the day.

Once you open the positions, create a limit sell order for them both at 45.00 expiring at the close of trade on Friday November 5 (you don’t actually need a time limit on this).

Once you open them, sit back and enjoy the good/bad/indifferent news as our money goes to work!

Changed trading instructions

Update 2 November:

Change to the 1200/1250 call spread and 1100/1150 put spread. The one above won’t trade today.

For a $5,000 bet, buy to open two (2) 1200/1250 vertical call spread contracts expiring on November 5 for 11.50 ($1150 per contract) and simultaneously buy to open two (2) 1100/1150 vertical put spread contracts expiring on the same day for 13.00 ($1,300 per contract), or 24.50 for both contracts. Make it a limit bid and good for the day.

Once you open the positions, create a limit sell order for them both at 45.00 expiring at the close of trade on Friday November 5 (you don’t actually need a time limit on this).

Position opened for $3,800

Update 4 November:

You should have been able to open this position for 10.05 for the 1100/1150 puts and 8.95 for the 1200/1250 calls for a total of 19.00 ($1,900 per contract) or $3,800 for a 2-contract position. For the record, though, we’ll call it $4,900 assuming you made a limit order.

Position closed out at breakeven

Update 6 November:

Tesla never traded above 1245 on Friday, so the limit sell orders were never hit. The stock closed at 1,222.09 which means that three legs (both puts and the 1250 call) expired worthless. The 1200 call closed at 22.09 ($2,209 per contract) or $4.418 for a 2-contract position.

Assuming you opened it at 24.50, this is a 2.41 loss, or $482 for a 2-contact position. For a losing trade, that’s not too bad. If you opened it at $3,800, then well done and you made a tidy $800 profit. Not bad for three days. Well done!