Using options to cheaply invest in Tesla’s potential recovery

Investing in Tesla: Riding the Momentum Wave

Tesla, the high-beta stock, has made a remarkable comeback in the market. After a 40% surge in the last month and a near 70% jump from its April 2024 lows, Tesla has not only recouped all its losses but has also entered positive territory for the year. As investors continue to debate Tesla’s identity as a car company or an artificial intelligence (AI) play, one thing is clear – Tesla remains one of the purest AI plays available to investors.

Despite facing headwinds such as intense competition in China, weakening EV adoption globally, price cuts, layoffs, and media scrutiny of Elon Musk, Tesla has managed to regain its mojo. With the recent surge in its stock price, investor enthusiasm is reigniting. The upcoming robotaxi event in August is another milestone that could potentially drive the stock even higher.

Related:  Friday's Market-Moving Chatter on Wall Street

In Q2, Tesla delivered nearly 444k vehicles, representing a significant increase from the first quarter. This positive growth trajectory has fueled hopes that global EV demand is resurfacing. As a result, I have presented several bullish options trades on Tesla and believe that the stock has more room to go higher.

To capitalize on Tesla’s upward momentum, I recommend owning an upside call spread. By buying a lower strike price call and selling a higher strike price call, you can benefit from potential price appreciation while managing costs. Although this strategy is not cheap, it can help you participate in Tesla’s potential upside while mitigating risk.

Related:  Top 3 Tech Stocks to Invest in Now

For example, you could buy the $245 Call with a 7/26/2024 expiry for $16.50 and sell the $265 Call with the same expiry for $9.75. This bullish call spread would cost $6.75 or $675 per spread. Keep in mind that Tesla tends to be volatile around key milestones, so fluctuations in the call spread’s value are possible.

Disclosure: I am long Tesla and have initiated this call spread position. As always, it’s important to conduct thorough research and consult with a financial advisor before making any investment decisions. Stay informed, stay proactive, and stay ahead of the curve with Extreme Investor Network.

Source link