SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

The Less Risky Way To Trade TSLA


Tesla reported earnings this week, and the stock took a hit due to weak guidance. The bears will tell you that this is the beginning of the end. The bulls will see it as a buying opportunity. No matter how you see it, there is no doubt that this is a very risky stock, both for the bulls and the bears. As a non-directional traders, we don't really care. I would like to present a less risky way to trade TSLA, with a good chance to make money no matter what the stock does.

TSLA also became very emotional stock. Many people cannot separate their love/hate for the company from the stock. No doubt that standard valuation methods are not applicable to TSLA. Fortunately, with our strategy, we don't have to do it, and we couldn't care less if the stock is undervalued or overvalued.

 

So here we go.

 

tesla.jpg

 

About a month before earnings, we entered a double calendar spread on TSLA at $2.80. The thesis is to take advantage of volatility skew between different options expirations.

 

Two days before earnings, we closed the trade at $3.94. That's 40.7% gain. The trade actually reached 4.70+ on the last day and could be closed for 60%+ gain. Some of our members entered earlier at lower prices and booked even higher gains.

 

This is a strategy we have been using very successfully for the last two years, and TSLA is one of the best candidates for that strategy. Here are the results of the last 8 trades:

  • Aug. 2015 - 40.7% gain
  • May. 2015 - 33.5% gain
  • Feb. 2015 - 28.1% gain
  • Nov. 2014 - 30.8% gain
  • Aug. 2014 - 36.8% gain
  • May. 2014 - 26.1% gain
  • Feb. 2014 - 26.2% gain
  • Nov. 2013 - 23.2% gain


That's cumulative return of 245.4%. During the same period of time, the stock gained around 60%. Our strategy beats the stock holders by 4:1, without taking any directional risk!

 


Of course no strategy is without risks. The main risk is a pre-announcement, which would result a big stock move. If the stock moves too much before earnings, the trade will suffer as well. However, due to the unique setup, those calendars are more resilient to a big move than "standard" calendars. In fact, couple of times the stock moved more than 10% before earnings, and the trade still was a winner.

 

Pre-earnings calendars are among our most successful strategies. We implement it mostly on high volatility stocks like GOOG, PCLN, LNKD, FFIV, NFLX, FB etc.

 

Related articles:

 

We invite you to join us and learn how we trade our options strategies in a less risky way.

 

Start Your Free Trial

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Put/Call Parity - Two Definitions

    Put/call parity is a term options traders use to mean one of two things. The simplest definition and the one most applicable to most options traders compares the similarity in the bid/ask spread and the net debit or credit resulting from this.

    By Michael C. Thomsett,

    • 0 comments
    • 200 views
  • Put Selling: Strike Selection Considerations

    When selling puts, such as we do in our Steady Momentum PutWrite strategy, there are many questions a trader must answer: What expiration should I use? What strike should I sell? Should I choose that strike based on delta or percentage out of the money?

    By Jesse,

    • 0 comments
    • 252 views
  • What Can We Learn From UBS YES Lawsuit?

    News followers may have seen the recent stories on UBS being sued by its clients and investors who participated in UBS’s “Yield Enhancement Strategy (YES).”  Evidently, numerous UBS clients signed up to participate in an iron condor strategy that lost a lot of money.They’re angry, and they’re filing a lawsuit.

    By cwelsh,

    • 2 comments
    • 848 views
  • Pinning Down the ‘Option Pinning’

    What many people on SO have in common is that they have read the books of Jeff Augen on options trading. Although written a decade ago they continue to be an interesting source of strategies for the retail investor. Retail investors have particular constraints that make most of the broad theoretical musings on options rather moot.

    By TrustyJules,

    • 0 comments
    • 355 views
  • Holding Positions into Expiration

    "Every once in a while you must go to cash, take a break, take a vacation. Don't try to play the market all the time. It can't be done, too tough on the emotions." - Jesse Livermore

    By Mark Wolfinger,

    • 0 comments
    • 289 views
  • Tales Of How Big Trades Went Wrong

    One way to learn from your past mistakes is having to go through the painful and challenging experience of explaining them. Another way is to listen to others who might have lived through some disgruntling trades. Joseph Trevisani goes deep into the rationale he followed during the volatile EUR/JPY days of 2007 in this article.

    By Kim,

    • 0 comments
    • 293 views
  • Covered Straddle Explained

    The covered straddle is a perfect strategy for those all too common sideways-moving trends. When a company’s stock is in consolidation, how can you make trades? No directional trend exists, so most traders simply wait out this period.

    By Michael C. Thomsett,

    • 0 comments
    • 445 views
  • Why Doesn't Anchor Roll The Long Calls?

    Recently, an Anchor subscriber asked, “Why don’t we roll the long calls in the Leveraged Anchor portfolio after a large gain and take cash off the table?”  This question has a multi-part answer, from taxation to how the delta on a position works.

    By cwelsh,

    • 0 comments
    • 276 views
  • Backtesting Pre Earnings Straddles Using CML TradeMachine

    Our members know that buying pre earnings straddles is one of our most consistent and profitable strategies. Yet some options "gurus" continue conducting studies, trying to prove that the strategy doesn't work. Today we will show how to do the backtesting properly, using the CML TradeMachine, the best backtester in the industry.

    By Kim,

    • 0 comments
    • 789 views
  • Building a Short Strangles Portfolio

    In my last article I showed you what you can expect selling short strangles and straddles and how much leverage is appropriate. Today I want to show you how to build a well diversified short strangle/straddle portfolio and how to trade it through difficult times.

    By Stephan Haller,

    • 7 comments
    • 722 views

  Report Article

We want to hear from you!


Hi 

Can you please tell about the setup of the 4 legs of the double calendar, the Strikes and expirations etc.. What was the IV when your entered and exited the trades ?

 

Share this comment


Link to comment
Share on other sites

Will not the short legs rise in vol and the skew increase due to earning week and this could hamper the trade? Yes the back legs will also increase but not as much as the week of earnings. You seem to have had success always picking the short legs on the week of earnings - does this work in all cases? or is it a better strategy to have the short legs expire the week before.

thanks for your input

Share this comment


Link to comment
Share on other sites

No it won't work in all cases. This is why we do extensive backtesting to find the best stocks suitable for this strategy and the optimal entry prices.

Short leg exiting before earnings can work as well, but it will be much less resilient to the stock move. I would consider it higher risk trade. Our trades are much more resilient and in some cases the trade can make money even if the stock moved 10% or more.

Share this comment


Link to comment
Share on other sites


Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs