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

  • A Global Equity Put Write Portfolio

    Many that sell equity market put options focus on the S&P 500 (SPX, XSP, SPY). Some will add small caps by selling puts on the Russell 2000 (RUT, IWM). An investor could also make their put selling strategy globally diversified by adding MSCI EAFE (EFA) and Emerging Markets (EEM).

    By Jesse,

    • 0 comments
    • 199 views
  • The Random Walk Hypothesis

    The “random walk hypothesis” (RWH) is one idea about how stock prices behave – but only one of many. It is a theory promoted in academia and believed in my many, but not so much by traders involved with handling real money. Theories aside, is the market truly random?

    By Michael C. Thomsett,

    • 0 comments
    • 279 views
  • How To Trade Options Successfully

    I’ve now been trading options for over a decade and been associated with Steady Options for seven years – hard to believe.  Over that period, I’ve learned quite a bit about option trading; how to improve, what not to do, and generally how the option markets work. I’m still learning.

    By cwelsh,

    • 3 comments
    • 525 views
  • January 2019 Performance Analysis

    No one likes losing money, and no one likes hearing "excuses". However, in an effort to be fully transparent, solicit feedback, and to improve our own performance, we're writing this article to do a further breakdown of the losses which our model portfolio incurred in January 2019. 

    By Kim,

    • 17 comments
    • 1,321 views
  • Island Clusters as Strong Reversals

    Options traders constantly seek the elusive reliable reversal signal. A few unusual but strong reversals are worth looking for, and their patterns reveal likely exceptional timing for opening or closing option trades. One example of this exceptionally strong signal is the island cluster (or, island reversal).

    By Michael C. Thomsett,

    • 0 comments
    • 357 views
  • What’s Wrong With Your 401(k)? (If anything)

    There currently are over sixty million Americans that are active 401(k) participants, and well over 500,000 total active 401(k) plans offered by employers in the United States.  Despite these high numbers, usages could be higher, as the US Census Bureau estimates that only 41% of all employees with access to a 401(k) plan utilize it, with even less funding it fully.

    By cwelsh,

    • 0 comments
    • 439 views
  • Upcoming Decay of Options

    I am on the hunt for a short volatility position for three main reasons. First, the market’s wild swings have, for the time being at least, diminished. Second, option activity has dried up as my options barometer continues to be stuck in the 4 – 6 range as traders are not making big bets in either direction.

    By Jacob Mintz,

    • 0 comments
    • 519 views
  • The Scientific Process of Increasing Expected Returns

    For many US investors, the "base case" for equity investing is US large cap stocks, most commonly benchmarked as the S&P 500. You could absolutely do far worse than owning these 500 great US companies, and the weight of the evidence suggests that most actively managed mutual funds that benchmark themselves against the S&P 500 index have in fact done worse.

    By Jesse,

    • 0 comments
    • 901 views
  • Those Golden and Death Crosses

    The use of moving average (MA) for predicting future price behavior must be undertaken cautiously. MA is a lagging indicator, so the question must be: Can a lagging indicator provide guidance for the future? Yes. The use of two MA lines and how they interact is a reliable form of reversal indicator.

    By Michael C. Thomsett,

    • 0 comments
    • 632 views
  • Trading Reverse Iron Condors When IV Is Elevated

    Our members know that pre earnings straddles and calendars have been our bread and butter strategies in the recent years. We enter those trades when the prices are cheap compared to previous cycles. However, in the last few months of 2018, Implied Volatility exploded, making most of those trades too expensive.

    By Kim,

    • 0 comments
    • 705 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