Tesla Stock Up Over 40% In January; This Option Trade Bets On Stock Settling Down | IBD

TL;DR

Tesla stock has been steadily rising and may be a good candidate for an iron condor option trade to profit from range-bound trading.

Transcript

foreign hey Traders for today's trade we're looking at an iron Condor option play an electric vehicle maker Tesla after gaining more than 40 percent in the month of January Shares are continuing higher this month with gains of over 16 so far Tesla stock bottomed at around 101.81 in early January and has been rising in step with the market so far ri... Read More

Key Insights

• ❓ Tesla's stock has experienced significant volatility but may potentially settle down and consolidate.
• 🧡 The iron condor option strategy is suitable for range-bound trading scenarios.
• 🚾 Traders can set specific chart points for adjusting or closing the trade.
• ❓ Practice and understanding of options trading are crucial for success.
• 🧡 The iron condor trade on Tesla has a wide range of profit and defined risk.
• 💪 Tesla's strong performance in January makes it an attractive option trade candidate.
• 🧑‍🤝‍🧑 The March 17th expiration date is suitable for this iron condor trade.

Questions & Answers

Q: What is an iron condor option play?

An iron condor is a risk-defined options strategy consisting of two credit spreads - a bull put spread and a bear call spread. Traders aim to profit from time decay while expecting the stock to stay within a specific range.

Q: What is the profit potential and risk of this iron condor trade on Tesla?

This iron condor trade on Tesla generates $125 in premium and has a maximum risk of $375. The profit zone ranges between $158.75 and $256.25. A stop loss can be set at the premium received ($125).

Q: How can the iron condor trade on Tesla be adjusted or closed?

The trade can be adjusted or closed based on specific chart points. A potential adjustment point could be around $175 on the downside and $235 on the upside.

Q: What should beginners consider when trading options?

Beginners should practice with a virtual account before risking real money. They should also be aware that options are complex and can result in the loss of the entire investment.

Summary & Key Takeaways

• Tesla shares have gained over 40% in January and continue to rise, currently positioned between its 50-day and 200-day moving averages.

• Despite a low RS rating, the stock has a better RS rating on a three-month and six-month basis, suggesting potential consolidation.

• An iron condor option strategy allows traders to profit from time decay with limited risk, making it suitable if the stock is expected to trade within a range.