Tesla Stock Will Move Even Higher -- Use This Trading Strategy to Profit

Tesla (TSLA) stock has been surging to the upside even with some negative press, and this is expected to continue. Here's how you can make money on this stock.
By Michael Thomsett ,

Tesla (TSLA) - Get Report  stock has rebounded following a large price decline, and the outlook continues to look bullish for shares of the electric-car maker. Investors who'd like to profit from an increase in the price of the stock can use stock options.

The stock fell to $190 from $220 in late June, a 30-point decline, but it has now surged back to close at $224.65 on Tuesday. The chart reveals several bullish signals. 

The support level appears to have re-established itself at $205 with resistance closer to $230. Several chart signals point to a continued bullish trend. First, the t-line (eight-day exponential moving average) has turned bullish. Since the beginning of May, the stock's price was trading below the t-line most of the time. By late June, the price of Tesla shares moved above it, a bullish reversal signal. The price has closed above the t-line for the last nine sessions. 

Supporting this bullish reversal was the island cluster of late June, consisting of four sessions. The island cluster is a reversal characterized by a move of price outside of range, with gaps both before and after. As expected, price moved strongly higher after this development. The reversal was confirmed by two additional indicators, a volume spike and a bullish engulfing pattern. 

Contradicting this is a relatively weak bearish harami cross in the last two sessions. It was weak because the trading range of both sessions was small, and also because the signal is not confirmed elsewhere. 

Overall, this looks bullish for Tesla. With this in mind, consider opening a bull put spread with stock options. This anticipates further upward movement over the next week or so. The expiration that looks most interesting is the July 22 weekly options, which expire in nine days. For example, you can open a bull put spread with the following two positions, based on Tuesday's closing prices: 

(1) Buy one 222.50 put option @ ask of 6.40 (including trading fees, the total cost is $649)

(2) Sell one 225 put option @ bid of 7.30 (including trading fees, the premium you receive is $721) 

The net overall credit for this position is $72. With an expectation of prices moving to the upside, the position contains minimal risk, since exercise exposure is only 2.5 points of risk ($225 - $222.50). Margin requirement, calculated at the free CBOE Margin Calculator is $890.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Besides blogging atTheStreet.com,Michael Thomsett alsoblogs at theSeeking Alphaand several other sites.He has been trading options for 35 years. His website lists his options books: Thomsett Publishing Website. His new book can be viewed at tinyurl.com/z44kzlu

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