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Inexpensive way to short TSLA (iron condor with defined risk.)
3 min read

Inexpensive way to short TSLA (iron condor with defined risk.)

We look at some ways to go short inexpensively with defined risk, using multi leg options.
Inexpensive way to short TSLA (iron condor with defined risk.)
  • Tesla made headlines today, surpassing Toyota in to become the most valuable car car manufacturer int he world.
  • It's been a straight line higher for the stock since its March lows near $360 in March.
  • The risk of shorting stock is too much for most traders, and the cost of puts and even put spreads are really expensive for anything with decent odds.
  • We look at some ways to go short inexpensively with defined risk, using multi leg options.

The Set-Up

Heres the 3 month expected move chart via Options AI technology:

And the 1 month:

Way's to Play

First let's look at the cost of puts. The July 17th expiration 1100 puts are nearly $50, meaning a 1 lot would put $5000 dollars at risk and not breakeven until 1050 in the stock. Going down the chain is even worse, with the July 17th 1000 puts $17 and needing a massive reversal to be in the money. Buying put spreads improves things a little, and obviously selling call spreads improves probability but I wanted to take a look at a trade that has good risk/reward while keeping costs low, and of course, with defined risk.

Here is an Iron Condor, used not as a neutral trade, but as a way to draw the line in the sand just above here in the stock. I'll go through what's going on here below:

What's happening in this trade? It is essentially drawing a line in the sand with the stock here (Any close above $1126 in the stock on July 17th and it loses money). But below that level, it makes money, and it makes a max gain anywhere between $1120 and $950. The tradeoff here is it then begins to lose money again below $944. But that's a pretty big range for TSLA to reverse towards without getting hurt.

What are the components of this trade and how does it work? Here are the 4 strikes involved, via Options AI:

This is selling the 1120/1130 call spread (~$5.50), and adding another dollar of short premium to that with the sale of the 950/940 put spread ( ~$1).

What that translates to as a package is about $350 in risk for the potential of $650 in gains anywhere below 1120 in the stock.

For those looking for a way to fade TSLA over the next few weeks from today's all time highs it's a structure worth considering. Of course it's a knife's edge because the stock continuing higher from here is an almost immediate max loss with only 2 weeks to expiration. But any reversal from here and this structure is in good shape for a long way below in the stock, and offers a great payout if that were to happen, especially when compared to short stock or long puts.

Previously:

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