Tesla (TSLA) Earnings Scenarios - Lotto Only

Tesla reports earnings tonight so there are members looking to trade it for FUN not investment sized trades. That's what I call lotto tickets.

  • My personal opinion: I think it's overinflated and markets are in love with Elon. The minute Elon leaves or announces he is leaving the stock will be cut in half. Innovation? Electric cars have been around for a hundred years. Google has more car innovation than Tesla. Needless to say I am not a fan of the stock price (car is cool).
  • The options markets are pricing in a 18$ move this week (on earnings). I look back and I see that the moves are 50/50 with regards to how violent and in which direction. SO confirms my belief that earnings are ALWAYS a coin flip so ALWAYS small fun trades. The best trades are set AFTER the earnings reaction.
  • So there are two ways one can do it other than guess the direction:
    • Guess a direction and go way far out away from current price. The good thing here is that it would be cheap to buy a spread. But the bad news is that it would take a giant move for me to make money. So not only I have to guess direction, I also NEED to guess how far out the move will go making the coin toss even harder to win.
    • Or guess a direction and buy a debit spread close to current price. This way I only need to guess the direction and I am almost guaranteed a win. This costs more with about a chance to almost double my money.
    • Time: there is also time to consider. Meaning which contract expiration? In this case I like current week or next since it's not on conviction. Going out in time is more expensive and moves slower. IF I am bullish long term TSLA then I can go out in time and invest a bigger lotto that can double as a starter long position in the stock (not for me).
  • Here is the options chain and which are spreads I would consider. The ones on the left are DEBIT call spread for bulls; the ones on the right are DEBIT put spreads for bears. My guess is NO BETTER THAN YOURS. The options markets are split almost in the middle with regards to expectations and centered around 200 (support at 190 & resistance at 220). Note that my marks are not recommendations but rather spreads that illustrate the points I wrote about here.

Posted to Create Income with Options … on Feb 11, 2015 — 10:02 AM

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