Hello Traders,
Here is my first trade since starting the Option Coach Blog. I intend on putting this trade to work tomorrow at the market open.
Vertical Bull Spread on Tesla Motors (TSLA)
The Trade:
Sell 10 SEP1 14 242.5 Puts/Buy 10 SEP1 14 237.5 Puts Limit Price $0.50. I am going to be shooting for $0.55 or better, but I will except $0.50.
Max Loss: $5000-Credit from trade ($550 for the targeted $0.55)=$4450
Max Gain: $550
Percent Gain (calculated based on max loss vs credit)= 12.4%
Stop Loss Rule: If the position is down 20% I will cover the position
Trade will be evaluated daily to capture any gains if there is a solid move up in the stock. This is to ensure that we don’t hold a position for little gain if it has made a good move. I will provide the recommendation to close on here if that solid positive move occurs and it makes sense to lock in the gain and remove the risk.
Number of days to hold: 11
This will give me greater than a 10% gain, closer to 12-13% if I can get in for the target price. The below is the pricing over the weekend that I constructed the trade for.
The below chart shows the following set up and I will explain a few of the keys that I like with the trade. The following items are reasons that I interested and confident in this trade. The stock is battling with the high breakout point and traded on small volume. I feel it is still consolidating at the level it is currently at and should remain above the recent resistance made from break above 240. There is a long term trend line (shown in red) that is right at the 50DMA. The 50 DMA is near the trend line at about 234 giving support for the bottom of the spread. The green block inserted if for the spread area of the trade. Over the course of the next 10 days I feel confident TSLA will remain above this area and will result in over a 10% gain. That is about 1% per day until SEP1 expiration.
I will post the actual sale price tomorrow following execution of the trade. Don’t sell for less than $0.50.
Happy Trading from the Option Coach!