Schaeffer's Options Center
Sponsored by:
Schaeffer's Daily Option Blog

Tesla Motors Inc (TSLA) Bulls Look for Long-Term Upside

One Tesla Motors Inc option bull reduced his risk by writing to open out-of-the-money calls

by 3/14/2014 9:59 AM
Stocks quoted in this article:

Option Brief: Tesla Motors Inc (NASDAQ:TSLA) has surrendered 4.3% so far this week to trade at $235.53, due to continued fallout from a direct-sale ban in New Jersey. However, while Schaeffer's contributor Adam Warner recently highlighted the risks of "owning time" in TSLA right now, one options trader is wagering on long-term upside for the electric automaker.

Just before yesterday's close, simultaneous blocks totaling 1,100 contracts traded at the January 2016 230-strike call. The contracts crossed at $65.56 -- closer to the ask price at the time, suggesting they were bought. Meanwhile, symmetrical blocks traded at the January 2016 340-strike call -- this time near the bid price for $32.36, implying they were likely sold. Open interest increased by 1,100 contracts at each strike, indicating the trader constructed a bull call spread for a net debit of $33.20 per pair of options.

As alluded to in the name of the strategy, the investor has bullish prospects for TSLA. However, instead of simply buying the 230-strike calls outright for $65.56 a pop, the trader reduced both his maximum risk and his breakeven level by selling to open the higher-strike calls. Specifically, the "vanilla" calls wouldn't have generated a profit until TSLA toppled $295.56 (strike plus premium paid), and he'd be risking the entire $65.56, should the stock end south of the strike at January 2016 options expiration.

With the spread, the speculator will make money if TSLA topples $263.20 (bought strike plus net debit), and he's risking only $33.20 per contract -- about half that of the straightforward call purchase. However, the sold calls also limit his profit potential to $76.80 (difference between strikes, less the net debit) per pair of options, no matter how far Tesla Motors Inc (NASDAQ:TSLA) shares should soar past $340. With the simple call purchase, his maximum reward would be theoretically unlimited.


Featured Brokers
Unusual Option Volume
Option Flow
Most Active Stocks
Most Active Option Strikes
Largest Open Interest

Partner Center

© 2015 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242 Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email:

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.

Market Data provided by | Data delayed 15-20 minutes unless otherwise indicated.