DailyPlay – Opening Trade (TSLA) – June 5, 2023

TSLA Bearish Opening Trade Signal

View TSLA Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 2 Contracts Aug 18th $210/$170 Put Vertical Spreads @ $12.88 Debit per contract.

Total Risk: This trade has a max risk of $2,576 (2 Contracts x $1,288) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,288 to select the # shares for your portfolio.

Counter Trend Signal: This stock has rallied into an area of resistance at $215 and is expected to pull back.

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 128

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Friday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

DailyPlay for June 5th, 2023 is TSLA, which triggered bearish scan after rallying nearly 40% over the past month. The current bullish trend has reached an overbought level coupled with a major resistance level at $215, providing a low risk entry for bearish exposure. TSLA currently has a strong relative strength score of 9 out 10, which is optimal for a bearish counter trend opportunity. 

With declining car sales globally and interest rates back on the rise, TSLA has had to resort to deep price cuts to maintain delivery targets, which impact both top and bottom line. Currently trading at 40x next year’s earnings, TSLA’s valuation is heavily weighted on its 40% EPS growth and 20% gross margins that analysts are expecting. I suspect that is optimistic and there are downside risks to those assumptions. I’m using the rally to this important $215 resistance level as an opportunity to seek a low risk bearish exposure in TSLA. With IV Rank @ 11%, I’m buying the Aug $210/$170 Put Vertical @ $12.88 Debit. 

TSLA – Weekly

Since our Alphabet trade has reached its upper strike price of $125, it’s time to roll our trade Up and Out to the July $125/$135 Call Vertical for a $0.06 Credit. This allows us to extend our upside bet in Alphabet while removing all risk from the table.