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When To Exit A Winning Tesla Trade
One of the most recent profitable trades involved a bullish bet on Tesla, Inc. (TSLA). With the stock’s recent surge, one question remains: when to exit the trade?
Understanding the Trade
The trade in question involved a long TSLA 390-395 Call Vertical, which recently became profitable. The question remains: how to estimate the future value of the vertical and when to exit the trade.
The Best Way To Exit A Winning Vertical Spread
The best way to estimate the future value of the vertical is to use a technique called previewing. Previewing involves comparing the current pricing to various scenarios in the future.
A Real-Life Example: December 27th Vertical
Consider the December 27th Vertical, which was trading at 3.90 at the midpoints, with Tesla trading at around $425 per share. The spread was still 1.10 away from its maximum value, which would occur if Tesla closed at or above $395 at expiration on December 27.
Analyzing Comparison Quotes
To better understand the spread’s behavior, let’s examine comparison quotes. For example, the same spread expiring on December 13th was quoted at 4.93, and was approaching maximum value due to its proximity to expiration.
Similarly, the spread expiring on December 20th was quoted at 4.20. This suggests that another day or two of time decay would bring the spread close to 4.50.
Estimating the Impact of Moves in Tesla
To estimate the impact of moves in Tesla, you can look at spreads above and below the 380-385 strikes over the same expiration dates. This can give you an idea of the spread’s behavior and help you make more informed decisions.
A Practical Example
For example, the TSLA Dec 20 425.00 Straddle is quoted at 14.22, which suggests that Tesla will move +/- 7 points over the next week. Using this information, you can estimate the spread’s behavior and make more informed decisions.
Additional Resources
If you’re concerned about downside risk, you can download our optimal hedging app or subscribe to our trading Substack for more information.
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