I recently came up with the idea to launch an investing strategy only trading and investing in Tesla Stock and Stock options.
Below is the idea.
- I plan to buy 100 shares of $TSLA – currently, the example is based on the current stock price of $995.65.
- We essentially want to own 100 shares because we believe the stock price will increase and we want to sell a cover call against this position.
- Tesla’s stock price is very volatile and fluctuates roughly 3% every day.
- Tesla option contract increase / decrease 20 – 35% everyday / every other day .
- Buy 100 shares, roughly around $93,000 position. This is 100 shares at $930
- Sell one cover call option, let’s say the $950 strike for 3/18/22 with a premium of $100.25. This translates to $10,025 for this contract.
- As time goes on, the contract will drop in price and then back up. I will be looking to close this contract once it drops around 25% – locking in approximately $2506.25 in profit.
- Once the option goes up in value, back to $100.25 or higher, I will repeat steps 2 and 3
- I firmly believe we can do it 3 or 4 times a month, given how volatile the stock is.
- We will be able to sell strikes $20 or $30 out of the money and collect around $10,000 in premium.
- We should close these cover calls around a 25% to a 30% gain at least three times a month, so we should be net $7,500 monthly.
- Assuming worst-case Tesla share price falls to $465 a share, 50% from current price. *3
- Best case: we can collect $9,000 a month for a year – resulting in $108,000 in premium collected and the stock price staying around $930 or higher once the year is over. The return should be about 103%
- Worst case: Tesla stock price falls to $465, and we can only collect around $65,000 in premium. This will result in an 18% return on investment.