Tesla Fund Proposal

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.

  1. I plan to buy 100 shares of $TSLA – currently, the example is based on the current stock price of $995.65.
  2. 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.
  3. Tesla’s stock price is very volatile and fluctuates roughly 3% every day.
  4. Tesla option contract increase / decrease 20 – 35% everyday / every other day .
What I am suggesting we do is the following: 
  1. Buy 100 shares, roughly around $93,000 position. This is 100 shares at $930
  2. 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.
  3. 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.
  4. Once the option goes up in value, back to $100.25 or higher, I will repeat steps 2 and 3
  5. I firmly believe we can do it 3 or 4 times a month, given how volatile the stock is.
Here are the assumptions I am making 
  • 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.
If Tesla’s stock price goes above the strike and we are forced to sell our shares, we will look at how much it would cost us to buy an option contract for the strike price of $990 or $1,000 a share.
I will provide a cost analysis if we ever reach that point.
** below I used numbers as based on three individuals pooling $35,000 each to do this strategy