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Sell Options With TSLA stock to Buy Tesla car?
I remember a few years ago I was reading a story about a dad who bought his 9-year-old son a Tesla car, financing this purchase by trading Tesla stock.
That’s quite an interesting approach I thought, and .. well I have done a few trades in the past with Tesla but in general, I'm not fond of tech stocks, especially the ones like TSLA.
Yesterday I was reading an article by Gavin from Options Trading IQ about selling a 5-dollar wide bull put options on some unheard stock (WING).
After reading this article, I checked the data and find it a bit risky (Delta above 0.2), but started to play with other strike prices and finally moved to TSLA stock just to remember the story about trading TSLA stock to buy a Tesla car, and I thought to take a closer look.
I'm not into Tesla or cars, I enjoy riding Jeep Renegade 2018 model in the backseat with my 4-year-old, discussing remote planets, or counting in Spanish while my better part does the steering.
It seems that Model 3 is the most popular choice for Tesla and you could buy one starting at $41,990. Well, that doesn’t sound too much. If I remember right, a few years ago Dad from the story was buying Tesla paying about 70-80K.
Would it be possible raising $42K by selling options premium? Sure it could! It depends of course. from the size of your stock portfolio, trading strategies, and more.
Let’s take a look at selling bull put spreads with deltas under 0.1 on TSLA stock with monthly expiry:
This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset
On April 18, 2023, we could sell May 19, 2023 expiry 145/140 Bull put spread options for that getting an instant premium of about 0.34 per share or $34 per contract.
With Tesla currently trading at 187, that would give us about a 94% probability that this bull put spread would expire worthless and we would be left with a profit.
Still, this trade could go against us and we might get assigned at $145. As Gavin mentions in his article we could use stop losses.
Anyhow as we are selling a bull put, we are already protecting ourselves at $140. Our max risk is 500 minus the premium received.
We risk $500 to earn $34 dollars in 30 days with a 94% profit probability. That would give about a 6.8% income yield on our capital if expires worthless. About 81.6% annualized.
We would need about 1235 such trades to reach $42,000 options premium, that’s about 1235 months or 102 years. We might end short trading just one contract per month for all our lives to earn that TESLA.
Alternatively, we could scale up the contract size to 10 or 20 and get there in 10-5 years by selling bull put options only on TSLA stock. By that time there will be newer and more powerful models available, hopefully even for less money.
I'm looking going forward with this idea, all trades will be shared!