22may
below is the video clip from Options Action from Tony on TSLA :
Tony is offering a Jun 620/600 put spread for about $7.80 but acknowledging that could get lower based on where stock closed near 665
Two ways to look at this trade. first as a straight up stand alone trade that stock moving lower or second that its a downside hedge.
keeping in mind that the stock does not actually need to get to 600 for the spread to be profitable but also the stock DOES need to get to 600 or lower at opex to get that max profit.
with stock at 665 and the implication that its moving lower my issue with the trade is that at opex the stock could be 5% + lower but this put spread has not gained. as in if it closes above 620 the spread will expire worthless and you have not made money as a directional trade nor has it giving you anything it it was a hedge.
My suggestion if you are using this trade as a hedge to further downside is to adjust the strikes higher to get the protection right away vs waiting for a further 5% down move before it kicks in. using tony's percentages.. its a 20point wide spread and paying between $6-$7 is about 30% of the cost of the width.. give or take.
instead, buy the Jun 660/600 put spread. mid point is about $22.50.. nearly 1/3rd the price of spread for the 60point wide spread. But the protection kicks in right away if stock moves lower.
downside of course is the higher price but compare if you entered the 620/600 you would lose 45points before any protection kicked in.
Both spreads will make money if the stock is below 600 but id rather have some protection between 665 and 620 also.
If you are an advanced trader and have enough buying power, in order to reduce some of the cost of that protection (the $2250) , consider selling some upside call spreads to help offset. The Jun 800/810 is midpoint $1.60 credit now, selling a 5 lot there brings in $800 to help pay for the protection.
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