Trading TSLA Ahead of Elon Musk

Elon Musk put out a tweet today explaining that he is going to have a big announcement next week.  I was asked to discuss this potential announcement on Bloomberg.  Here is the Video:


My basic point is that IV on TSLA options really hasn't moved very much, and in fact, was slightly down on the day.  We can see April and May vol sold off today, despite the uptick in volume.


LivevolX (R)

I might think about simply buying a call until I looked at the skew structure.


LivevolX (R)

The Structure is seriously flat, meaning I can sell an OTM call at a higher IV than I can a near the money call.  Anytime we see that, we want to trade a bullish a call spread. It is a rare set up and currently the only other stock I have seen with a similar set up is AAPL.  A call spread buys a lower vol and sells a more expensive vol.  This creates a cheap call spread.

The May spread I suggested only costs .85 and has a 20 delta.  With the combo of low IV and long gamma, if TSLA rallies to 40 we should easily do better than 50%.  I think that is entirely possible, the market has a tendency to bid up these type of events.  I see no reason why this trade would be any different.

The Trade:

Buy the TSLA May 40/45 call spread for .85, with an offer to shut it town at 1.30.  If the trade is up on Monday night, I would close it regardless.  No reason to carry this through to what will likely be much ado about nothing.

If you want to learn what all this means-  This is the type of information we will train you to analyze in our gold course.  If you needed help following this trade, you should be in that course.  Call us at 888 Trade 01 and ask for Taylor or Joel, OR visit our mentoring page.



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