Tesla Iron Condor Could Net 33% In 4 Weeks

Tesla (TSLA) is sitting right between the 50 and 200-day moving averages. The stock is also showing high volatility with an IV Percentile of 74% and an IV Rank of 47%

The Barchart Technical Opinion rating is a 24% Sell with a Weakest short term outlook on maintaining the current direction. 

TSLA rates as a Strong Buy according to 13 analysts with 2 Moderate Buy ratings, 8 Hold rating and 3 Strong Sell ratings.

Tesla is the market leader in battery-powered electric car sales in the United States, with roughly 70% market share. The company's flagship Model 3 is the best-selling EV model in the United States. Tesla, which has managed to garner the reputation of a gold standard over the years, is now a far bigger entity that what it started off since its IPO in 2010, with its market cap crossing $1 trillion for the first time in October 2021.' The EV king's market capitalization is more than the combined value of legacy automakers including Toyota, Volkswagen, Daimler, General Motors and Ford.Over the years, Tesla has shifted from developing niche products for affluent buyers to making more affordable EVs for the masses. The firm's three-pronged business model approach of direct sales, servicing, and charging its EVs sets it apart from other carmakers. Tesla, which is touted as the clean energy revolutionary automaker, is much more than just a car manufacturer.

Today, we’re going to look at an iron condor trade. 

An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

TSLA IRON CONDOR

TSLA is sitting right between the 50 and 200-day moving averages. Traders that think the stock might stay at this level over the next few weeks could look at an iron condor.

As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

First, we take the bull put spread. Using the March 17 expiry, we could sell the 160 put and buy the 155 put. That spread could be sold yesterday for around $0.80.

Then the bear call spread, which could be placed by selling the 250 call and buying the 255 call. This spread could be sold yesterday for around $0.45.

In total, the iron condor will generate around $1.25 per contract or $125 of premium.

The profit zone ranges between 158.75 and 251.25. This can be calculated by taking the short strikes and adding or subtracting the premium received.

As both spreads are $5 wide, the maximum risk in the trade is 5 – 1.25 x 100 = $375.

Therefore, if we take the premium ($125) divided by the maximum risk ($375), this iron condor trade has the potential to return 33%.

If price action stabilizes, then iron condors will work well. However, if TSLA stock makes a bigger than expected move, the trade will suffer losses.

Conclusion And Risk Management

One way to set a stop loss for an iron condor is based on the premium received. In this case, we received $125, so we could set a stop loss equal to the premium received, or a loss of around $125.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around 165 on the downside and 240 on the upside.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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