TSLA Stock: How to Generate a 21% “Dividend” Using Options

Tesla (TSLA) stock has long been a favorite of option traders and the stock has been on a phenomenal run since late-April.

TSLA stock also just experienced a golden cross where the 50-day moving average crosses above the 200-day moving average.

One bad thing about TSLA stock, is that it doesn't pay a dividend. But, what if we could use options to manufacture our own dividend?

Tesla Stock Dividend?

Let's say I have $26,000 that I want to invest into TSLA stock, I could simply buy some shares and hope the stock rises.

But, if I want a more conservative play, I could sell a June 21, 2024 put with a strike price of $260 and set aside the $26,000 in case I am assigned on the short put.

That 260-strike put generates around $4,500 in option premium in just under 12 months.

So, my $26,000 investment into TSLA is giving me a 21.61% annualized "dividend".

What’s The Catch?

Well, much like owning TSLA shares, if the stock drops, I'm going to lose money in the short-term.

If TSLA is below $260 next June, then I will be forced to buy 100 shares at $260. So if TSLA is below $220, at expiration the trade loses money.

But, if TSLA stays above $260 then I achieve a 21.61% per annum return when the put expires worthless.

Cash secured puts are a bullish strategy but are considered slightly less bullish than owning Tesla stock because the potential gains are limited to the premium received.

The second risk with the trade is that if TSLA stock continues to rally, we miss out on any upside. The most we can make is the $4,500 from the option premium.

Greeks and Equivalent Exposure Level

The 260-strike put currently has a delta of 37, so selling this put gives an exposure roughly equivalent to owning 37 shares of TSLA stock, although this will change as the stock moves up and down.

One method which can help cut the risk is to turn the trade into a spread and buy a $200-strike put. This turns the trade into a bull put spread and cuts the risk from $26,000 to only $3,500.

There's lots of interesting scenarios you can create with options.

Company Details

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.

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.

More Stock Market News from Barchart

• Independence Day, Fed Minutes and Other Key Things to Watch This Week
• JPMorgan's New Dividend Hike Raises Its Total Yield, Including Buybacks, to 4.68%
• Why Trash is Cash for This Recession-Resistant Moat
• How High Can Carnival's Stock Climb?