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Tesla Motors (TSLA) Offers Potential 20% Return in 16 Days for Bullish Traders

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Tesla Motors stock has taken a beating recently, but today’s action was very positive with the stock up nearly 3%.

One trading opportunity for those traders with a bullish bias is a Bull Put Spread. If a trader believed the recent low of $185 will hold, they could use the $185 strike as the short put and the $180 strike as the long put.

Currently, this trade offers a roughly 20% return on risk over the next 16 calendar days when using the February 6th expiry.

The maximum profit on the trade would be $84 per contract with a maximum risk of $416. The spread would achieve the maximum 20% profit if TSLA closes above $185 on February 6th in which case the entire spread would expire worthless allowing the premium seller to keep the $84 option premium.

The maximum loss would occur if TSLA closes below $180 on February 6th which would see the premium seller lose $416 on the trade. The breakeven point for the Bull Put Spread is $184.16 which is calculated as $185 less the $0.84 option premium per contract. Keep in mind that due to the bid-ask spread, you may not be able to get filled at these prices.

The breakeven price is 6.45% below the current stock price.

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Looking at the chart TSLA is starting to show some positive divergence on some key indicators and RSI is bouncing off an oversold level around 20.

The RSI indicator is at 35.90 and is turning upwards.

Counting against the stock is the recent death cross. The 50 day moving average has recently crossed below the 200 day moving average which is generally considered a bearish sign.

TSLA has been a market darling but has recently lost some value as traders believe low oil prices could hurt sales. A bull put spread can offer a decent return for traders willing to bet the stock will stay above $185.

See chart below:

TSLA Bull Put Spread

Disclosure: I have no positions in TSLA and no plans to initiate any in the next 48 hours.

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