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Tesla (TSLA) stock has long been a favorite of option traders and the stock has been performing well in recent weeks.
TSLA stock also recently crossed back above the 50 and 200-day moving averages, which are often viewed as pivotal levels.
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 $34,000 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 July 17, 2026 put with a strike price of $340 and set aside the $34,000 in case I am assigned on the short put.
That 340-strike put generates around $6,280 in option premium in just under 12 months.
So, my $34,000 investment into TSLA is giving me a 24.39% 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 $340 next July, then I will be forced to buy 100 shares at $340. So if TSLA is below $277, at expiration the trade loses money.
But, if TSLA stays above $340 then I achieve a 24.39% 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 $6,280 from the option premium.
Greeks and Equivalent Exposure Level
The 340-strike put currently has a delta of 38, so selling this put gives an exposure roughly equivalent to owning 38 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 $300-strike put. This turns the trade into a bull put spread and cuts the risk from $27,700 to only $1,950.
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.
