The set-up: You have to like it when a chart sets up looking good in two ways, and that’s what’s happening with Tesla Inc. (TSLA) right now, with the chart looking like both a continuation play and a breakout play.
It is possible for both to be occurring at the same time, but with one or both you need to be in a bull mode to play it, buying to open call options.
The play: You have two set-ups to trade here instead of one.
As a continuation trade: Look for bullish movement and at least 1 million in volume on the stock itself. If you see it, trade November’s at-the-money call options until Tesla hits resistance at $388; you could then sell half and hold half for a potential breakout.
As a breakout trade: Wait for a break of the 52-week high with hammer candles on a 15-minute chart and 1 million in volume, and then buy to open November’s at-the-money call options. Don’t be greedy with a breakout; they work well short term but you also sometimes get bogged down by profit-takers, who can quickly turn your green position into a red one.
Bonus point: I love buying into swing trades on Mondays because it gives me the whole week to manage them; ideally, I like to be out before the weekend to avoid the excess theta loss (the decline in the value of an option due to the passage of time).
Moving forward: I don’t know what it will take to bring markets down, so until the market proves to me that something has changed I will keep repeating what worked for me so well for me swing trading all spring, which included bullish options plays on tech stocks, Tesla included.
Davis Martin is the head trader at Dailyprofitmachine.com. He trades SPY calls and puts and swing trades individual stocks and stock options. At the time this article was published on RagingBull.com, he had no shares, options or open orders in TSLA, but was looking to trade it under the conditions described in this commentary. He last traded Tesla in July, using August calls to make a 13 percent one-day profit on a Friday, closing the position quickly to avoid any theta loss.