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Tesla Inc. (TSLA) has been one of the hottest stocks on the market… but it’s had a significant pullback in the last few sessions.

With battery day coming up, I have a hard time believing TSLA will tank this week.

For some odd reason, there’s been some weird options activity in the name. No, I’m not talking about traders buying deep out-of-the-money (OTM) calls betting TSLA explodes…

Some have been buying deep OTM puts, betting against the high-flying momentum stock.

I don’t know about you, but to me, the only explanation for this activity is…

They’re Gamblers And “Suckers”

Why do I say that?

Well, the odds on some of these bets were so low… and it really didn’t make sense to me because my indicator practically told me these trades would expire worthless.

These are the type of bets I look to take advantage of because it allows me to stack the odds to my favor.

Let me show you the options activity my scanner detected, and how traders could utilize this information to their advantage.

 

Will These “Suckers” Get Burnt?

 

The weird options activity I noticed last week were these puts in TSLA.

 

 

Someone purchased the $268 puts expiring on Sep. 18 when the stock was trading at $370.91. That means whoever bought those puts would need the stock to drop by more than 25% at expiration to breakeven.

Can that happen?

Sure, but I wouldn’t put my money behind that trade.

Why not?

Well, if you look closely at that trade, there was more than a 90% chance of those puts expiring worthless. To me, this is just a hedge or someone who’s throwing down a wild bet thinking the move will happen.

I just don’t believe that’s such a high-probability setup, especially with battery day coming up.

Next up, I noticed someone purchased the $290 puts expiring on Sep. 18. While those weren’t as far out of the money as the $268 puts, there is a low chance of those options expiring in the money, according to the odds.

The TSLA $290 puts expiring on Sep. 18 had about a 90% chance of expiring worthless.

Riddle me this… would you purchase options on a stock if you knew you had less than a 10% chance of making money on it?

I know I wouldn’t.

The thing is, there are traders who are doing this each and every day, and there is a risk-defined way to take advantage of them.

For example, let’s say you were bullish on TSLA and don’t believe it can get to $268 by Friday.

Well, you could’ve sold those $268 puts and collected premium, and simultaneously purchased deeper OTM puts to hedge your trade.

That would allow you to potentially profit in three different scenarios.

While it’s no guarantee those $268 puts will expire worthless, there is a pretty low chance (according to the options market) it can get there.

I don’t know about you, but I would gladly take the opposite side of some of these “sucker” bets.

If you want to develop the necessary skills to identify these set ups, make sure to sign up for my latest training session.

Author: Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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2 Comments

    1. Hey Dipen,

      Bryan here with RagingBull. Thank you for taking to the time reach out today! I have gone ahead and sent you an email from bodonnell@ragingbull.com to discuss price tiers and answer your questions. I look forward to speaking with you soon! Take care.

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