Tesla Motors Inc (TSLA): Ripe for a Contrarian Option Play?

Tesla Motors Inc (NASDAQ:TSLA)‘s stock has seen an unprecedented rise since May of this year when it traded below the $180 level. The stock is up nearly 50% from its May lows and the Street has only positive things to say about the stock, but as we know nothing goes up perpetually. Some people are getting cautious though and expect Tesla Motors Inc (NASDAQ:TSLA)’s stock to correct, if not come down vigorously. Well, the indicators are on their side, even if the mood of the Street is not. Almost all indicators are showing overbought signs in Tesla Motors Inc (NASDAQ:TSLA)’s stocks. So, will the stock go down?

Tesla Motors Inc (NASDAQ:TSLA)

Tim Biggam, lead option strategist at TradingBlock, thinks that Tesla Motors Inc (NASDAQ:TSLA)’s stock is ripe for a pullback. He discussed his option strategy for Tesla Motors Inc (NASDAQ:TSLA)’s stock on Bloomberg, recently.

“[...] I do have a position on in this stock and yesterday made an all time high $265.64, did pullback and closed almost near the lows of the day on that stock. Given the fact that the nine-day RSI is at the most overbought reading its been in a long time and the fact that more importantly, implied volatility i.e. the price of the options is really the cheapest ever, I am favoring kind of contrarian play here, I think we will have a short term pull back [...],” Biggam said.

Biggam discussed his option strategy for the stock, which is a spread trade that consist of  buying August 29 expiry, $255 strike Puts and selling August 22 expiry, $250 strike Put options of Tesla Motors Inc (NASDAQ:TSLA). The total cost of executing this strategy at the time when Biggam was on the air was $3.10. Biggam expects Tesla Motors Inc (NASDAQ:TSLA)’s stock to pullback to the $255 level by around next week. He also believes that Tesla Motors Inc (NASDAQ:TSLA)’s stock has got ahead of itself on the back of investors’ sentiments.


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