There had been several indications that Tesla Motors Inc (NASDAQ:TSLA)‘s price was headed for a directional reversal and thus investors have an opportunity to benefit from bearish play on the company. That’s what Dan Nathan said on CNBC. Dan Nathan who is the co-founder and editor of RiskReversal.com discussed his bearish play on Tesla Motors Inc (NASDAQ:TSLA).
Nathan was disappointed at his trade since he knew the stock was due for a dip, but couldn’t bag in maximum profit as he waited to find the perfect price to sell his call options with a strike price of $265. Tesla Motors Inc (NASDAQ:TSLA)’s price at the end of the day when the bell rang was $259.32.
“[…] This was a great directional call. It was a horrible trade in the hindsight you know I sold a call this September $265 call that expired today, you know I sold that at $0.90. It was a really bad idea. I tried to thread the needle a little too much here […],” said Nathan.
Tesla Motors Inc (NASDAQ:TSLA) made a new high after hitting $290.5 earlier this month. The stock was due for a price revision as even Elon Musk, Tesla Motors Inc (NASDAQ:TSLA) said that he thinks that the stock might be a little overvalued on an interview with CNBC.
Selling Call options on Tesla Motors Inc (NASDAQ:TSLA) is one way to benefit from the stock’s re-valuation by investors. Another derivatives trade involves buying put options on Tesla Motors Inc (NASDAQ:TSLA).
The benefit of a put options position is that the final payoff for the holder is unlimited and depends on how low a ditch Tesla Motors Inc (NASDAQ:TSLA)’s stock ends in at the put option’s expiration date. Selling call options, like in Nathan’s trade, is also a bet that a company’s stock price will fall. However, the payoff for the seller is limited by the commission at the sale and is independent of how low the stock price goes.
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