Tesla Motors Inc (TSLA): Dan Nathan’s Disappointing Trade

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.

Warren Buffett and Billionaires

Free Report: Warren Buffett and 12 Billionaires Are Crazy About These 7 Stocks

Let Warren Buffett, David Einhorn, George Soros, and David Tepper WORK FOR YOU. If you want to beat the low cost index funds by an average of 6 percentage points per year look no further than Warren Buffett’s stock picks. That’s the margin Buffett’s stock picks outperformed the market since 2008. In this free report, Insider Monkey’s market beating research team identified 7 stocks Warren Buffett and 12 other billionaires are crazy about. CLICK HERE NOW for all the details.