Tesla Motors (TSLA) has been one of the darlings of 2013, up nearly 400%. I'm not going to sit here and say the top is in. That's too hard of a call, although the chart does look a bit toppy, but just a bit. In fact, the price pattern on Tesla looks more neutral than anything at the moment. Under $160, and this looks like death, while a move over $185, and she could be off to the races testing new highs.
TSLA Daily
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The underlying indicators are a tad bearish as the Commodity Channel Index is under -100. I believe we will break one of these in the fourth quarter, so I am looking to play it in both directions, since I don't know which one will give way.
I am looking to buy in January and sell ratio put spreads in December. On the call side, I am looking to buy the January $185 call while selling 2x December $205 calls and buying 1x December $210. On the put side, I am looking to buy 1x January $155 put, short 2x December $135 put and long 1x December $130 put. The total cost here is $14.95.
I want the cost to be under $15 in case Tesla blasts through $210 or craters below $130. I know my worst-case scenario there is a value of $15, assuming there is no net time premium in any of the contracts. The risk here is no movement over the next few months. If Tesla sits between $140 and $200 come December expiration, then I'll have to make a decision on what to do, and the closer it is to $170, the tougher the decision will be, as I will have a January $155 put/$185 call at a cost of $14.95.
On the basis of the historical implied volatility of Tesla, I feel pretty good that the strangle will still be worth somewhere between $15 and $20. Overall, this is a trade I find extremely attractive. I would say this is one of the most attractive risk/reward trades I've seen in quite some time.
One stock I do like to buy to hold here is Tivo (TIVO). Jim Cramer talked about this on "Mad Money" recently, but the chart does look fantastic here. The stock is on a clear breakout path and appears to be headed to $15. I will put a stop just below $12 and see what she can do.
TIVO Daily
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At the time of publication, Collins was long TIVO.