Everyone knows Tesla stock can make moves. The problem is: When? Here's an option strategy using butterfly spreads. It helps you capitalize on a move happening down the road by risking just a little if it doesn't materialize.
The automaker's recent release of the much anticipated Cybertruck has created both fresh optimism around Tesla's next level of stock growth, and pessimism over whether the truck's divisive design will find enough ready buyers.
Anne-Marie Baiynd, CEO of TheTradingBook.com, shares some thoughts with Investor's Business Daily's "Investing with IBD" podcast show. She lays out two butterfly spreads that are good options for traders certain that Tesla stock will move — but aren't sure in which direction or when.
Audio Version Of Podcast Episode
"The beauty of the butterfly is that it creates opportunities that are low risk and high reward," said Baiynd.
A butterfly spread is an options strategy that works by setting strike prices at high, mid- and low ranges, with the expectation that the underlying asset stays close to the middle strike by expiration.
Cybertruck Launch And CEO Elon Musk Stir Up Tesla Stock
The angular-looking Cybertruck launched in late November to great anticipation, as the first new model from the electric-vehicle specialist since the Model Y in 2020. The pickup comes with a price tag that's higher than initially announced, but retains its original design and features, like an unpainted steel exoskeleton.
Tesla stock is carving the right side of a 21-week double-bottom. It's hovering between its 50-day moving average and the 250 price level.
The action comes as investors digest news about the Cybertruck and consider other factors like Tesla CEO Elon Musk's recent controversy and comments as the owner of social media site X.
Tesla stock currently holds an IBD Composite Rating of 85 and is ranked No. 5 in IBD's automaker industry group, according to the IBD Stock Checkup.
Banking On Tesla Stock's Move
Baiynd showed how Tesla stock has two areas of interest around 240 and 215. A move outside of these areas is where things get interesting.
"We're going to go to Tesla and we're going to think: How long is it going to take for this to wash?" said Baiynd. "I want to have enough time in case it takes more than a hot minute to occur."
Using an expiration several months out gives the butterfly spreads on Tesla stock time to work.
Part of the underlying thesis for this Tesla stock option trade is that it's set to react to a catalyst at some point.
"I suspect we're going to have some sort of movement that's got oomph," said Baiynd.
"There's a possibility it's going to break to the north," said Baiynd, sharing where she'll put an alert on Tesla stock based on the strikes. You don't need to do something right away, but you'll have a wide range to lock in that profit.
Check out this week's full podcast episode for the details of Baiynd's butterfly trade setup for Tesla stock and more key options trading insights.
Follow Mike Juang on X, formerly Twitter, at @mikejuangnews.
