Optimizing Short Puts in TSLA
Tesla's stock has had a volatile ride -- bull or bear, you could have proclaimed victory at various points.
But, if we look to the option market, it turns out one strategy with a clever wrinkle that avoids risk has been a winner across the board for the last three-years, two-years and even the last six-months. Here it is:
If we sold a naked out of the money put in Tesla Inc (NASDAQ:TSLA) every week over the last-three years we got these results:
Even though the trade is positive, we could make a pretty strong argument that there is way too much risk in this strategy to return 'only' 78%. Let's make that argument, and see what would have happened if we sold that same out of the money put, but this time put a stop loss on each trade.
It's remarkable, but as we throttled the risk with a stop loss, the trade went from a 78% winner to nearly 200% with less risk. Now, that may sound too good to be true -- sort of like cherry picking a randomly good result, but it isn't.
Here is that exact side-by-side comparison for the last two-years in Tesla Inc (NASDAQ:TSLA):
Yeah, a 14.9% return with a truck load of risk turned into a 141% return with less risk. We can do this over the last six-months as well:
Again, the implementation with less risk dominated the one with more risk. With Tesla Inc it actually goes further. If we were to do this same trade but always avoid earnings, we get yet different results.
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