I sold a PUT options contract on Tesla stock at a strike price of USD160 on 31 March 23 when Tesla was trading at USD207. The expiration date was 5 May 23 (35 days contract), That means that as long as Tesla’s share price stays above USD160 on expiration date, the contract will not be exercised as it has expired worthless, and I will keep the full premium of USD230 (1.44% return).
Tesla’s Share Price Drop
Tesla’s share price started to drop after that. On 3 April 23, when Tesla was trading at around USD190, I added SELL PUT contract and received USD292 in premium. So, my total premium received was USD522 for 2 contracts of USD261 per contract.
On earnings release, Tesla’s share price dropped almost 10% in a single day when its Q2 earnings was lower than analyst’s expectations. At one stage Tesla was trading at USD153, which was lower than my strike price of USD160. That meant that the contract would be exercised if it closed at this price at expiration date.
I decided that I should activate my contingency plan. On 24th April 23, when the stock was trading near my strike price of USD160, I rolled my contract from expiration date of 5 May 23 to 19 Jan 24, to give the stock more time to recover. At the same time, I collected more premium as I am selling the contract for a longer duration now.
I have explained more about this contingency in the below article, on what to do if the trend works against you and the share price drops after you sold a Cash Secured PUT (CSP):
How You Can Possibly Not Lose Money In Options Trading? | How To Trade Options Safely For Passive Income
Share Price Recovery
Tesla’s share price eventually rose from the low of USD153 to USD170.06 on 5 May and I took the opportunity to sell off and secure a profit of USD142.
It could be a bigger profit if I had held on for the original contract with expiration date at 5 May but the risk of getting assigned was high as it was hovering around the USD160 range. My main goal is not to get assigned so that I can keep having available cash (capital) to keep selling PUT contracts. I closed the contract early as Tesla may have a bumpy ride ahead and I could end up with a loss instead of a small profit. Such is the nature of today’s market that it is critical to take small profits or risk losing them when the market changes direction again.
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