Tesla Is Heading Down - Here's How to Trade It

Tesla (TSLA) recently reported earnings, and results were disappointing. Now it looks like there's going to be a deeper fade in the share price on the horizon.

Here's how we can trade that into next month.

Trade structure – the long put butterfly setup 

Tesla's relative resistance zone after earnings sits right around $430. The relative support is near $300. 

The best trade for this situation is the long put butterfly, positioned for further downside:

• Buy to open 1 TSLA 21 Mar 320 puts 
• Sell to open 2 TSLA 21 Mar 300 puts 
• Buy to open 1 TSLA 21 Mar 280 puts 

The long put butterfly holds a current debit of $1.46. The total risk is the debit you paid – $146.

The total potential profit is $20 (the distance between strikes) and the cost of the debit ($20 – $1.46)= $18.54.

It is extremely rare to collect all this premium. Instead, I like to consider 200%-350% profit of the investment 

The strategy result provides only two choices to exit the trade. 

1. To sell the butterfly that is performing at your target parameters — particularly once the middle strike is tested 
2. To sell the butterfly right if the chart does nothing, or once your threshold for loss is hit. Mine is typically 65-70% with these positions.

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