How To Hedge Your Tesla Stock Position

Tesla Inc TSLA has been one of the best-performing stocks throughout the last few years. In fact, if you bought Tesla stock in January of 2020, your position would be up more than 1,000%.

This incredible run has many shareholders asking the same question: How do I effectively hedge my Tesla position?

For many investors, if they still like the story of the stock and Tesla’s future, they would rather hedge their positions than sell shares. Some may want to hold onto their Tesla stock for tax purposes as well.

Options expert Nic Chahine spoke on Wednesday's Benzinga Live showcasing different ways to hedge a long Tesla position.

Watch Chahine’s full lesson here:

Here Are The Easiest Ways To Hedge Your Tesla Position

Selling Covered Calls

“I would sell covered calls if I had enough shares all day long,” Chahine said.

Chahine explains that you need at least 100 shares of Tesla to sell a covered call. For many retail investors, this option is off the table. But, if you do have 100 shares of Tesla, selling covered calls can be a profitable way to hedge your long Tesla position.

Right now, selling a $1,100 call contract that expires this Friday would raise you about $1,600 in cash.

Going Long Puts 

If you don't have 100 shares of Tesla, but you're worried the stock will move down in the short term, Chahine says you can buy puts. Put contracts allow traders to profit even if a stock is moving down.

Right now, you can buy $1,000 puts that expire Jan. 21, 2022 for $25.38 a contract. This means you have a right to sell 100 shares of Tesla at $1,000 a share, regardless of Tesla’s share price. If you do this strategy, you're in the green if Tesla’s stock dips below $977.35 before Jan. 21.

This is the "breakeven price," or the strike price subtracted by the amount you paid for the contract.