Dan Nathan's Hedging Strategy For Tesla

Dan Nathan said on CNBC's "Options Action" investors with a long position in Tesla Inc TSLA should consider buying protection in the short term.

He thinks there is a substantial risk the stock might drop to $280, and he wants to buy the May 310/280 put spread for $8. The trade breaks even at $302 or 3.84 percent below the current stock price. If the stock drops to $280 or lower, the trade is going to make a maximal profit of $22. Nathan added that the trade could be used as an outright bearish bet, too.