Option Play For Capturing Tesla Rally But Protect Sudden Pullback

So in the article, I would like to share how I am working out the breakdown of whether right now might be a good time to play options on Tesla (TSLA), what the risks are, and some option-strategies we might consider.

Tesla recently got upgraded by some analysts, especially around its AI / robotics / autonomy ambitions.

Elon Musk made a ~$1B open-market buy of Tesla shares, which tends to bolster investor confidence.

On the flip side, automotive revenue and deliveries have been under pressure: selling prices are down, margins shrinking, regulatory credits have decreased, and competition (especially from lower-cost EVs in China / elsewhere) is increasing.

Implied volatility in TSLA options tends to rise ahead of earnings; expected moves post-earnings are significant. For example, the options market is pricing in roughly a ~6-8% move around the earnings date.

So there is both opportunity and risk: potential upside if Tesla delivers strong updates (especially on autonomy/energy/robotics), but also downside risk if margins worsen or growth disappoints.

That depends on our risk tolerance, time horizon, and views about Tesla.

If we believe Tesla can beat expectations, show margin stabilisation, or have positive surprises in energy/autonomy, then the elevated volatility implies rich premiums, so buying options (calls or straddles) might pay off.

If we are more cautious, or think some negative news is already priced in but downside risk still material, strategies that collect premium (selling options) but with defined risk might be more sensible.

Timing wise: before/around earnings is usually when the biggest moves and implied volatility are present. But also that is when risk is highest (surprises go wrong sometimes).

Here are a few strategies, with pros/cons. We could pick among them based on how bullish, neutral, or bearish we are.

Given what we know, here are some ideas (just examples):

Bullish with risk control:Buy a TSLA call spread (long a near-ATM or slightly OTM call, short a higher strike call) with expiration after earnings. That gives us leveraged upside if things go well, but limits cost and downside (we only lose the net premium).

Play the volatility:Buy a straddle or strangle for the earnings event. If we think the market expects a big move but we are not sure which direction. Be aware of implied volatility drop afterward.

Premium capture / safer entry: Sell puts (cash-secured) slightly OTM. If TSLA falls we might get assigned at a price we are happy with; if it does not, we collect the premium. For example, a put strike just below support, expiration post earnings.

Hedge an existing long TSLA position: If already long TSLA, buy protective puts to limit downside from earnings or negative surprises.

Earnings reports, especially commentary on guidance for deliveries, margins, full self-driving / autonomy, and energy business.

Competition from other EV makers, cost pressures (raw materials, battery costs, shipping), regulatory / tax credit risks.

As of 21 Sep 2025, we have seen TSLA gained around 2% in 24-hours trading after Musk and President Trump are seen shaking hands at Kirk's memorial service in Arizona. (at time of this writing).

Implied volatility crush after events: often when earnings pass, volatility drops and long option positions lose part of their value even if stock moves modestly, because premium contracts shrink.

TSLA implied volatility (IV) is 53.5, which is in the 28% percentile rank. This means that 28% of the time the IV was lower in the last year than the current level. The current IV (53.5) is 12.2% above its 20 day moving average (47.7) indicating implied volatility is trending higher.

In the next section, I would like to share how I would be setting a possible cash-secured put setup for TSLA with its last Friday close price ~$426.07, plus some variations & considerations. We can adjust for your own risk tolerance, capital, and outlook.

Let’s say we sell 1 TSLA put, strike = US$400, expiring ~8 weeks from now. Suppose the premium we receive is US$10 per share (i.e. US$1,000 per contract, since 100 shares).

Premium collected: US$1,000

Break-even: 400 − 10 = US$390

If assigned: we buy 100 shares at effectively US$390 (net) even though the strike is 400.

Max risk: if TSLA drops to zero: we lose (strike − premium) × 100 = US$39,000. But realistically, risk is limited to downside cushion we give.

To reduce risk or increase margin of safety, we can tweak:

Lower strike: e.g. sell the US$360 or US$380 put instead of 400. Premium will be less, but break-even is lower and assignment risk is further out of the money.

Shorter expiration: pick a 4-week expiry. Premium will be smaller, but less time for adverse move.

Bull put spread: sell put at, say, US$400, buy a lower strike put at US$350 (or US$380), to define/cap downside. This reduces profit a bit but limits how much we can lose if TSLA tanks.

Volatility & Implied Volatility: TSLA’s options tend to have high implied vol. Premiums are richer, but also risk of sharp drops.

Earnings / Major Events: If there is an earnings announcement or big news soon, the stock could gap. That increases risk.

Capital / Cash Reserve: Make sure we have enough cash to cover being assigned the stock. For example, 100 shares × strike price.

Roll or Exit Plan: If TSLA is moving lower toward the strike before expiry, we might roll the put (i.e. buy‐back and sell another put further out or lower strike), or close it to reduce exposure.

Using a cash-secured put strategy on TSLA with a strike price of $380 or $400 could be a good idea for several reasons, but it depends on our investment thesis and risk tolerance.

This strategy is suitable for investors who are bullish on Tesla in the long term but are looking to enter at a lower price than the current market price. By selling a put option, we collect premium income upfront. If the stock price remains above our chosen strike price (e.g., $380 or $400) by the expiration date, the option expires worthless, and we keep the entire premium. This effectively generates income on a stock we want to own anyway.

However, if the stock price falls below the strike price, we will be obligated to buy 100 shares of TSLA at that price. Given the volatility of TSLA, a sudden drop is always a possibility. The advantage here is that we are buying at a price we were comfortable with, as we have essentially set a "limit order" to acquire the stock at a discount. The cash-secured put allows us to either get paid for waiting to buy the stock at a lower price or to acquire the shares at a discount from the current market price.

Appreciate if you could share your thoughts in the comment section whether you think a cash-secured put option setup for Tesla (TSLA) would be a good idea now.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.