Which TSLA Options Should You Day Trade?
Tesla Inc. (TSLA) is known for its volatility and liquidity, making it a solid candidate for day traders focused on short-term setups. This guide will focus on how to efficiently trade TSLA options, specifically looking at delta, expiration dates, and volatility to extract the most out of Tesla’s intraday price movements.
TSLA Options: What You Should Keep in Mind
TSLA options give you a way to capitalize on sharp price swings or hedge positions. Navigating the TSLA option chain effectively is key. You’ll be dealing with deltas, expiration dates, and volatility—each of which needs to align with your strategy.
- Delta: The amount the option price moves in response to a $1 move in TSLA. If you’re working with a delta of 0.5, for instance, the option will move 50 cents for every $1 change in the stock price. Calls have positive deltas; puts, negative.
- Expiration: Options closer to expiration experience faster time decay, but they’re also more sensitive to price movement. This makes them attractive if you’re planning for rapid, high-volatility trades. When the clock is ticking, Theta accelerates, so you need to be precise.
Why TSLA Options Are a Favorite for Day Traders
Tesla’s price action presents the kind of volatility that makes for big intraday opportunities. When you’re trading TSLA options, you can exploit that volatility if you’re tracking the right setups on the TSLA option chain. Let’s look at how different delta levels and expiration dates perform.
Delta Breakdown: 30, 50, 70
The choice of delta directly impacts the volatility and risk in your trade.
Delta 30 options are your high-risk, high-reward play. These out-of-the-money contracts can explode in value during a strong move, making them ideal for capturing quick spikes. In one test case, Delta 30 options returned 22% on the first price pop (T1), with gains reaching as high as 68% by the end of the day. That said, the downside risk is considerable. If TSLA doesn’t move in your favor, these contracts lose value quickly.
Delta 50 options offer a middle ground, balancing risk and reward. They tend to provide solid returns during moderate moves without the extreme volatility of Delta 30 contracts. In the same price spike scenario, Delta 50 options gained 15%. These are often the go-to for traders who want exposure to big price moves without overexposing themselves to risk.
Delta 70 options are deeper in the money and offer less volatility, making them more predictable but with smaller returns. These options are best if you’re looking to minimize volatility while still gaining from TSLA’s price movement.
Expiration Dates: Same Week vs. Next Week
Once you’ve narrowed down your delta choice, the next step is to select your expiration cycle.
Same-Week Expirations are perfect for those chasing short-term volatility. With time decay kicking into high gear, these options react quickly to price movements, but they can also expire worthless if the move doesn’t materialize. In the analysis, Delta 30 options with three days left until expiration outperformed the others, delivering rapid returns in a short window.
Next-Week Expirations give you a bit more room to manage the trade. Time decay is still a factor, but it’s not as aggressive, making these options a better fit if you need more flexibility. While the returns are usually smaller compared to same-week contracts, they allow for a more controlled trade, especially if you’re not expecting an immediate price surge.
Leveraging Volatility with TSLA Options
When you’re working with a volatile stock like Tesla, the right setups can make all the difference. Using tools like the Stock Volatility Box, you can spot when TSLA has an edge that you can exploit. In this case, Tesla showed both an hourly and daily volatility edge, signaling a potential buy-the-dip opportunity.
There were two key triggers for the trade:
- Edge Signal Confirmation: This signaled that TSLA was oversold, indicating a probable reversal.
- Momentum Reversal (EMA): Once the short-term momentum shifted upward, this provided the green light for entering the trade.
Trade Breakdown and Key Insights
- The first entry was made after TSLA breached the volatility box, signaling a potential reversal.
- After the initial price pop (T1), TSLA retested the entry point, offering a second entry opportunity at a better price.
- Delta 30 options hit their peak between 11:00-12:30 p.m. PST, with gains of up to 68%.
A Day Trading Strategy for TSLA Options
For TSLA options, here are three strategic approaches you can consider based on delta, expiration, and volatility:
- Maximize Volatility: If you’re trading fast-paced setups, focus on short-term expirations with Delta 30 options. These contracts are ideal for catching sharp intraday moves when you’ve got a strong volatility edge.
- Balance Risk: For a more controlled approach, Delta 50 options provide a reasonable balance between volatility and reward. This works well when you expect a significant move but don’t want to overexpose yourself to risk.
- Expiration Control: If you’re looking for flexibility, next-week expiration options will give you more room to manage the trade. For those after fast results, stick with same-week expirations to maximize movement with minimal time decay.
Conclusion
Trading TSLA options can be highly rewarding if you’re dialed into the stock’s volatility. By analyzing delta levels and expiration cycles on the TSLA option chain, you can create a strategy that matches your risk appetite and trading style. Keep volatility in mind and ensure you have clear entry and exit plans to handle Tesla’s quick price swings effectively.
Here are useful links for the indicators mentioned in the video: