Tesla (TSLA) is due to report earnings after the market close today and the market is pricing in a 5.9% move in either direction.
Implied volatility is 48.74% which gives TSLA an IV Percentile of 73% and an IV Rank of 37.53%.
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Tesla designs, develops, manufactures, sells and leases high-performance fully electric vehicles and energy generation and storage systems, and offer services related to their products.
They generally sell their products directly to customers and continue to grow their customer-facing infrastructure through a global network of vehicle showrooms and service centers, Mobile Service, body shops, Supercharger stations and Destination Chargers.
Tesla Earnings Iron Condor
Today, we’re going to look at an iron condor trade placed over earnings. These types of trades can be high risk, so make sure you understand how they work before attempting something like this.
Ideally, we would like to close it out before earnings.
An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.
When implied volatility is high, the wider the expected range becomes.
The maximum profit for an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.
Trade Setup
As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.
The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.
First, we take the bull put spread. Using the July 24th expiry, we could sell the $360 put and buy the $355 put. Then the call side could be placed by selling the $400 call and buying the $405 call.
In total, the iron condor will generate around $2.00 per contract or $200 of premium.
The profit zone ranges between $358 and $402, which is quite a wide range for Tesla. This can be calculated by taking the short strikes and adding or subtracting the premium received.
As both spreads are $5 wide, the maximum risk in the trade is 5 – 2.00 x 100 = $300.
Therefore, if we take the premium ($200) divided by the maximum risk ($300), this iron condor trade has the potential to return 67%.
If TSLA stock stays flat, then iron condors will work well. However, if TSLA stock makes a bigger than expected move, the trade will suffer losses.
Trades held over earnings allow little room for adjusting, so they can be a bit hit or miss.
Conclusion And Risk Management
This iron condor on Tesla offers a well-balanced, high-probability setup for options traders seeking steady income with defined risk. By targeting short strikes that sit outside key support and resistance levels, the trade benefits from time decay while maintaining a healthy risk/reward profile.
Remember to close before earnings if you do not want earnings risk.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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