16-05-2025
Tesla Stock At 40% Safety
A photo shows the logo on US electric carmaker Tesla's European headquarters in Amsterdam on May 2, ... More 2025. Tesla electric car sales in Europe plunged in the first three months of 2025, industry data shows. (Photo by Ramon van Flymen / ANP / AFP) / Netherlands OUT (Photo by RAMON VAN FLYMEN/ANP/AFP via Getty Images)
If you believe in the Tesla (NASDAQ:TSLA) story, here is a clever trade you cannot miss - over 12% yield at 40% margin of safety, by selling Put Options. For long-term investors, who would love to own Tesla stock at a discount, this is a win-win trade. And why shouldn't they? After all, Tesla is building the most scalable clean energy and autonomy platform by combining electric vehicles, AI-driven robotics, and energy systems. The potential is massive!
Here is the trade. Tesla stock is trading at about $343. You can sell a long-dated Put option expiring June 18, 2026, with a strike price of $200, and collect roughly $1,704 in premium per contract (each contract represents 100 shares).
That's about an 8.5% yield on the $20,000 you're setting aside for the possibility of buying the stock. Plus, don't forget, this cash parked in a savings or money market account will earn an extra 4%. So we're talking about 12.5% yield overall. Separately, see Tesla Stock To $1,500
And here's the kicker. You're agreeing to buy Tesla at $200, a roughly 40% discount to the current market price, only if the stock drops below that level by the expiration date.
Think that's too risky? Want a higher margin of safety - for example 50%? Use a $165 strike instead of $200 strike - your overall earnings will still be an impressive 9% instead of 12.5%, and you'll enjoy more peace. The strategy is reliable because large institutions have tested the strategy at scale, and for the right long-term investors, may be just right considering that Tesla dominates the clean energy market. As an aside, market leadership is in fact one of the factors we consider in constructing the market-beating Trefis High Quality portfolio (HQ) - a strategy of 30 stocks that targets long-term value creation. HQ has outperformed the S&P 500 and achieved returns greater than 91% since inception.
Sure, I see the 12.5% return, however, what if Tesla drops more than 40%, isn't there some risk?
Of course, there is risk. Because, there are two ways this could unfold:
In short, you win either way, especially if you're comfortable owning a hyper focused and quality company with grand ambitions like Tesla for the long haul.
It could very well be.
If you do end up owning Tesla stock, you're not stuck with some speculative small-cap stock. You're holding a company that has:
Sure, Tesla isn't your run-of-the-mill stock. Despite being a mega cap, it is surprisingly volatile. But that's exactly why you can get that 12.5% yield - you don't get those from duds. And perhaps you'd feel more comfortable when you consider this - every time Tesla falls, it creates a bottom, and that bottom level is going up each year.
In 2022, when interest rates shot up and Musk liquidated a lot of Tesla stock to fund the Twitter acquisition, the price hit a low of $102. In 2024, that bottom was around $140 and in 2025, despite wild volatility in markets, Tesla hit a bottom of around $215.
When you consider these levels, a 40% margin of safety of $200 strike, or 50% safety of $165 strike, do not sound like bad buy points.
This trade offers an asymmetric risk-reward setup, with a built-in 40% discount.
Either way, you come out ahead.
These are the kinds of margin-of-safety setups and asymmetric risk-reward tradeoffs that we seek in the Trefis HQ portfolio, which is focused on long-term value creation. With a collection of 30 stocks, it has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
