Tesla plunged 14%! Shaking in your positions? 2 option strategies to urgently protect your portfolio.

Shocked, Musk and Trump got into a "fight" over tax legislation, and a "war of words" directly dragged down the stock price of $Tesla(TSLA.US).

On June 5, Eastern Time, Tesla's stock price plummeted by 14%, wiping out $153 billion in market value, setting a record for the largest single-day drop.

This plunge exposed an issue: Tesla's stock price is overly dependent on Musk's personal image.

Looking back, Trump's election victory once boosted Tesla's stock price, but now that Musk is embroiled in political controversy, the company's prospects are immediately clouded.

This reality of the stock price "following the person" is also giving investors a headache: where will the stock price go next? Up or down? How should investors cope with such volatility?

Don’t worry, today we’ll discuss from the perspective of options, how long-term investors can reduce risks.

If you are an investor who is bullish on Tesla in the long term, for example, already holding Tesla stock but worried about short-term declines, you can consider the following two protective strategies:

1. Protective Put: Insuring Your Stock

This is a classic "insurance" strategy. Simply put, while holding the stock, you buy a put option with a strike price slightly below the current stock price.

The number of options should match the number of shares held. For example, if you have 100 shares, buy 1 put option. If you have 500 shares, buy 5 put options.

This way, if the stock price falls, the put's gains can offset some losses; if the stock price rises, you can still enjoy the gains, only losing the premium paid for the put.

Operation Guide: Go to Tesla’s stock details page, click "Options," select "Single-Leg Option." Although this is a combination strategy, since you already hold the stock, you can select "Single-Leg Strategy" when building it.

Then, based on your forecast and budget, choose a suitable strike price and expiration date. Generally, the strike price is recommended to be slightly below the current stock price. For puts, the higher the strike price, the more expensive the premium. The choice of expiration date requires balancing cost and protection period—the further the expiration, the more expensive the premium.

Example: Suppose you hold 100 shares of Tesla (current price $284) and buy 1 put with a strike price of $270 (paying a premium of $1,750).

Next, we’ll use Longbridge’s option price calculator to simulate the profit and loss scenarios.

How to access the option price calculator:

a. Go to the options chain, select the "Strike Price" and "Expiration Date" of the option, then bring up the "order box."

b. Click the ">" icon to enter the details page of that option (not the stock details page). On the option details page, scroll all the way down to find the option calculator.

c. Then adjust the stock price (assuming a certain stock price) to simulate the theoretical price of that option.

Using the calculator, if the stock price drops to $260, the put’s theoretical price rises to $28.19.

Put profit ≈ ($28.19 - $17.5) * 100 = $1,069

Stock loss ≈ ($260 - $284) * 100 = $2,400

Thus, the net loss of this strategy is $1,331, reducing the loss by 44.5% compared to no hedge.

If the stock price rises to $300:

Obviously, the put expires worthless, losing the $1,750 premium paid.

But that’s fine—your stock has gained. No matter how much the stock rises, the maximum loss is only the $1,750 premium.

This shows that the protective put strategy can both reduce losses from a stock decline and retain profit potential if the stock rebounds.

Reminder:

The above example is for educational purposes only and does not constitute any investment advice or guidance. The strike prices and expiration dates mentioned are hypothetical choices, used only to illustrate the basic principles of strategy operation. In actual investing, please choose appropriate option parameters carefully based on your risk tolerance, market conditions, and specific needs. Investing carries risks; proceed with caution.

2. Long Collar Strategy: Lower-Cost "Insurance"

When executing the previous put strategy, you might notice that $Tesla(TSLA.US) has particularly high implied volatility (IV), so the cost of buying puts also rises.

For example, a put option expiring in a month could cost hundreds or even thousands of dollars in premium, which is quite expensive.

If you find buying puts too costly, you can try the "long collar strategy."

How to build this strategy: While holding the stock, buy a put with a lower strike price and simultaneously sell a call with a higher strike price, using the income from selling the call to offset part of the cost of buying the put.

Operation Guide:

Case 1: If you already hold the stock, go to Tesla’s stock details page, click "Options," and still select "Single-Leg Option." Buy a put and sell a call separately.

Case 2: If you do not hold the stock, you can click "Collar Strategy," and the system will automatically help you: buy Tesla stock + buy a put + sell a call.

Reminder: The combination options feature is in beta testing and will be available soon. Stay tuned!

In "Default Spread," you can set it yourself. By adjusting the spread between the put and call strike prices, you can flexibly control the cost of the entire strategy.

Typically, this cost falls into three scenarios: positive cost, negative cost, and zero cost. Many investors prefer to build a "zero-cost" collar strategy, where the income from selling the call fully offsets the cost of buying the put by selecting appropriate strike prices.

Example: Suppose Tesla’s current stock price is $284, and you want to build a collar strategy to protect your position.

Buy a put with a strike price of $275, paying a premium of $1,462.

Sell a call with a strike price of $295, receiving a premium of $1,435.

In this case, the income from selling the call basically covers the cost of buying the put, making the entire strategy nearly zero-cost (the small difference can be ignored), forming a "zero-cost" collar strategy.

From the profit and loss analysis, if Tesla rises, the sold call will cap the overall profit, limiting the maximum profit to $29,500.

If Tesla falls, the bought put will profit, just like the protective put, reducing some losses.

The collar strategy can also provide protection in a stock decline—buying a put (protecting against downside) and selling a call (reducing costs). Because it has two legs, while downside risk is limited, upside potential is also capped.

Reminder:

These are the two strategies shared today! The premise is that you are bullish on this stock in the long term. If you lack confidence in Tesla’s future, these strategies may not suit you.

3. Risk Warning

Finally, a reminder about risks:

a. Currently, Tesla’s option implied volatility (IV) is high, meaning the cost of buying options will increase. If you choose to buy options, be sure to assess whether the cost matches the potential returns.

b. Control position size to avoid over-concentration in Tesla or a single event!

c. Currently, Tesla’s volatility is mainly driven by short-term events, which affects gamma, causing option values to change rapidly. The market is ever-changing. If unexpected situations arise, you need to adjust strategies flexibly, such as leg-out operations (splitting option combinations).

If you have any questions about leg-out, feel free to leave a comment. The Options will compile everyone’s questions and answer them in the next issue!

Next time, we’ll also focus on strategies for short-term traders, exploring more possibilities. If you have your own options trading experience, please share!

4. Major Announcement: Longbridge Combination Options Coming Soon!

At the end of the article, we have exciting news: Longbridge’s combination options feature is about to launch! It’s currently in beta testing and will be available soon.

Sneak Peek at Features

Five major strategy types for flexible switching: Soon, you’ll be able to select different strategies with one click in the options chain, easily adapting to changing markets.

More efficient professional trading: Supports complex combination strategies to meet diverse investor needs.

Your feedback matters: Leave your valuable suggestions in the comments—the product manager might prioritize them!

Stay tuned for a new options trading experience!