Option Witch | Tesla at a Crossroads: Use These Option Plays to Ride the Rally - or Guard Against a Reversal

Shares of $Tesla(TSLA)$ closed higher 6% on Monday trading, pushing its market cap above the $1 trillion milestone as Wall Street applauds the latest development on U.S./China trade.

The stock had been under pressure in recent months as steep duties on Chinese-sourced components threatened to derail production economics for Tesla's Cybercab sedan and Semi truck. With duties now set to fall dramatically—alleviating raw-material and parts costs—investors are betting Tesla can restore margin on its near-term EV rollout. Tesla's reliance on parts from China, Mexico and Canada means any tariff thaw directly eases manufacturing headwinds.

However, deliveries decline, FSD prospects in China, robotaxi competition are still uncertainties ahead. Let’s dive into the potential sscenarios and related options strategies with Tesla stock.

Wedbush Expects New Highs for Tech Stocks as Fears of a Recession Fade

The U.S. and China agreed to roll back tariffs on each other for 90 days - keeping fears of a recession at bay for now, according to some analysts.

Under the trade deal, the U.S. will cut tariffs on Chinese goods from 145% to 30%, while China will reduce tariffs on the U.S. from 125% to 10%, for a 90-day period.

"This is clearly just the start of ... broader and more comprehensive negotiations, and we would expect both these tariff numbers to move down markedly over the coming months as deal talks progress," Wedbush analysts said in a note on Monday.

Under these expectations, Wedbush analysts said they "believe new highs for the market and tech stocks are now on the table" for the rest of the year, as investors continue to follow trade discussions in the coming months. And the "massive tariff reductions at this time likely take a recession off the table for now in our view," they added.

1. Bull Call Spread: Capitalize on Moderate Upside

Buy $320 Call / Sell $330 Call (May 23, 2025 expiry)

$TSLA Vertical 250523 320.0C/330.0C$

• Net Debit: ~$4.04 (mid-price: $13.15 for long call, $9.11 for short call)

• Max Profit: $587.5

• Max Loss: -$412.5

• Probability of Profit: ~33.74% (long leg) / ~26.52% (short leg)

  

Rationale:

1. Recent Momentum: Tesla surged 6.75% to $318.38 (May 13), breaking above the 5-day resistance.

2. High Volatility: IV ~61-62% supports premium collection on short calls.

3. Volume & Liquidity : Trading volume of 112.83M shares and strong options liquidity.

4. Technical Support: Resistance at $325.25 aligns with the short call’s strike.

Deliveries Decline, Tax Credit Cut, Robotaxi Competition in Focus

Tesla stock was falling early Tuesday after thawing U.S.-Chinese trade relations gave shares a big boost on Monday. Tesla had 3,070 insurance registrations in China last week, down 57.89 percent from 7,290 the previous week.

On Monday evening, The House Ways and Means Committee published a markup of a bill intended to cut tax rates, among other things. That markup would see EV purchase tax credits eliminated by the end of 2025. That's bad for EV buyers, who qualify for up to a $7,500 tax deduction.

Tesla plans to launch a robotax service in Austin, Texas, in June. Investors have been waiting a long time. Musk is famous for eschewing higher-priced sensors, insisting advanced cameras and artificial intelligence are enough to make cars drive themselves.

Waymo is Tesla’s chief robotaxi competition, completing more than 250,000 driverless rides a week. Waymo uses more than camera sensors, but the heart of its technology is AI, too.

The partnership shows “you can’t train an autonomous Vision/Language/Action model without capturing real-world vision data,” wrote Morgan Stanley analyst Adam Jonas. He called the Waymo/Toyota partnership a “major milestone” and “legit competition” for Tesla.

Bear Put Spread: Hedge Against Downside

Structure: Buy $310 Put / Sell $300 Put (May 23, 2025 expiry)

$TSLA Vertical 250523 300.0P/310.0P$

• Net Debit: ~$3.50 (mid-price: $9.50 for long put, $6.00 for short put)

• Max Profit: $655

• Max Loss: -$345

• Probability of Profit: ~29.46% (long leg) / ~24.66% (short leg)

Rationale:

1. Overvaluation: Elevated P/S (10.71) and P/E (182.16) ratios suggest stretched fundamentals.

2. Analyst Sentiment: 18 "Hold" and 8 "Underperform" ratings signal caution.

3. Technical Weakness: Support at $245.25 (May 12) is far below current price, indicating downside risk.

4. Short Activity: Short volume spiked to 20.76M shares (April 25), reflecting bearish bets.