Creating a 19% “Dividend” on TSLA Stock Using Options

Tesla (TSLA) stock has long been a favorite of option traders, but the stock has not been participating in the recent rally as much as other stocks.

Another bad thing about TSLA stock, is that it doesn't pay a dividend. But, what if we could use options to manufacture our own dividend?

Tesla Stock Dividend?

Let's say I have $25,000 that I want to invest into TSLA stock, I could simply buy some shares and hope the stock rises.

But, if I want a more conservative play, I could sell a January 17, 2025 put with a strike price of $250 and set aside the $25,000 in case I am assigned on the short put.

That $250-strike put generates around $4,320 in option premium in just over 12 months.

So, my $25,000 investment into TSLA is giving me a 19% annualized "dividend".

What’s The Catch?

Well, much like owning TSLA shares, if the stock drops, I'm going to lose money in the short-term.

If TSLA is below $250 in January 2025, then I will be forced to buy 100 shares at $250. So if TSLA is below $206.80, at expiration the trade loses money.

But, if TSLA stays above $250 then I achieve a 19% per annum return when the put expires worthless.

Cash secured puts are a bullish strategy but are considered slightly less bullish than owning Tesla stock because the potential gains are limited to the premium received.

The second risk with the trade is that if TSLA stock goes on a huge rally, we miss out on any upside. The most we can make is the $4,320 from the option premium.

Greeks and Equivalent Exposure Level

The $250-strike put currently has a delta of 37, so selling this put gives an exposure roughly equivalent to owning 37 shares of TSLA stock, although this will change as the stock moves up and down.

One method which can help cut the risk is to turn the trade into a spread and buy a $200-strike put. This turns the trade into a bull put spread and cuts the risk from $25,000 to around $3,000.

There's lots of interesting scenarios you can create with options.

Company Details

Tesla is the market leader in battery-powered electric car sales in the United States, with roughly 70% market share. 

The company's flagship Model 3 is the best-selling EV model in the United States. Tesla, which has managed to garner the reputation of a gold standard over the years, is now a far bigger entity that what it started off since its IPO in 2010, with its market cap crossing $1 trillion for the first time in October 2021.' 

The EV king's market capitalization is more than the combined value of legacy automakers including Toyota, Volkswagen, Daimler, General Motors and Ford.

Over the years, Tesla has shifted from developing niche products for affluent buyers to making more affordable EVs for the masses. The firm's three-pronged business model approach of direct sales, servicing, and charging its EVs sets it apart from other carmakers. 

Tesla, which is touted as the clean energy revolutionary automaker, is much more than just a car manufacturer.

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.