Smart Investor: improve your returns on Tesla with covered calls Smart Investor: improve your returns on Tesla with covered calls Smart Investor: improve your returns on Tesla with covered calls

Smart Investor: improve your returns on Tesla with covered calls

Options 10 minutes to read
Koen Hoorelbeke

Options Strategist

Résumé:  Tesla's stock has surged 24.51% in the past month, making it an opportune time for shareholders to research selling covered calls, especially with earnings approaching. This article guides you through determining if covered calls suit your investment style, how engaged you want to be, and setting your income goals. It then delves into analyzing Tesla’s options chain, selecting expiries and strikes, and provides strategic recommendations based on different risk profiles.

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. 


Tesla's stock has experienced a significant surge of 24.51% over the past month, reaching $246.39 on July 3rd. With Tesla’s upcoming earnings report on July 23rd, now might be a strategic time for Tesla shareholders to do some research on selling covered calls. This article explores potential covered call strategies and highlights key considerations.

Is Selling Covered Calls Right for You?

Before diving into the specifics of selling covered calls, it is essential to answer a few key questions:

  1. Are Covered Calls Suitable for You?

    • Do you understand the basics of options trading and covered calls? If not, consider reading our guide on Using Covered Calls to Enhance Portfolio Performance.
    • Are you comfortable with the risk of having your shares called away if the stock price rises above the strike price?
  2. How Engaged Do You Want to Be?

    • Daily Monitoring: Are you prepared to monitor your positions on a daily basis? This approach allows for more active management and potentially better optimization of your strategy.
    • Weekly or Monthly Monitoring: Do you prefer a more passive approach, checking your positions on a weekly or monthly basis? This requires less time but may involve missing opportunities to adjust your strategy.
  3. What Are Your Goals?

    • Income Target: What is your target income from selling covered calls? For example, are you aiming for a 1% return per month, 2% per quarter, or another specific goal?
    • Risk Tolerance: How much risk are you willing to take? Higher premiums come with higher risk, while more conservative strategies might yield lower returns.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Market Context

For a detailed analysis of Tesla’s recent stock performance, you can refer to the Saxo Market Call podcast episode from July 3rd, 2024. Fast forward to minute 6:00 to hear an in-depth discussion about Tesla's surge.

Additionally, the weekly chart of Tesla (shown below) demonstrates the recent price movements and technical levels:

data/charts © Saxo

Covered Calls Strategy

Covered calls involve selling call options on a stock that you already own. This strategy allows you to generate additional income through the premiums received. For more details on how covered calls can enhance your portfolio performance, please refer to my earlier article: Using Covered Calls to Enhance Portfolio Performance.

Tesla Options Analysis

Analyzing Tesla’s options chain as of July 5th, we can identify potential covered call opportunities. Key factors to consider include expiries, strike prices, and implied volatility. Here is an overview of the available expiries for Tesla options:

data/charts © Saxo

Selection Criteria for Covered Calls

When selecting expiries and strikes for selling covered calls, consider the following criteria:

  1. Premium Received:

    • Higher premiums can provide better income but come with higher risk. The premium received should align with your income goals. For instance, if your target is a 1% return per month, which is approximately $2.50 (current price of Tesla divided by 100), you need to search for calls that pay at least $2.50 in premium.
  2. Probability of Being In-The-Money:

    • Strikes closer to the current stock price have a higher probability of being exercised. If you aim for a high probability of achieving your target without frequent monitoring, select strikes that provide the desired premium while considering the likelihood of the stock reaching that strike price. 

  3. Risk Tolerance:

    • Balance the potential income with the risk of losing your shares if the options are exercised. Consider how comfortable you are with the risk of assignment and how it fits with your overall investment strategy.
  4. Volatility Considerations:

    • It's essential to consider the potential volatility spike around the earnings date on July 23rd, as this can significantly impact option premiums and the likelihood of the calls being exercised.
data/charts © Saxo
A Few Examples

Below are a couple examples which illustrate how you could make strike and expiry selections based on the above criteria.

Selection Examples:

  1. Based on Premium Received:

    • If you want to receive approximately 1%, you should look for strikes and expiries with a bid price of around $2.50 (which is the underlying stock price divided by 100).


    • 12-July-2024 Expiry (7 days): Strike $270, Premium ~$2.50
    • 19-July-2024 Expiry (14 days): Strike $285, Premium ~$2.50
    • 26-July-2024 Expiry (21 days): Strike $320, Premium ~$2.50
    • 02-August-2024 Expiry (28 days): Strike $330, Premium ~$2.50
    • etc...
  2. Based on Probability:

    • If you want an 80% probability of the options expiring worthless, you should look for strikes and expiries with a delta of around 0.2.


    • 12-July-2024 Expiry (7 days): Strike $272.5, Delta ~0.19, Premium ~$2.11
    • 19-July-2024 Expiry (14 days): Strike $280, Delta ~0.20, Premium ~$3.00
    • 26-July-2024 Expiry (21 days): Strike $300, Delta ~0.19, Premium ~$4.25
    • 02-August-2024 Expiry (28 days): Strike $305, Delta ~0.19, Premium ~$4.70
    • 09-August-2024 Expiry (35 days): Strike $310, Delta ~0.20, Premium ~$5.25
    • 16-August-2024 Expiry (42 days): Strike $315, Delta ~0.20, Premium ~$5.45
    • etc...
  3. Based on Risk Tolerance and Technical Analysis:

    • Use technical analysis to determine price levels that you think Tesla won't reach, and pick an expiry and strike price above those technical targets. This approach helps you set more informed and confident strike prices based on market behavior.


    • If your technical analysis suggests Tesla won't exceed $275 before the earnings-date, you might choose a strike price of $275 or higher, with an expiry of 14 days (19-jul-2024).
    • Select an expiry that aligns with your risk tolerance, ensuring it provides a sufficient premium and fits within your engagement level.

Understanding the Risks

Always remember that there is risk involved in selling covered calls. The main risk with covered calls is that if the stock price rises significantly above the strike price, you could miss out on potential gains since your shares may be called away at the strike price, which is below the market price. Additionally, while you receive a premium for selling the call, the premium might not fully offset the potential opportunity cost of having your shares called away. Generally, higher premiums correspond to higher risk, as they are often associated with higher volatility and greater uncertainty about future stock price movements. It's crucial to balance the income received from premiums with your risk tolerance and overall investment strategy.


By considering your income goals, probability of being in-the-money, and risk tolerance, you can select the most suitable expiries and strikes for your covered call strategy. This approach helps you balance potential returns with the risks and effort involved in monitoring your positions.

Check out these guides and case studies:
In-depth guide to using long-term options for strategic portfolio management  Our specialized resource designed to learn you strategically manage profits and reduce reliance on single (or few) positions within your portfolio using long-term options. This guide is crafted to assist you in understanding and applying long-term options to diversify investments and secure gains while maintaining market exposure.
Case study: using covered calls to enhance portfolio performance  This case study delves into the covered call strategy, where an investor holds a stock and sells call options to generate premium income. The approach offers a balanced method for generating income and managing risk, with protection against minor declines and capped potential gains.
Case study: using protective puts to manage risk  This analysis examines the protective put strategy, where an investor owns a stock and buys put options to safeguard against significant declines. Despite the cost of the premium, this approach offers peace of mind and financial protection, making it ideal for risk-averse investors. 
Case study: using cash-secured puts to acquire stocks at a discount and generate income  This review investigates the cash-secured put strategy, where an investor sells put options while holding enough cash to buy the stock if exercised. This method balances income generation with the potential to acquire stocks at a lower cost, appealing to cautious investors.
Case study: using collars to balance risk and reward This study focuses on the collar strategy, where an investor owns a stock, buys protective puts, and sells call options to balance risk and reward. This cost-neutral approach, achieved by offsetting the cost of puts with the premiums from calls, provides a safety net and additional income, making it suitable for cautious investors. 
Previous "Investing with options" articles
"Saxo Options Talk" podcast
Other related articles
Why options strategies belong in every trader's toolbox
Understanding and calculating the expected move of a stock ETF index 
Understanding Delta - a key guide for Investors and Traders

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