So this question keeps coming up in the community, and it is a really good one. If I am going to buy a modified synthetic long on Tesla, why would I not just go further out of the money on the call and buy two of them? On the surface it sounds logical. Same capital outlay, double the contracts. But when you break it down with actual numbers, you will see why I prefer the closer strike.
Let me walk you through it.
First, the chart. Tesla had been trading in a downward trend channel, and we have now broken out. We failed at the 200 moving average and that 405 resistance zone. For me to feel like the coast is all clear, I either want to see us break out and close above the 200 moving average, or I want to buy at the low end of a range. I do not like to buy when we are right in the middle. But this pullback is what I call the kiss back, and hopefully it manifests and we head back up.
Now here is where the math gets interesting. I am going to show you two trades side by side and let the numbers tell the story.
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