A “Cheaper” Way to Play Tesla’s (TSLA) Price Action

by Knowledge Resources |

With shares of Tesla (TSLA) breaking out to higher highs, investors might want to add Direxion Daily TSLA Bull 2X Shares (TSLL) to their Watch List. This is a leveraged exchanged-traded fund (ETF) designed to move 200% of the daily performance of Tesla stock. In other words, if TSLA is up or down 1%, TSLL will move 2%, or again, twice the action that TSLA does.

The ETF was created in August 2022 and has assets under management of just over $6 billion. The current dividend yield is just under 4% and is paid quarterly. This also makes TSLL a great covered call candidate as you can sell call options to get additional income on a monthly basis.

The chart below shows shares made a move from $11.20 on November 4th to $25.15 by December 5th of last year. If the 200-day moving average continues to hold, and shares can clear and hold $17 for multiple sessions, there is a chance for a quick trip to $19-$20.

There has also been some unusual options activity recently in TSLL. On May 21st, the stock closed at $14.08 with the TSLL July 25 calls at 70 cents. Volume for the session hit 5,185 contracts versus open interest of 31 contract beforehand.

Other popular and leveraged ETF’s include: Direxion Daily Semiconductor Bull 3X Shares (SOXL), ProShares UltraPro QQQ (TQQQ), and Direxion Daily S&P 500 Bull 3X Shares (SPXL).

It is important to note, the same risks that stocks have also apply to ETF’s but leveraged ETF’s can carry two and three times the risks/ rewards. Leveraged ETF’s have become popular and provide multiple exposure (again 2X or 3X) to the daily performance of the underlying stock or index.

Leveraged ETF’s are a speculative way for traders looking to capitalize on short-term market moves without engaging in derivatives or futures. They also offer a way for traders to capture the whiplash of sentiment-driven markets.

A key consideration when trading leveraged ETF’s is that they are intended for short-term trading, for the most part. They are highly volatile and suitable for traders that actively manage their portfolios and understand the risks associated with leveraged ETF’s.