Using Options To Create A 10% Synthetic ‘Dividend’ On Tesla Stock

Tesla (TSLA) stock is holding nicely above a rising 50-day moving average and is trading above 700 in the stock market today. 


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

Let’s say I have $45,000 that I want to invest in 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 March 18, 2022-expiring put with a strike price of 450 and set aside the $45,000 in case I am assigned on the short put. 

That 450 strike put generates around $2,680 in option premium in just under eight months. So, my $45,000 investment into Tesla is giving me a 10.14% annualized “dividend.” What’s the catch? Well, much like owning Tesla shares, if the stock keeps dropping, I’m going to lose money in the short-term. 

If Tesla stock is below 450 next March, then I will be forced to buy 100 shares at 450 each. 

10% Annualized Return If Put Expires Worthless

But, if TSLA stays above 450, then I achieve a 10.14% 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 450 strike put currently has a delta of 9, so selling this put gives you an exposure roughly equivalent to owning nine shares of Tesla stock, although this will change as the stock moves up and down. 

One method that can help cut the risk is to turn it into a spread and buy a $250 strike put. This turns the trade into a bull put spread and reduces the capital at risk. 

Tesla stock has a Composite Rating of 89, an EPS Rating of 73 and a Relative Strength Rating of 86. 

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. 

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ 


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