The crazy surge of Tesla stock helped a trader’s account grow 32 times in just 2 weeks

Although optimistic news about Tesla has been around since the end of 2019, causing the company’s stock to start a steady increase in the past 3 months, many investors still do not fully believe in The potential of this electric car manufacturer.

But a Reddit trader named WSBgod still decided to place a big bet on Tesla stock, predicting that in the near future, its price will be over $ 1,000. On January 22 and 24, the trader spent $ 126,000 to buy 446 Tesla stock options ($ 2.82 per share) for $ 1,000 on March 20, 2020. For each of these contracts, the trader will buy 100 Tesla shares.

A call option is a derivative contract that allows an investor to buy certain stocks at a specific price on a given day. The contract means the investor can buy 44,600 Tesla shares for $ 1,000 – whatever the price of Tesla at the time – on March 20, 2020.

It is worth mentioning that at the time WSBgod ordered these contracts, Tesla’s stock price hovered around US $ 565, too low compared to WSBgod’s expected price while the contract expiration time was too close. So everyone said that the price of the buy order is impossible.

However, only a few days later, a series of good news about Tesla began to accumulate until the fourth quarter business results were much better than expected, leading to the continuous increase of the company’s stock for more than one weeks later. The peak of this rally was on Tuesday, when Tesla’s stock price rose 21% in one day and sometimes exceeded $ 940.

So instead of retaining these contracts until March 20 as originally planned, on Tuesday morning, WSBgod sold 26 options at an average price of $ 51.59 per option ( 18 times higher than the original) and earned $ 134,134.

Throughout the rest of the day, Tesla shares continued to rise without any sign of stopping, prompting the value of the options contract to increase rapidly. With the remaining 420 options, the price per Tesla stock rose to $ 100, even then to $ 150 before falling to $ 95.

At this price, the value of 420 options would give WSBgod $ 3.99 million if he agreed to resell it to others. Combined with the proceeds from the previous 26 contracts, WSBgod totaled 32 times the initial investment, in just 2 weeks – an unprecedented record for traders from before now.

However, if the trader actually liquidates (or sells) all of the above options on that trading day. Because on the next trading day, Tesla’s stock was like a balloon, dipping his head in a drop of up to 17% in one day, wiping out all the previous day’s gains, causing the price of each option. down to 75% from the previous day – but it’s a financial playground.

Anyway, the crazy rally of Tesla stock in recent days as well as the purchase order almost coincide with its rise also made thousands of members on the Reddit forum bow their heads in admiration. Calculation of this member.

Refer to Business Insider