Tesla (TSLA) Earn Income with Downside Protection

On Thursday October 2nd 2025 I decided to take a flyer on selling a TSLA 1 day to expiration put option with a $435 exercise price. I was anticipating shares to quickly bounce back on Friday after its large move down which seems like typical behavior for the stock especially when the overall market is still rising. Unfortunately shares continued to fall on Friday and I was assigned shares over the weekend.

This particular position is focused on generating attractive annual returns by earning option premium. However, this $43,500 100 share position represents too much risk for my portfolio at this time. Having the weekend to decide what to do next was a blessing as I could calming weigh my choices. There may be other ways to reduce the risk but for me the choice is either sell the stock at today's open (would have been profitable), just selling a covered call (this leaves too much risk in my portfolio given the stock is very volatile), or using an option collar.

I decided that if TSLA stock price rallied high enough today that I could at least lock in a breakeven trade by selling the $435 call option, I would establish the collar position.

What Is an Option Collar Trade?

An option collar trade acts as a smart hedge for your stock holdings. You own the shares, then add two options to box in the price. It cuts downside risk but also caps upside if the stock soars. Professional investors use the strategy all the time with a focus mostly on using the call option premium to pay for the put protection. A collar is an effective strategy that allows investors the ability to hold on to long term positions through the inevitable market bumbs along the way.

Key Components of an Option Collar

An option collar has three parts: 1) you own 100 shares of stock, 2) you buy 1 put for every 100 shares owned as protection, and 3) sell 1 call option for every 100 shares owned. The traditional collar earns enough premium from selling the call option to finance the put option purchased as protection. Depending on the stocks volatility you may have 5% capped upside participation (based on the call strike price) which could finance 10 to 15% downside protection.

TSLA Option Collar Trade

With the goal to generate income from option premium I have capped my upside using an at the money call strike to finance a put option $10 below the current share price.

Lucky for this trade TSLA shares popped higher this morning allowing me to sell the at the money call option above my assigned shares cost.

I own 100 shares at $435 cost basis, sold 1 $445 Oct 17 2025 call for $17.39 and bought 1 $430 Oct 17 2025 put for $11.72. The net premium received is $5.67 which comes out to an annualized return on premium received of 42%.

Ideally I would like shares to trade between $435 and $445 so that I kept the shares and can place a new collar position after expiration.

If shares are greater than $445 on Oct 17 2025 my 100 shares will be called away and I will have locked in a great short term return.

Worst case scenario is shares fall below $430 and I will exercise my put option. Because shares rallied today before I implemented the collar strategy I will make a profit even under the worst case scenario. To buy the original shares I was paid $3.6, today I received another $5.67 and I would lose $5 on the stock for a net gain of $4.27 which would still be about 23% annualized over my 15 days holding period.

This is a great example of using options strategically to capture a win win situation. Options can be scary but they are so powerful if used correctly.

To your success,

Thomas Moore

Disclosure: The author is long 100 shares TSLA with a collar to earn income and for protection. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

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