Last week in Tesla Troubles, I provided a brief overview of the bullish and bearish cases for electric vehicle (EV) maker Tesla Inc (NASDAQ: TSLA).

Let me first make clear that I have nothing against Tesla as a company or its CEO Elon Musk as a person. I believe the future of EVs is incredibly promising. But I think Tesla has dug a deep financial hole following years of unrealistic, and ultimately unrealized promises by Musk.

Tesla’s financials are a disaster. Short interest stands at a very high 28.7% of the float, which is a sign that many investors are betting on Tesla’s downfall.

Betting On Volatility

But Tesla maintains legions of devoted fans who are certain that Musk is positioning Tesla as a dominant force in a future world in which everyone will drive an EV. Thus, weakness in the share price is often viewed as a buying opportunity. I have documented previously that Tesla shares will sometimes soar on the back of an extremely poor earnings report.

This behavior is well-illustrated by a chart showing Tesla’s trading range over the past year. Shares spent most of the year oscillating between $300 and $350 a share, and the price often changed rapidly:

These factors make Tesla a risky short, and many investors have lost a lot of money shorting the company. That’s the problem with shorting. You can be ultimately correct about the future of the company, but if the price surges in the interim it can wipe you out. In short, your gains are limited but your losses are undefined and unlimited.

A Safer Short

So I settled on a different strategy with Tesla which has resulted in an 83% win rate over the past year. (I reported I had four wins in five attempts in last week’s column, but I closed out another profitable trade after that column published).

Here is how I did it.

If you look at just about any two to three month period over the past year, Tesla shares traded at $350 (or more) but then also traded down to about $300. In other words, Tesla has dropped each time it has rallied, and vice versa.

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