Trader Todd Gordon has set his sights on Tesla for a big bounce, particularly given how the stock has performed despite a volatile market.
"There are a few stocks that have shown very good relative strength in that period of volatility," Gordon said Tuesday on CNBC's "Trading Nation." "One of which is Tesla." As of Tuesday's close, Tesla shares have rallied more than 10 percent since the market bottomed on Feb. 9.
Along with the stock's resilience, Gordon also sees that Tesla has yet to go through what is known as the fifth wave in the Elliott Wave theory. The theory posits that stocks go through waves of rallies and corrections, and Gordon believes that since the stock has recently consolidated for a second "wave" down, the only way for Tesla to go is up.
To find the exact levels at which the TradingAnalysis.com founder wants to trade Tesla, he draws a parallel channel connecting a stocks' highs and lows. Tesla's chart, according to Gordon, shows the stock bouncing up every time it hits the bottom line, which convinces Gordon that Tesla could actually retest the bottom support line, at which he'd encourage investors to buy the stock.
Gordon wants to sell the April monthly 315-strike put and pair that with the purchase of the April monthly 310-strike put for a net credit of about $1.55. That means if Tesla were to remain above $315 on April 20 expiration, Gordon would collect the $155 credit he received making the trade.
But Gordon could lose up to $342 if Tesla sinks below $310 on the expiration date. As a result, Gordon wants to establish a point at which to step out of the trade.
"If we start to come back to the $295 mark, then it's showing that there's weakness in this chart and it looks like this channel might ultimately fail," he said. "Otherwise, it looks like the upside is in plan."
Tesla closed at $328.20 on Tuesday and was trading at $323.95 on Wednesday morning.