New Trade – $TSLA: Alternating Currents

by Dan April 30, 2015 10:02 am • Commentary

Tonight Tesla (TSLA) will introduce their home battery (Business Insider had a great preview of the event here).  The stock has had a heck of a run in the last month since CEO Elon Musk’s tweet about the event on March 30th, up 25%:

And then a week later just to really apply the screws to shorts, on Good Friday, TSLA released the following press release:


So in the next week we have two events, tonight’s highly anticipated but well telegraphed product announcement, and next week’s Q1 earnings report where we already know one of the most important pieces of info of the report.

It is my sense that the stock’s April strength reflects the positives of what is expected, but massively discounts the cost to producing their batteries, the potential for disruption to car battery production and the margins on the 10,300 cars delivered in a quarter that saw horrible sales from Detroit and a massive rebound in oil prices.

I suspect investors sell the news in TSLA.  Here is how I am playing for a pull back:  

TRADE: TSLA ($229) buy to Open May regular 225 / 185 put spread for $8.50

-Bought 1 May 225 put for 9.50

-Sold 1 May 185 put at 1.00

Break-Even on May Expiration:

Profits: between 216.50 and 185, make up to $31.50, max gain at or below 185

Losses: of up to 8.50 between 216.50 and 225 or above. Max loss of 8.50 at or above 225 which is about 3.7% of the underlying stock price.

Rationale:  The stock has run 26% into this event after it bounced off of massive technical support at $180 and seems to be discounting a lot of good news.  I think both events in the coming week have the potential to disappoint, I like targeting the $200 to $180 range for the coming weeks.