Considering Our Options – $TSLA May Put Spread

by Dan May 5, 2015 1:05 pm • Commentary

Last Thursday when shares of Tesla (TSLA) were trading $229, we laid out a near term bearish thesis for the stock. It was our view that the stock’s 25% rally since early April on two announcements (stationary battery announcement and Q1 car deliveries) was kind of IN the stock heading into the events (last Thursday night’s keynote from CEO Musk and and tomorrow’s earnings announcement) and that the stock could be a sale on the news (read below).

Since placing the trade the stock has traded in a fairly wide range, as low as $220 on Friday, as the stock did sell off after the keynote, and then as high as almost $240 earlier today on a broker initiation with a buy and a $350 12 month price target.

TSLA 1 week chart from Bloomberg
TSLA 1 week chart from Bloomberg

So what to do now with the stock at $232 a day before earnings? The trade is obviously a bit binary and if the last few days price action shows, the stock is poised to move one way or the other. To refresh here was the trade:

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

Now the trade is a few dollars out of the money and the spread is worth about $6.50. If it were 3pm tomorrow and the stock and the spread were worth about the same I would likely close as you know our feelings about long premium short dated trades into events. But I am going to give it a little more time. The stock’s failure this morning from a huge technical resistance at $240 could be important and now that level on the upside as well as 227 slightly lower are the spots to watch. We’ll keep an eye on it and update if necessary.  We would also considering covering the short strike and selling a higher strike put to create a tighter put spread with less premium at risk.



Original Post April 30th, 2015: New Trade – $TSLA: Alternating Currents

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.