Earlier, Dan gave an earnings preview with his own thoughts on Tesla (TSLA). Here were Dan’s views on possible stock scenarios depending on the news:
MY VIEW: Throw valuation discussions out the window, there are no earnings for now, but consensus is calling for the company to swing to sharp profit. They have been growing sales 50% a year as the Model S has ramped, and consensus is calling for the same this year and next as consensus sales for 2016 sits at $9 billion, up from $413 million in 2012.
But any downward revision to deliveries, coupled with some cautious commentary on China, and I suspect this stock is below $240 very quickly.
In line op margins, deliveries and status quo on Model X launch, and NO unexpected news on a capital raise and the stock moves higher and attempts a new high in the coming weeks.
Your guess is as good as mine, but I think it is important to note that the company did pre-release Model S deliveries, so its really about forward guidance and updates on stationary storage and the battery factory being built in Nevada.
We will follow up with some trade ideas based on one’s current positioning or directional inclination. Stay Tuned.
TSLA earnings are strange events in that sometimes we already know a lot about the quarter. For instance, we already know the Model S deliveries (mentioned above). But this is a story stock, and it moves as such. Whether Elon Musk has any major announcements on the conference call is anyone’s guess. If he does, the stock tends to move. If he doesn’t it tends tobe a non event. Because of that we want to offer a few defined risk ways to position into the event. One playing for a breakout, the second, for under-performance of the expected move, and the other for a decline in the share price:
Bullish – TSLA ($266) Buy the Sept 275/325 call spread for $10
Rationale – The stock has twice tried to get to $300 a share (August/Sept 2014 and again just last month) but has yet to do so. Positioning for the breakout above 300 is essentially the play you wished you did just recently in NFLX and GOOGL. This structure does that but not without risk. Your breakeven is $20 in the stock and any down move and your at risk of losing almost all of that.
Neutral – TSLA ($266) Buy the Aug 235/265/295 call fly for 10.50
Rationale – the implied move is essentially double what the stock typically moves on the event. If you want to simply fade that probability based on simple math, you want to do it in a defined risk way. This risks 10.00 with the possibility of making up to 20.00 is the stock is at 265 on August expiration.
Bearish – TSLA ($266) Buy the Aug 7th weekly 250 put for 4.20
Rationale – If you’re the type that want to catch TSLA on its BIG move lower you probably don;t want to mess around wih put spreads or put flies or calendars or any of that nonsense. You want to be long a cheap put when the stock gets killed. This is probably the best you can do on that front. You only risk about 1.5% of the stock, the downside is that your breakeven is absurd at 245.80. But… if this is the one and the stock is trading closer to 200 tomorrow you’d be glad you did it this way.