Tesla (TSLA) is scheduled to report their Q1 earnings results on May 3rd after the close. The options market is implying about $15 (or 5%) move in either direction the day after, which is rich to the 3.5% one day post earnings average over the last four quarters, but well shy of the 10% average since the company’s public debut back in 2010.
Shares of TSLA are up 45% year to date and up 70% from its 52-week lows made in mid-November. The strength is a massive about face from its immediate post-election weakness where investors might have worried that candidate Trump’s rhetoric towards clean energy would mean bad things for company that benefits from tax. TSLA’s CEO Elon Musk got the memo that close ties to the White House was a far better stance for his electric car company, his solar panel company, and his private spaceship company, meeting with the President on more than a couple occasions since November and joining a business advisory council. This was a good thing for TSLA’s stock.
The company has already announced Q1 deliveries (that came in below prior expectations) and the company’s long-rumored $1.2 billion capital raise out of the way (of which Musk bought $25 million of common stock), investors seem to be fairly complacent with the stock as they await the big unveil of the mass-market Model 3 which Musk recently tweeted will occur in July, with production expected to start in the second half of the year.
The stock just briefly topped the market value of General Motors (GM), and is now $1 billion less than GM’s $52 billion market cap, a company with $166 billion in 2016 sales, vs TSLA’s $7 billion in 2016 and expected $11.5 billion in 2017.
To my eye, the stock near term could have room down to $280- $275ish, which was the level the stock stage a breakout to new all-time highs following the March secondary, which occurred at $262 a share.
Long holders who are in it to win might consider the following put spread for near-term protection, as any and good news might be in the stock for the next few weeks. For those considering a defined risk bearish bet into next week’s earning’s event, this put spread offers a fairly attractive risk reward.
TESLA (TSLA) $314 Buy May 310 / 280 Put Spread for $8
-Buy 1 May 310 put for $10
-Sell 1 May 280 put at $2
Break-Even on May Expiration:
Profits: between $302 and $280 of up to $22, max gain at $280 or lower, down 11%
Losses: up to $8 between $302 and $310, max loss above $310
Rationale – For about 2.5% versus an implied stock move of 5% into earnings you can have close to at the money protection for a long, covering about 10% if the stock goes lower towards the recent breakout level and the 50 day moving average.the breakeven of 302 is realistic. For long holders the ideal scenario is a continuation of the squeeze higher, with a hedge money well spent to stay in the stock during this amazing run.