Tesla stock has been one of the great stories of the past year, doubling in price since the Fall of 2016. As we get closer to initial delivery of their first mass market (priced) car, the Model 3, the news surrounding the company will probably hit ludicrous speed. This morning Goldman Sachs double-downed on their contrarian views on the stock, lowering their price target to $180, from $190 (the stock is currently $300+). From CNBC:
“We remain sell rated on shares of TSLA where we see potential for downside as the Model 3 launch curve undershoots the company’s production targets and as 2H17 margins likely disappoint,” Tamberrino wrote in a note to clients Wednesday. “This comes as demand for TSLA’s established products (Model S and Model X) appear to be plateauing slightly below a 100k annual run rate.”
The analyst cited how Tesla’s second quarter deliveries number of approximately 22,000 cars missed his forecast of 23,500 and the Wall Street consensus of 24,200. As a result, he lowered his annual growth estimate for the Model S and Model X cars to 5 percent through 2021 from his previous forecast of 13 percent per year.
In early June we took a look at TSLA stock’s tendency to correct 30-50% and how the stock could be due for one of those moves lower. Here was the trade idea, from June 7th:
The next identifiable catalyst for the stock will be Q2 earnings which should fall in the last week of July or the first week in August. Longs might consider short-term protection targeting its post Q1 earnings gap back towards $300, which might also prove to be a reasonable near-term correction target for those looking to play for a correction.
So what’s the trade?
Hedge/Bearish
TSLA ($359) Buy the June 30th 325 / Aug 350 Diagonal Put Calendar for $20
-Sell to open 1 June 30th 325 put at $2.75
-Buy to open 1 Aug 350 put for $22.75
The June 30th 325 puts expired worthless and the stock is lower than the initial entry. With the stock $336 this trade (now just the Aug 350 puts) is worth about 30.50, for a 10.50 gain. For trade management purposes it now makes sense to re-establish the spread and reduce overall premium at risk. The 350 puts in August capture earnings (the first week of August). Next levels of support are $325 and then $300. Targeting a move to $300 while reducing risk makes sense here:
UPDATE – Sell to open the TSLA ($336) August 300 puts at 8.50
New position – Long the TSLA ($336) August 350/300 put spread for 11.50 (currently worth $22)
Rationale – This action does not book any of the current profits, but it reduces risk to just 11.50 with an opportunity to make up to $38.50 if TSLA is at or below $300 in August.