TSLA Stock: 2 Trades for a Tesla Motors Recovery

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Tesla Motors (TSLA) has seen quite a bit of hype in the past week — most notably, the reports that Tesla’s Model S P85D model “broke” Consumer Report’s rating system with a better-than-perfect score.

Still, TSLA’s stock price has remained relatively constrained despite all the hype. Much of this constraint has come from broad market pressures, but some has also come from Wall Street push-back on the P85D hype.

That said, Tesla shares still have considerable upside potential, and TSLA options traders should take note.

A Quick Look at Tesla (TSLA)

Starting with TSLA’s technical backdrop, the shares have added more than 9% year-to-date despite broad-market turmoil and global economic slowdown concerns. By comparison, all three of the major market indices are in negative territory for 2015, with the best-performing Nasdaq Composite off by roughly 3% year-to-date.

TSLA 9-2-2015
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Upon closer inspection, we find that TSLA stock held up remarkably well during the market correction last week. The shares bottomed near key long-term support at $200, and have since reclaimed all of their short-term moving averages, save their 50-day trendline — which lies just above the $250 mark.  

For technical traders, a rally to and breakout above $250 would be a major coup for TSLA stock, which could help reestablish the stock’s longer-term uptrend.

On the sentiment front, Wall Street is largely positive on Tesla’s long-term outlook. According to Thomson/First Call, 10 of the 19 analysts following TSLA rate the shares a “buy” or better, with five dolling out “holds” and four issuing “sell” ratings. Additionally, the 12-month consensus price target rests at $320, representing an optimistic premium of about 34% to Tuesday’s close.

Options traders, meanwhile, are quite a bit more cautious when it comes to TSLA’s short-term outlook.

For instance, the September/October put/call open interest ratio for TSLA currently stands at 0.94, with calls and puts in near parity among options set to expire within the next two months. That said, call volume has picked up recently on TSLA, hinting at an improvement in sentiment for the equity. Rising call volume and call OI on TSLA stock could be a sign that options traders are expecting the shares to resume their former uptrend.

Overall, October implieds are pricing in a potential move of about 14.5% for TSLA stock during the next two months. In other words, options traders are looking for a possible move as high as $274.86 or as low as $205.14 by the time October options expire. A pullback to the $200 region could be seen as a buying opportunity for long-term TSLA stock traders, while a rally to $274 would certainly give technical traders reasons to jump in on the equity.

2 Trades for TSLA Stock

Call Spread: For options traders, high October implieds certainly increase the costs of trading TSLA options. It also increases the potential returns for those willing to take a risk. For those traders looking to bet on a TSLA rally, an Oct $250/$275 bull call spread has considerable potential. At last check, this spread was offered at $9.49, or $949 per pair of contracts. Breakeven lies at $259.49, while a maximum profit of $15.51, or $1,551 per pair of contracts, is possible if TSLA closes at or above $275 when October options expire.

Put Sell: On the other hand, Wall Street has been a bit unstable lately, leading to a bit of cautious trading. Those looking to play it safe and bank a profit by selling premium might want to consider a Sep $190 put sell position. At last check, this put was bid at 80 cents, or $80 per contract. The upside to this put sell strategy is that you keep the premium as long as TSLA stock closes above $190 when these options expire in roughly two-and-a-half weeks. The downside is that should TSLA trade below $190 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $190 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/tsla-stock-2-trades-tesla-motors-recovery/.

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