Tesla Motors Inc (TSLA) vaulted back into the limelight in the last week of 2015. Concerns had grown that Tesla might not hit its year-end delivery forecasts, but a research note from Global Equity Research bolstered the bullish case for TSLA stock.
Tesla still hit its delivery targets, but the figure came in near the lower end of its guidance range — well short of Global Equity’s expectations. As a result, TSLA is now struggling to hold long-term support near $220.
Click to Enlarge Checking in with TSLA’s technical backdrop, Tesla’s stock price is down sharply from its mid-2015 highs near $286. What’s more, broad-market selling pressure has set the stock on a bearish tilt heading into 2016. However, TSLA appears to be building support in the $220 region — home to the stock’s 10- and 52-week moving averages.
Additional support lies near $200, which should be a solid backstop for any extended decline.
Sentiment is leaning bearish, too. According to Thomson/First Call, only seven of the 19 analysts following TSLA rate the shares a “buy” or better, though the 12-month consensus price target rests at $282 represents a respectable premium of about 22% to TSLA current trading range.
Options activity is also leaning toward the bearish end of the spectrum. For instance, the January/February put/call open interest ratio for TSLA currently stands at 1.45, with puts easily outnumbering calls among options set to expire within the next two months. However, call volume is picking up on TSLA stock, hinting that sentiment among speculative traders may be shifting to prepare for better-than-expected fourth-quarter delivery numbers.
Overall, January implieds are pricing in a potential move of about 6.3% for TSLA stock during the next two months. In other words, options traders are looking for a possible move as high as $234.54 or as low as $205.46 by the time January options expire.
A pullback to the $200 region could be seen as a buying opportunity for long-term TSLA stock traders, while a rally north of $240 would put the shares firmly back above key support levels.
With that in mind, here are a pair of trades to consider:
2 Trades for TSLA Stock
Call Spread: For options traders, high January implieds could be a bit risky at the moment, especially given the bearish wave overtaking Wall Street heading into the first trading session of 2016. However, high implieds can also increase potential returns for those willing to take a risk. For those traders looking to bet on a rebound for TSLA, a Jan $225/$230 bull call spread has considerable potential.
At last check, this spread was offered at $1.95, or $195 per pair of contracts. Breakeven lies at $232.07, while a maximum profit of $3.05, or $305 per pair of contracts, is possible if TSLA closes at or above $230 when January options expire.
Put Sell: On the other hand, Wall Street looks quite unstable heading into 2016, especially with Chinese growth concerns once again back in the headlines. Those looking to play it safe and bank a profit by selling premium might want to consider a Jan $200 put sell position.
At last check, this put was bid at 26 cents, or $26 per contract. The upside to this put sell strategy is that you keep the premium as long as TSLA stock closes above $200 when these options expire. The downside is that should TSLA trade below $200 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $200 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
