Tesla Motors Inc (TSLA) Stock: Master Plan 2 Doesn’t Pass Muster

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The market reaction to the latest “Master Plan, Part Deux” from Tesla Motors. Inc (NASDAQ:TSLA) CEO Elon Musk was certainly less than enthusiastic, with Tesla stock dropping nearly 3.5% from $228.36 to $220.50.

Tesla Stock: Master Plan 2 Doesn't Pass Muster

The visionary component of the latest Master Plan is light on details and planning. It’s over-promising and under-delivering. I look for TSLA stock to continue to struggle going forward, as the curtain has been pulled back on the stock market version of the Wizard of Oz.

I extracted the closing from the Tesla website regarding Master Plan Part Deux below.

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  • The first goal, create solar roofs with battery storage, is a rationale for the ill-advised acquisition of another Musk company, SolarCity Corp (NASDAQ:SCTY). The market reaction following that news was underwhelming, to say the least.
  • Goal two, adding new product lines, includes an SUV and a truck. Certainly not earth shattering news.
  • The third goal regarding auto-driving is years off at best, and if at all given recent issues.
  • Goal four, have every car be an Uber in essence, sounds good on the surface. But how many Tesla owners want to be Uber drivers?

So the latest Master Plan once again embodies all that is right and wrong with the Tesla business model — a visionary approach that ultimately never materializes in the form of turning a profit.

TSLA Stock Charts

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At the end of the day, profits drive stock prices (or at least they should).

The latest stock price action from Tesla indicates that the market seems to certainly be doubting the ability of TSLA to do just that.

Tesla stock is back at the critical $220 level that I spoke about in my last article. This level has gained even more importance given the latest failed attempt to move significantly higher.

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TSLA stock is also making a series of lower highs, a normally bearish indicator. Until TSLA stock can break out convincingly, I would be a seller of rallies.

So to position to profit for a consolidation period in Tesla stock, a short call spread makes sense to me. Earnings are August 2, so I want my expiration before then to avoid the earnings risk.

Tesla Stock Trade Idea

Buy TSLA July 29 $232.50 calls and sell the TSLA July 29 $230 calls for a 30-cent net credit or better.

Maximum gain on the trade is $30 per spread with a maximum risk of $220 per spread. Return on risk is 13.63%.

I would look to close out the trade on a meaningful break above the $230 level while looking to let the spread expire and keep the initial $30 net credit if TSLA remains well-behaved.

As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at tbiggam@deltaderivatives.com.

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Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/tesla-stock-tsla-struggle/.

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