Tesla Motors Inc (NASDAQ:TSLA) is facing a bit of a PR nightmare right now. According to a Reuters report, the company knew about the Autopilot crash before raising $1.45 billion from investors via a stock offering. As a result, the mainstream media and a few financial talking heads are making a big deal out of the situation, which has pulled down TSLA stock and turned its sentiment backdrop even more bearish.
Thomson/First Call reveals that 11 of the 20 analysts following TSLA stock rate it a “hold” or worse. But there is room for the analyst situation to decline, though, as the 12-month price target of $245.50 represents a roughly 17% premium to yesterday’s close. At this point, any downgrades or price-target cuts due to the Autopilot news or due to Brexit fallout could have a major impact on TSLA stock.
But while analysts have a poor opinion of Tesla, it’s nothing compared to the short-selling community. As of the most recent reporting period, 28.6 million shares of TSLA stock have been sold short. This sizable position not only accounts for roughly 27% of Tesla’s total float, it’s also growing, rising more than 1% in the last reporting period.
Click to Enlarge Turning to TSLA’s options activity, we find that short sellers are far from nervous about the stock’s short-term prospects.
Specifically, the July put/call open interest ratio stands at a lofty reading of 1.25, with puts easily outnumbering calls among options set to expire within the next month. Note that the lack of heavy call OI is an indication that short sellers are not buying calls to hedge their positions.
Overall, monthly July implieds are pricing in a potential move of about 6% for TSLA stock by the time these options expire on the 15. This places the upper bound at $225, while the lower bound lies at $199.
2 Trades for TSLA Stock
Bull Call Spread: With Brexit woes pushing Tesla down to within striking distance of round-number support at $200, there is the possibility of a short-term relief rally for TSLA stock. Such a rally could be even more substantial given the recent rise in potential sideline money (i.e. bearish sentiment). As such, traders looking to bet bullish on TSLA might want to consider a July $210/$215 bull call spread.
At last check, this spread was offered at $2.42, or $242 per pair of contracts. Breakeven lies at $212.42, while a maximum profit of $2.58, or $258 per pair of contracts, is possible if Tesla stock closes at or above $215 when July options expire.
**Note: With TSLA trading sharply lower premarket, these options prices are sure to change.
Bear Put Spread: On the other hand, given the Brexit concerns and the continued fallout in the financial media, TSLA stock could well be set to break below support at $200 soon. Those looking to side with the bears on Tesla might want to consider a July $200/$210 bear put spread.
At last check, this spread was offered at $2.92, or $292 per pair of contracts. Breakeven lies at $207.08, while a maximum profit of $7.08, or $708 per pair of contracts, is possible if Tesla stock closes at or below $200 when July options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
