Shares of Tesla Motors Inc (NASDAQ:TSLA) finally enjoyed an up day after four days of sharp declines, as a tweet by CEO Elon Musk dismissed the notion of an impending fourth-quarter capital raise.
Given the positive technical backdrop and upcoming product announcement and earnings, I look for TSLA stock to continue to consolidate at current levels over the next 10 days.
Certainly I have been less than bullish on TSLA stock, as my previous articles will attest. However, the recent price action points to a near-term bottom being put in place for Tesla. The $194.50 closing price from Sept. 9 has held after several attempts to break it.
TSLA Stock Charts
Click to Enlarge TSLA stock closed above round-number support at $200 as well.
On an intermediate-term basis, Tesla stock has major support at the $185 level, with shares approaching that area a few times over the past months, only to turn and head higher.
So on both the short-term and intermediate time frames, TSLA stock is looking fairly bullish, or at least non-bearish.
Click to Enlarge On a long-term basis I am still an avowed bear on Tesla stock, given the cash burn rate, lack of transparency and low margins. My previous posts highlight these concerns to a larger degree. But over the short term, I think a TSLA bottom may be in place.
The new product launch announcement on Oct. 17 and earnings on Oct. 26 should certainly given reasons for a pause in the selling pressure. As a trader, it is important to jump on opportunities as they arise, even if that’s counter to a longer term conviction.
Implied volatility (IV) is one of the cornerstones of my trade idea generation framework and analysis.
Click to Enlarge With IV now at the highest levels since the last earnings report in Tesla options, selling premium is favored over buying. High levels of IV are also a good contrarian indicator, adding to the bullish thesis.
Tesla Trade Idea
Sell TSLA Oct 14 $195 puts and buy Oct 14 $190 puts for a 76-cent net credit.
I want to have the trade expire before both the product announcement on Oct. 17 and earnings on Oct. 26.
The maximum gain on the trade is $76 per spread with a maximum risk of $424 per spread. Return on risk is 18%. I would look to close out the trade on a meaningful break of the $194.50 support level.
My thesis on the trade is for Tesla stock to remain range-bound in front of those two big events, as traders will be reticent to take too large either a bullish or bearish stance in front of the news.
Unlike with stocks, option strategies have the ability, borrowing from Dire Straits, to make Money For Nothing.
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.
