If you strip out the SolarCity Corp (NASDAQ:SCTY) acquisition, Tesla Motors Inc (NASDAQ:TSLA) appears to be headed in the right direction. Tesla’s last quarterly report ended a nasty losing streak in the earnings confessional, with the company besting expectations by more than 200%. What’s more deliveries are up, and Tesla appears to be on track.
But the SolarCity deal scuttled any vestige of bullish sentiment TSLA stock may have gained from its strong fundamental performance, leaving the bears in firm control.
Now Tesla has a chance to reverse the situation, at least somewhat, when it releases its fiscal fourth-quarter earnings report at the end of January.
TSLA Stock by the Numbers
By the numbers, Wall Street expects Tesla to report a fourth-quarter loss of 8 cents per share — a vast improvement over the company’s loss of 87 cents per share in the same quarter last year. What’s more, revenue is expected to rise 30.6% to $2.28 billion.
That said, sentiment is waning fast on TSLA stock. Fourth-quarter earnings targets have been revised sharply lower during the past two months, dropping from expectations for a profit of 49 cents per share during this time frame. Concerns range from Tesla hitting its deliveries target to the impact of the SolarCity acquisition, which will remain a major thorn in the company’s side until the deal shows some positive impact.
Taking a closer look at the brokerage community’s expectations, Thomson/First Call report that only four of the 20 analysts following Tesla stock rate the shares a “buy” or better. What’s more, the 12-month consensus price-target of $233.33 represents a modest premium of about 15% to yesterday’s close.
Elsewhere, short sellers continue to pile into bearish TSLA stock positions. As of the most recent reporting period, the number of Tesla shares sold short rose by 13% to 35.7 million. This wealth of shorted stock now accounts for nearly 30% of TSLA’s total float, or shares available for public trading.
Even options traders are jumping on the bearish TSLA stock bandwagon. Currently, the January 2017 put/call open interest ratio comes in at 1.83, with puts nearly doubling calls among near-term options. This ratio dips slightly to 1.19 for the weekly Jan. 27 series — i.e., those options most affected by Tesla’s quarterly report, which is expected to arrive around Jan. 25 — giving some indication that short sellers are taking light precautions against a potential rally.
Overall, January implieds are pricing in a potential post-earnings move of about 7.3% for TSLA stock. This places the upper bound at $217.25, while the lower bound lies at $187.75.
2 Trades for TSLA Stock
Call Spread: The negativity behind the SolarCity deal has to wane at some point, and a positive earnings report next month could go a long way toward mending the sentiment picture for TSLA stock. Furthermore, with so many naysayers on the sidelines, there is a wealth of potential buying fuel available to send the shares higher.
Traders looking to take a contrarian stance on Tesla stock ahead of earnings might want to consider a weekly Jan 27 series $205/$210 bull call spread. At last check, this spread was offered at $2.25, or $225 per pair of contracts. Breakeven lies at $206.94, while a maximum profit of $2.75, or $275 per pair of contracts, is possible if Tesla stock closes at or above $210 when weekly Jan. 27 series options expire.
Put Sell: If selling premium is more your thing, then a weekly Jan. 27 series $170 put sell may be what you are looking for. At last check, this option was bid at $1.88, or $188 per contract.
On the upside, you keep the premium received as long as Tesla stock closes above $170 when weekly Jan. 27 series options expire. On the downside, should TSLA trade below $170 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $170 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
