Buy Tesla, Inc. Stock With a Lot Less Risk

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If you can look past what Wall Street thinks, it appears to be an opportune time to test drive Tesla Motors Inc (NASDAQ:TSLA). That doesn’t mean to just run out and buy TSLA stock.

Tesla (TSLA)
Source: Shutterstock

Instead, I’ll show you a way to drive profits from Tesla while reducing your risk.

It’s no secret: Tesla has its work cut out for it, and many on Wall Street don’t think the company will survive the challenge. Wider-than-expected losses, cash burn, a less-subsidy friendly administration, staunch competition from General Motors Company (NYSE:GM) and BMW, disappointing deliverables guidance during February’s corporate confessional … to some, the future for TSLA looks bleak.

One recent shot fired over the bow came from the venerable Goldman Sachs. The investment bank cut shares of TSLA to a rare “Sell” from “Neutral” as February rolled into March and a couple days after Tesla’s earnings release.

The upshot of Goldman’s recommended warning is the downgrade mostly failed to provide anything new under the sun as it relates to Tesla. Also, as I noted in a more optimistic opinion of TSLA stock, timely analyst moves from the banker haven’t been spot-on.

And in the weeks since Goldman’s latest move on Tesla? Again, the firm has been “early” at best. Tesla stock is actually up about 5% since the downgrade.

More recently, Wednesday found another of Wall Street’s elite waving the caution flag on TSLA. Oppenheimer’s more detailed note acknowledged forward progress, but ultimately warned of the company being “fraught with risk” as it has transformed itself into an auto and energy concern.

Note that Oppenheimer didn’t downgrade TSLA. But an existing “hold” rating did suggest that shareholders should cool off.

Tesla Stock Chart

TSLA stock chart
Click to Enlarge
Source: Charts by TradingView

Also reassuring is the fact that TSLA shares have held a test of the prior breakout area. The bullish price action is signaling support on the part of investors as part of a fairly ordinary 16% corrective move from this year’s high.

The one technical item I’m marginally concerned with is stochastics. The secondary indicator is showing a neutral reading, while pointing down. As much, there’s no sign of a confirmation the low in place will ultimately hold.

How to Trade TSLA Stock

Given an overall nice-looking technical situation that’s marred only by stochastics and an earnings catalyst still two months out, I like the idea of using a targeted long call butterfly as a moderately bullish position in the nearer-term to catch profits in TSLA stock.

The butterfly is one of the lower cost spreads available. By targeting an out-of-the-money strike, the trader can generate a decent range for profitability.

The one real downside with this type of position is too much upside as the debit paid is forfeited above the highest positioned strike. But because this butterfly expires before a potential earnings catalyst, and given its low cost, I’m receptive to the trade-off.

The April $260/$270/$280 is priced at $1.60 with TSLA stock at $256. The targeted butterfly establishes a healthy profit zone from $261.60 to $278.40 at expiration with a max profit of $8.40.

The max return of 525% is a lot more improbable than solar-powered roofs on automobiles costing less than today’s conventional tops. That gain would require TSLA landing squarely at $270 on expiration and the absence of trading slippage.

Bottom line: It’s easy to like the ability to profit anywhere from a modest 2% rally to a more massive (and less likely) 9% gain in TSLA stock, especially when you put just 0.625% down.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/buy-tesla-inc-stock-with-a-lot-less-risk/.

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