The recent enthusiasm that yet another capital raise Tesla Inc (NASDAQ:TSLA) was smaller and less dilutive (for now) than anticipated appears to have waned considerably. TSLA stock appears to have found considerable resistance heading appreciably higher and I look for Tesla to continue to flounder over the coming weeks.
Click to Enlarge
As I have mentioned in my recent posts on TSLA stock (bullish here, bearish here), any fundamental analysis on Tesla borders on ludicrous. TSLA is a stock driven on faith, with that faith best being manifested in technical analysis.
From a technical perspective, Tesla is hard up against some major resistance at the $266 level. Over the past three days, Tesla has tried to break through this level only to be rejected. This post earnings gap has certainly proved to be daunting resistance.
Implied volatility (IV) analysis also points to a high degree of complacency, normally a reliable contrarian indicator. Previous instances when TSLA stock traded at such trough levels of IV proved to be meaningful highs in the price of Tesla shares.
While I mentioned that fundamental analysis in TSLA is basically futile, that still doesn’t stop the top analysts from issuing some fundamental research.
Goldman Sachs, which was the lead underwriter on the latest capital raise with TSLA stock at the $260 level, has a $185 price target. That’s right, $185!! UBS has a sell rating and a $160 price target. Deutsche Bank is a believer, thinking that Tesla can eventually rival BMW and Mercedes, causing them to raise their price target from $220 to $240. So that’s three major houses thinking TSLA is overpriced.
Every major house also expects more and more capital raises down the road, especially as recent acquisition SolarCity’s bonds come due. So with the initial euphoria of the “not as bad as we thought” rally wearing off, now is a very opportune time to take a short position in TSLA. Since IV is at such depressed levels, a simple put purchase makes intuitive sense.
TSLA Stock Trade Idea
Buy to open TSLA April $260 puts for $9.
These are the traditional monthly options. Maximum loss is $900 per contract. The trade is net short 45 deltas at trade inception, equating to 45 shares of stock short.
Since the position is a simple long option play, it is crucial to monitor time decay. I would revisit the position at the end of the month to make any necessary adjustments.
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.
