2017 has been a wreck for Tesla Inc (NASDAQ:TSLA) bears. And get ready — because despite the company’s (apparent?) flaws, TSLA stock is ready to shift gears forward once again.
As I’ve noted on a couple occasions in 2017, it’s no secret that Tesla doesn’t offer value investors a seat for passage. If it’s safety and steady income you’re after, you’re probably better off taking CEO Elon Musk’s advice and buying Ford Motor Company (NYSE:F) instead.
Critics point to ever-present threats in the EV market from larger competitors such as General Motors Company (NYSE:GM) and BMW. But again, to be a believer in TSLA stock isn’t to be overly concerned with the limitations of reality.
Bears also might warn that we should be concerned about the Trump administration’s anti-anti-climate change agenda. An alternative energy/tech outfit bent on reducing our carbon footprint that looks to the government for support? Oh no!
Wall Street’s pros aren’t too fond of TSLA stock, either. Goldman Sachs and Oppenheimer have been spied firing off warning shots over the past couple months, offering up a “Sell” call and a “Hold” reaffirmation, respectively.
To be a Tesla bull is to be part of a smaller crowd of believers. You have to put up with the noise.
But the winds of change could soon be upon us. And if you’ve had the courage to be invested in TSLA stock, hey — shares are near all-time highs, so clearly, you’re on the winning side.
Better still: Things could just be getting started.
A Quick Look at Recent Bullish Developments
Earlier this year, China tech giant Tencent Holdings Ltd (OTCMKTS:TCEHY) announced a 5% stake ($1.78 billion) in Tesla. That points to the EV maker building out its brand overseas into the world’s largest auto market.
Tesla also recently announced a surprise deliverables beat for its Model S sedan and Model X SUV. InvestorPlace’s Richard Saintvilus discussed the significance of the report, and I’m in agreement — it’s bullish for TSLA stock.
Lastly, Tesla shares have just broken out to fresh all-time highs after more than two years of idling in a range.
It’s time to take Tesla out for a spin.
Tesla Stock Chart
Click to Enlarge
After staging a breakout to fresh highs on April 3, Tesla shares have marked the past two weeks in a tighter triangular pattern — one that has continued to find support modestly above the prior resistance level.
Nice!
With shares up a scant 4% above the old highs, stochastics reaching oversold conditions and the weekly price contraction showing sure signs of support, it’s time to think about a bullish strategy.
How to Trade TSLA Stock
Tesla’s earnings are due out May 3, which gives us a little time to work with. Given the strong situation, I like a modified, targeted long bullish butterfly.
Specifically, buy the May $310/$330/$340 butterfly for $4.25 (with Tesla at $300.25).
This is a limited-risk position that can survive even a bad earnings reaction, should that occur, without worrying too much. One contract — or the soft equivalent of 100 shares for $425 risk — compares quite nicely to buying the same amount of TSLA stock for $30,000 during an earnings event.
The position begins to profit on an expiration basis above $314.25. That only requires TSLA stock to tack on less than 5% — just fractionally more than its recent high of $313.73.
If Tesla were to rally strongly over the next month, the spread can expand to a max value of $20 at $330. Subtract the debit, and the trader is left with a profit of $15.75 — a return of 370% for a move of 10% in TSLA stock.
Lastly, since the embedded $330/$340 bear call spread is $10 tighter than the lower $310/$330 bull call vertical, in the less likely event that Tesla shares really go into overdrive, you still keep a profit of $5.75 above $340.
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.
