Tesla Inc (NASDAQ:TSLA) earnings are on tap for Wednesday after the closing bell, but the narrative surrounding TSLA stock will continue to be Model 3 production. That’s not to say that earnings won’t be a big deal for Tesla investors — in fact, they could be a technical make-or-break moment for shares — but more intermediate-term, the Model 3 will dominate the stock’s direction.

And that direction is up.

With the Model 3 now in the hands of reviewers, and soon to be in the hands of customers, Tesla is getting rave reviews. In the past week, Wired, Business Insider and Motor Trend have all gushed over the new mass-market EV. What’s more, Motor Trend even backed away from its stance that the General Motors Company’s (NYSE:GM) Chevrolet Bolt EV is “where the second era of the car commences,” bestowing that crown, instead, to Tesla’s Model 3.

Today, we’ll look at a pair of trade ideas heading into Tesla’s report. But first, a look back.

I last checked in with TSLA stock about two weeks ago, noting that shares had a chance to break out above $350 in the wake of a positive earnings report. That report, due Wednesday evening, will be closely watched … but it will be more about Tesla’s cash burn and Model 3 production guidance than actual earnings.

Currently, Wall Street is looking for a loss of $1.80 per share on revenue of $2.55 billion. EarningsWhispers.com puts the second-quarter whisper number at a loss of $1.87 per share, which represents the brokerage community’s expectations for higher expenses related to the ramping up of Model 3 production. Higher costs will be a key narrative, and any surprises (up or down) could impact TSLA stock.

Meanwhile, CEO Elon Musk has started handing over the first production models of the Model 3 to consumers. Having vehicles in consumer hands will be a big plus for Tesla stock, as will any guidance or news on how the current ramp up is faring. With Musk being a bit tight-lipped on current production run rates, don’t expect much on this front — but any tidbit that slips through will be scrutinized heavily.

Sentiment and Technicals

Checking in with sentiment, we find the picture is beginning to shift bullish, improving the chances of a post-earnings rally on any positive news.

Currently, Thomson/First Call reports that 14 of the 21 analysts following TSLA stock rate the shares a “hold” or worse, up from 15 bearish ratings just two weeks ago. Furthermore, the 12-month price target has risen from $299.34 to $303.39 — though even the current consensus target pales in comparison to TSLA stock’s close at $327.78 on Friday.

Click to Enlarge On the other hand, short sellers have increased their bearish bets. The number of shares sold short rose by 2% during the most recent reporting period, leaving 23% of TSLA’s float sold short. If the shares are able to break out above the $340-$350 region following earnings, we could see a short-squeeze play emerge.

The $340-$350 region is important for a couple reasons.

First, it’s home to Tesla’s 50-day moving average, and a reclamation of this trendline could pull technical traders back into TSLA stock. Second, the area also marks a 50% retracement of Tesla’s June high ($386.95) and low ($303.13), providing another “buy” indicator for technical traders if the stock powers through the region on strong volume.

What Tesla Options Are Saying

Turning to Tesla’s options activity, we find that calls are gaining traction among weekly Aug 4 series traders.

Currently, the Aug 4 put/call open interest ratio stands at 0.79, down sharply from readings north of 1 just two weeks ago. This rising preference for calls could be a genuine bullish groundswell following the Model 3 release, or it could be short sellers hedging their positions.

Either way, it’s a bullish sign for TSLA stock.

Overall, Aug 4 implieds are pricing in a potential move of about 7.4% heading into earnings. Down from an expected move of more than 10% just two week’s ago, the upper bound now rests at $359.80, while the lower bound lies at $310.20. If you read my last article on Tesla, you know the upper bound hasn’t changed much at all, while the lower bound has risen to well above the $300 mark — good news for those who got into the Aug $300 put sell trade recommendation.

Now, for this week’s earnings-focused trades.

2 Trades for TSLA Stock

Bull Call Spread: I’m sticking with the long side heading into earnings. Wall Street knows that increased spending is coming — with Tesla’s production goals, how can it not? As such, any cash flow issues shouldn’t be too surprising, and Model 3 production appears to be running smoothly. Traders looking to take full advantage of this week’s earnings report might want to consider an Aug 4 $345/$350 bull call spread.

This spread, which expires at the end of the week, was last offered at $1.57, or $157 per pair of contracts. Breakeven lies at $341.57, while a maximum profit of $3.43, or $343 per pair of contracts, is possible if Tesla stock closes at or above $350 when Aug 4 options expire this Friday.

Put Sell: For a more neutral-to-bullish play, the Aug 4 $300 put sell has a good chance of finishing out of the money.

At last check, this put was bid at $2.37, or $237 per contract. In this trade, you keep the premium as long as TSLA stock closes above $300 by the close on Friday. On the downside, if Tesla trades below $300 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $300 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.