Tesla Motors Inc (NASDAQ:TSLA) has been a hotbed of speculation during the past month. A second-quarter earnings miss, slow deliveries and the unexpected acquisition of SolarCity Corp (NASDAQ:SCTY) has Wall Street second-guessing TSLA. And yet, Tesla stock has done little in response. In fact, from July 19 through Friday, Tesla stock has dipped a mere 0.55% despite a string of headlines that should have either driven TSLA higher or sunk the shares.
But with Tesla reaffirming its 2016 deliveries, and a report on third-quarter deliveries set to arrive in early October, this sidling activity in Tesla stock could change — and soon.
Click to Enlarge From a technical perspective, TSLA is in consolidation mode. Stockholders still are digesting the potential impact of the SolarCity acquisition (fair) and waiting on Tesla to make good on its promise to hit its full-year deliveries projections (also fair).
On the downside, Tesla stock has pulled its 10-day and 20-day moving averages into a bearish cross, and the shares have yet to firm up support in the $225 region.
On the upside, key support still holds firm in the $220 region, which is home to TSLA’s 50-day moving average.
Bears remain in firm control from a sentiment standpoint. Zacks reports that only four of the 16 analysts following Tesla stock rate the shares a “buy” or better. Additionally, the 12-month price target of $240.08 represents a premium of only about 6.7% to Friday’s close. There is plenty of room for upgrades and price-target increases — and those could materialize if TSLA proves it can hit its 2016 delivery goals.
A large camp thinks Tesla can’t. Short sellers are also loaded to the hilt with bearish positions on Tesla stock. As of the most recent reporting period, some 26.9 million TSLA shares were sold short. However, resolve may be wavering, as positions declined by 8% during this period. But the 24.5% of Tesla’s float still sold short would provide plenty of fuel for a short squeeze on sunny deliveries data (or any other positive headlines).
Options traders are firmly in the bear camp, too. The September/October put/call open interest ratio stands at 1.05, with puts in near parity with calls short-term options. However, bulls are either betting big, or short sellers are protecting heavily against a rally in the October series, as this ratio plunges to 0.31 for October (i.e., just after Tesla is expected to release its third-quarter deliveries report).
Overall, monthly October implieds are pricing in a potential move of about 10.7% for TSLA stock by the time these options expire on the 21st. This places an upper bound at $249.10, with a lower bound at $200.09.
2 Trades for Tesla Stock
TSLA Call Spread: Expectations are low and bearish sentiment has ramped up considerably in the wake of the SolarCity acquisition. This sets the stage for a Tesla stock rally following any positive news from the company.
Traders looking to buck the trend and bet bullish on TSLA might want to consider an Oct $225/$250 bull call spread. At last check, this spread was offered at $6.76, or $676 per pair of contracts.
Breakeven lies at $231.76, while a maximum profit of $18.24, or $1,824 per pair of contracts, is possible if Tesla stock closes at or above $250 when October options expire.
TSLA Put Selling: For those with a more neutral-to-bullish outlook on Tesla stock, an ?Oct $200 put sell position may better fit your expectations. At last check, this put was bid at $5.21, or $521 per contract.
If Tesla stock closes at or above $200 when October options expire on the 21st, traders entering this position will retain the premium received for opening the position. However, if TSLA stock trades below $200 ahead of expiration, traders may be assigned 100 shares at a price of $200 per share for every contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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