Don’t Expect Tesla Motors Inc (TSLA) Stock to Sit Idle in 2017

Advertisement

Is 2017 the year Tesla Motors Inc (NASDAQ:TSLA) motors higher once more … or will TSLA stock crash and burn? Let’s take a look at the contentious battleground stock both off and on the price chart, and then we’ll present a trading strategy based on the evidence.

Tesla Motors Inc (NASDAQ:TSLA)

After nearly three years of volatile but stalled price action, Tesla shares are probably due to make a meaningful move. The fact is despite a consistent barrage of negative and positive calls on TSLA stock, shares are idling near $215 — a level first hit back in February 2014.

What’s more, while volatile at times, TSLA has been largely stuck in a lateral price range for most of this period. The lengthy technical congestion should be nearing its conclusion, and a capitulation (for either the bulls or the bears) looks to be in the cards.

For the bulls, most recently, Baird & Co. is of the mind that 2017 will pay big dividends for Tesla stock holders. Not only did the firm maintain a lofty price target of $338 (almost 60% higher!), but on Friday it named TSLA stock its best pick for the New Year.

Baird anticipates Tesla will surprise naysayers and bring to market its Model 3 in 2017. It also sees the company capitalizing on a hidden gem in its under-the-radar energy storage business.

On the other end of the spectrum, Tesla has its share of bears putting their money where their mouths are. Short interest is approaching a large 40% of TSLA stock’s float, with arguments for TSLA to crash lower running the gamut.

For the doom-and-gloom crowd, there’s concerns over the 2016 acquisition of SolarCity Corp and how its integration and increased debt load will impact Tesla. Some bears also worry Q4 sales will invariably come in weaker-than-forecast following an aggressive Q3 campaign.

Another concern? Following a $2 billion secondary offering in 2016, bears anticipate Tesla will need to tap the equity markets again in 2017 due to continued losses and cash burn.

And lastly, increased EV competition from auto heavyweights like General Motors Company (NYSE:GM) is another factor that could weigh on TSLA stock … and perhaps its ability to remain an ongoing business.

Tesla Stock Chart

Tesla Motors Inc TSLA stock chart view 1
Click to Enlarge
Source: Charts by TradingView

If I were to take my best guesstimate of which direction has the edge, I’d give the advantage to the bulls. That is, if TSLA stock can hold near current levels and reverse higher above $223.80.

If this scenario plays out, shares should effectively hold the 200-day simple moving average and the mid-congestion support line shown in the chart. Successful testing would help confirm the bull case, while a subsequent rally through Tesla’s recent high would be evidence of building price momentum and perhaps a bullish trend to emerge in 2017.

How to Trade TSLA Stock Here

One catalyst that could jump-start a Tesla in 2017 is the company’s Jan. 4 Gigafactory tour. That said, I like the TSLA Mar $230/$250 bull call spread as a limited-risk play right now.

With Tesla shares at $213.69, the vertical is priced at $5.10 and stands to gain up to $14.90, or nearly 300%, in the event shares can trade above $250 by March expiration. Our preference is to either exit or adjust the position as Tesla stock begins to move in either price direction, rather than passively hold the position.

On the downside, if TSLA stock fails to hold above $210, the lower-delta vertical could be exited for an estimated loss of 75 cents to perhaps $1 rather than potentially losing the full debit.

And if shares of Tesla begin to drive higher?

Adjust the vertical’s risk by selling some of the position or offsetting the bull call spread with a bear call spread to form a low-risk butterfly spread with a very attractive and substantial profit range.

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/2017/01/tesla-motors-inc-dont-expect-tsla-stock-to-sit-idle-in-2017/.

©2024 InvestorPlace Media, LLC