After a solid performance through September options expiration, I’m remaining bullish on Tesla Inc (NASDAQ:TSLA) once again through October. Given TSLA stock’s sharp selloff last week, this might surprise some readers. But the selling pressure that has plagued Tesla of late should end this week.
Last week was a money week on Wall Street. Investors were spooked when the Federal Reserve announced it was tightening monetary policy and entering a period of “quantitative tightening.” This sparked concern across the board, and it spilled over into already-known quantities, like TSLA stock.
As I noted in this morning’s edition of Vitals, Jefferies said they believe that Tesla won’t turn a profit until 2020 — beyond the target date for most analysts by about a year. Jefferies also initiated TSLA stock at “underperform” with a $280 price target as a result of their prediction.
They’re a little late to the game here, and a year one way or another isn’t going to make that much of a difference. Still, TSLA stock suffered its worst week in months as a result of the shift toward bearish sentiment.
Again, negativity is also already a known quantity when it comes to TSLA stock. Currently, Thomson/First Call reports that 14 of the 22 analysts following Tesla rate the shares a “hold” or worse, with an average consensus price target of $319.94.
Furthermore, short interest currently accounts for about 24.5% of TSLA stock’s total float after rising 2% during the most recent reporting period.
And yet, TSLA stock is still up 66% so far this year, despite the negativity, despite proclamations of excessive valuation. Traders are bidding TSLA stock higher on a continued global movement toward alternative energy — one backed by some of the fastest growing economies in the world, like China.
So, we have TSLA stock going through cycles of higher highs and higher lows which are driven by shifts in short-term sentiment. With last week’s price action allowing the weaker hands to take profits, TSLA stock is once again poised to head higher heading into October options expiration, creating another opportunity for profit.
Click to Enlarge Speaking of options, the October implieds are pricing in a potential move of about 7.8% for TSLA heading into expiration. This places the upper bound at $378 and the lower bound at $323.
Recapping last month’s options trades, the Sept $365/$370 bull call spread hit its target, resulting in a potential return of roughly 140%. Meanwhile, the Sept $300 put sell finished well out of the money, allowing traders to keep the premium received.
2 Trades for Tesla Stock
Call Spread: We are sticking with a bull call spread this month as the main recommendation. TSLA stock blew off some steam last week and is now perched on support near $350. Traders looking to benefit from a rebound might want to consider an Oct $365/$370 bull call spread.
This spread was last offered at $2.10, or $210 per pair of contracts. Breakeven lies at $367.10, while a maximum profit of $2.90, or $290 per pair of contracts is possible if Tesla stock closes at or above $370 when October options expire.
Put Sell: Once again, for a more neutral-to-bullish play, the October $300 put sell, is a solid option that has an excellent chance of finishing out of the money. At last check, this put was bid at $1.23, or $123 per contract.
In this trade, you keep the premium as long as TSLA stock closes above $300 when October options expire. On the downside, if TSLA 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.
