Tesla Inc (NASDAQ:TSLA) is an emotional stock. People either love TSLA stock or they hate it. I am a fan of the car, but I don’t like the company’s business model. Yet, Wall Street definitely has a crush on Elon Musk, the company’s CEO.
As an auto manufacturer, Tesla needs several miracles to happen in order for it to grow into its stock and valuation.
To make matters worse, the company keeps making the ditch deeper. Just yesterday, it announced a new vehicle, which is a semi that will retail for about as much as what it charges for its Model S. I find that to be grossly under-priced. When it hits the market, such a vehicle will be an incremental drain cash.
The Truth Behind the TSLA Stock Picture
For a long time I looked for short opportunities in TSLA stock, but then the company’s narrative changed for me. Suddenly it became clear that Musk is tackling several industries. This is similar to what Jeff Bezos did with Amazon.com, Inc. (NASDAQ:AMZN), which now dominates several important industries.
So Musk is in good company, and so far he has been able to convince investors that he will deliver on his promises. This is important because Tesla relies on capital raises to execute on its plans. The minute TSLA stock investors stop believing him, the well of money will dry up. On its own and under the current parameters, it cannot survive.
Before you send a warrant out for my arrest for thinking this, I am not saying that this is imminent. In fact, I see this as an asset. Tesla has its fingers on several ventures and that’s a good thing. It muddies the waters and supports a thesis that is long-term and ambiguous for Tesla stock. No one can refute it for years so bears will remain at a disadvantage.
So for now, and in the absence of tangible value, I consider this vague future to be the perceived value against which I can sell downside risk to generate income. While I don’t believe in its long-term viability under this configuration, I am willing to bet bullish TSLA stock price action for the short-term.
Bottom Line on Tesla Stock
Technically speaking TSLA stock is inside another breakout and pushing against new all-time-highs. I don’t like to chase price targets and I always line my trades to profit from proven support instead. The 2017 price action in the stock give me confidence that for the short-term bulls want to defend $300.
The bet: Sell the TSLA Dec $295 put and collect $5.50 to open. This is a bullish trade that has 85% theoretical odds that the price will stay above my strike. Otherwise, I must own the shares. If the price then falls below $289.50, I will accrue losses.
TSLA is a high ticket stock that makes selling naked options in it somewhat daunting and it requires a ton of margin. I can mitigate the risk by selling spreads instead. There, the maximum loss is limited by the width of the spread.
The safer bet: Sell the TSLA Dec $295/$290 credit put spread where I stand about the same odds of winning. If so, then the spread would deliver 15%.
I started this write up by saying that Tesla stock is “emotional”, and I know I upset a few readers by criticizing aspects of it. But, when investing, I check my ego at the door and trade the price action. And I never risk more than I can afford to lose.
Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
