My bet on a Tesla Inc (NASDAQ:TSLA) rebound this month failed to pan out. Apparently, you can’t miss delivery expectations and continue a bull run, no matter what the analysts say. As a result, TSLA stock breached support at $350 in September, and has spent the ensuing sessions struggling to come back.
This month, we have TSLA earnings on tap. Tesla has yet to announce an official date, but the report should hit the Street sometime near Oct. 25.
Wall Street is currently expecting a loss of $2.15 per share for the quarter, down massively from a profit of 71 cents per share in the same quarter last year — a byproduct of Tesla’s heavy spending to churn out Model 3’s.
Revenue, meanwhile, is expected to rise 27.8% to $2.94 billion.
In the past, TSLA earnings haven’t held as much weight as delivery projections. This is especially true when it comes to the Model 3. In recent Tesla news, the company said it only delivered 220 Model 3s, whiffing expectations and casting doubt on Tesla’s claims that it will hit a production volume of 5,000 Model 3s per week by the end of 2017.
The company blamed the shortfall on “production bottlenecks,” which seemed to placate some TSLA bulls for the time being. However, unless Tesla addresses those concerns in this month’s quarterly earnings report, patience might begin to wear thin.
The ironic development to this situation is that sentiment is actually starting to turn higher. Tesla stock predictions are trending toward the higher end compared to earlier in the year. For example, Thomson/First Call reports that eight of the 22 analysts following TSLA now rate the shares a “buy” or better, up from just six “buys” back in July.
Furthermore, short sellers abandoned TSLA stock in the most recent reporting period, with short interest down 10%. However, some 27 million Tesla shares remain sold short, accounting for 22.6% of the stock’s total float.
Given the stock’s recent technical troubles despite the added buying pressure, I wouldn’t be surprised to see this figure rise in the next reporting period.
Click to Enlarge Turning to TSLA options, we find a wealth of bearish sentiment. Specifically, the November put/call open interest ratio arrives at a lofty reading of 1.3, with puts easily outnumbering calls among back month options. Furthermore, this heavy focus on TSLA puts indicates that those remaining short sellers aren’t all that interested in hedging their bets.
As for November implieds, options traders are pricing in a potential 10% move following TSLA earnings. This places the upper bound at about $390, while the lower bound resides at $319. Resistance in the $380 region is troubling given Tesla’s weak price action, while a pullback to $320 or $300 wouldn’t be out of the question if the company fails to give a positive update on Model 3 deliveries.
Recapping last month’s options trades, the Oct $365/$370 bull call spread could still hit its target, but it would take one heck of a rally this week for that to become a reality. Meanwhile, the Oct $300 put sell is poised to finish well out of the money, allowing traders to keep the premium received.
2 Trades for Tesla Stock
Put Sell: With uncertainty plaguing TSLA stock ahead of earnings, and the shares reluctant to make any real headway, the safest option for profit ahead of TSLA earnings is an Nov $300 put sell. The $300 region should hold firm on any pullback following earnings, thus allowing traders to keep the premium received.
At last check, this put was bid at $2.67, or $267 per contract. In this trade, you keep the premium as long as TSLA stock closes above $300 when November options expire. 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.
Call Spread: I still believe that Tesla wants to go higher, and TSLA bulls will cling to any bullish data out of this month’s quarterly report with a fervor — especially if CEO Elon Musk offers assurances that Model 3 production is on track. Traders looking to bet bullish might want to consider a Nov $370/$380 bull call spread.
This spread was last offered at $3, or $300 per pair of contracts. Breakeven lies at $373, while a maximum profit of $7, or $700 per pair of contracts — a potential 133% return — is possible if Tesla stock closes at or above $380 when November options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.