Tesla Inc (NASDAQ:TSLA) is scheduled to step into the earnings confessional after the close this Wednesday. By now, we all know that Tesla stock’s post-earnings reaction is more tied to Model 3 production numbers that the company’s bottom line.
According to a leaked memo, CEO Elon Musk is looking to increase Model 3 production to 3,000 to 4,000 vehicles a week in May. “Steady” production of 6,000 Model 3s a week is the goal by the end of 2018. Any confirmation on these production goals could go a long way toward bolstering TSLA stock following earnings.
Speaking of earnings, it’s worthwhile to take a look at the numbers Wall Street is batting around. Analysts are expecting a first-quarter loss of $3.28 per share, more than double last year’s loss of $1.33 per share. Revenue is seen rising 22.9% year-over-year to $3.31 billion.
However, expectations may be much lower than the posted numbers. According to EarningsWhispers.com, the whisper number rests at a loss of $3.60 per share for Tesla.
What’s more, broader expectations in the brokerage bunch are also leaning bearish. For example, Thomson/First Call reports that only eight of the 23 analysts following TSLA stock rate the shares a “buy” or better. The 12-month price-target rests just overhead at $317.04 per share.
This configuration leaves room for upgrades and/or price-target increases for Tesla stock, but only if the company can reassure investors on Model 3 production.
Elsewhere, TSLA stock is among the most shorted companies on Wall Street. As of the most recent reporting period, some 38 million Tesla shares were sold short. This accounts for more than 30% of Tesla’s total float. This wealth of short interest could be a boon for TSLA stock bulls, creating the potential for a short-squeeze situation following positive earnings results.
Turning to TSLA options, we find a wealth of bearish sentiment. Specifically, the May put/call open interest ratio arrives at a lofty reading of 1.32, 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 May implieds, options traders are pricing in a potential 10.7% move following TSLA earnings. This places the upper bound at about $326.55, while the lower bound resides at $263.45.
Resistance in the $300 region shouldn’t be an issue following a solid report, leaving TSLA stock with only its 200-day trendline as a cap in the $330 region. On the downside, short-term support lies at $280, with a firm floor near $250.
2 Trades for Tesla Stock
Call Spread: TSLA stock bulls are fighting to push the shares back above $300, and any positivity from this week’s report should provide them the fuel they need. Add to this the potential for short-covering and potential upgrades, and TSLA stock looks poised to run. Traders looking to bet bullish might want to consider a May $310/$315 bull call spread.
This spread was last offered at $1.65, or $165 per pair of contracts. Breakeven lies at $311.65, while a maximum profit of $3.35, or $335 per pair of contracts — a potential 105% return — is possible if Tesla stock closes at or above $315 when May options expire.
Put Sell: For those looking for a more neutral to bullish stance on TSLA stock ahead of earnings, a May $250 put sell should stay well out of the money. At last check, this put was bid at $4.98, or $498 per contract. In this trade, you keep the premium as long as TSLA stock closes above $250 when May options expire.
On the downside, if TSLA trades below $250 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $250 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
