Tesla (NASDAQ:TSLA) bulls are in for one heck of a ride, but a few bears remain. The way that Tesla’s stock has held up despite the broader market weakness, you’d almost think TSLA was a defensive-oriented, income-paying vehicle. It’s not, of course.
Behind the supportive bid, investors are positioning for Tesla’s upcoming release of its second-quarter production and delivery figures in early July for the hotly debated Model 3 sedan.
But you’d be wrong to think, everyone is a buyer of TSLA stock in front of the news. In fact, Tesla shares have a massive short interest in excess of 33% and a short ratio of 5.63 days to cover those bearish positions.
One mouthpiece for the bear camp is Goldman Sachs analyst David Tamberrino who believes the company will end up delivering 22,000 Model 3’s for the second quarter and below Street views of 28,000.
Of course, some investors are bullish on Tesla and not just buying shares to liquidate.
For one, there’s the well-respected Baron Opportunity Fund that’s been a recent buyer of TSLA stock. But the investment fund’s interest lies more in the company’s margins for the cars in sells, rather than the headline make or break number of 5,000 vehicles per week production rate going forward, which most of Wall Street is waiting on.
There’s also Loup Ventures. The equity research outfit is bullish on TSLA stock, but fully anticipates a headline miss on production. Their thesis for remaining upbeat in the face of potentially bad news is Tesla should still be delivering a massive, near double in production sequentially on the Model 3 and that’s enough to remain a buyer of shares.
So, which camp will prevail? If you’re the outspoken Elon Musk, the bears “are in for a rude awakening.” In this strategist’s view though, it’s a two-way street when it comes to possible road-kill in TSLA stock.
TSLA Stock Weekly Chart
TSLA stock has performed nicely for bulls since bottoming in early April on a successful test of zone support comprised of the 62% retracement level, 200-week simple moving average and an angular trend line dating back to Tesla’s prior high in 2014.
Currently and with shares holding up in the upper half of a year-long corrective base that’s developed around the former high, there are reasons to remain bullish. But I certainly wouldn’t throw caution to the wind.
For the bears, the way in which TSLA stock jumped higher in the last few weeks has resulted in an overbought stochastics setup. And coupled with Elon Musk mouthing off a bit too aggressively, a warning light indicating a bearish disappointment or even sell-the-news reaction shouldn’t be ignored.
TSLA Stock Options Strategy
Considering our view, one camp is in for a rude awakening. If I was to position bullishly in TSLA stock, I’d do so with a shorter-term, lower-cost and defined risk options strategy that won’t break the bank in the event the bears are vindicated on the price chart.
Reviewing TSLA’s options, one favored play is the 13’ July $360/$385/$410 call butterfly. Priced for $3.20 with shares at $344.50 this spread offers a bullish profit zone at expiration from $363.20 to $406.80.
If TSLA fails to rally by more than 4.50% and above the $360 wing at expiration, the trader is out debit. That’s just less than 1% of the risk associated with owning Tesla shares outright and in view, potentially money very well spent given what’s sure to be a volatile event.
On the other hand, if Tesla does hit the gas and parks itself near the prior highs on the $385 call strike, a very generous payout of $21.80 exists.
The real risk with using this strategy as a TSLA stock bull is if an upside reaction is too severe. Ultimately and above $410, the debit paid for the butterfly would be forfeited. That could be a rude awakening for the unprepared. But if you’re like me, I’m thinking that’s a compromise worth the risk.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits.
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