If you are looking for a sector to short right now, automakers are looking quite vulnerable. Car stocks saw a bump in early June following news of easing Chinese import tariffs and rising U.S. import tariffs on foreign automakers. Tesla (NASDAQ:TSLA), General Motors (NYSE:GM) and Ford (NYSE:F) all hit near-term highs on the developments.

But that spike in bullish sentiment has been short lived. The rallies in all three stocks have stalled. Even GM is coming back to earth after SoftBank (OTCMKTS:SFTBY) dumped $55 billion into the company’s Cruise self-driving unit.

Why? The reality of the currently volatile geopolitical situation is beginning to settle in for car stocks. If there’s one thing Wall Street doesn’t like, it’s uncertainty. And the current tariff situation between the U.S. and all of its major trading partners has auto sector investors on edge — not to mention the growing trade war with China.

In fact, car stocks have recently become a major target for short sellers. And why not? Nearly all of the sector’s key components are under fire: electronics, steel, aluminum and even the vehicles themselves are all the focus of international trading tariffs.

GM saw a 12% spike in short interest in the most recent reporting period, according to data from S3 Partners. Ford stock was also heavily targeted. But few have seen the level of disdain that has flowed toward Tesla shares.

Despite breaking out to new all-time highs, TSLA stock short interest rose to nearly 40 million shares in the most recent period. This wealth of short interest now accounts for more than 31% of Tesla’s total float, or shares available for public trading.

Tesla has been targeted so frequently by short sellers that even CEO Elon Musk has taken to berating the group. In fact, on Tuesday this week Musk claimed that short sellers had only three weeks to exit their positions or watch them “explode.”

Musk is likely referring to Tesla’s update on Model 3 production, which is slated for early July. Analysts believe that Tesla is finally on track with production and should hit its stated goal of 5,000 units per week. Hitting this target would be a major coup for Tesla, and put heavy pressure on short sellers and TSLA bears across the board.

The situation creates a potential short-term bullish opportunity for a car stock that could still retreat under mounting geopolitical uncertainty. Tesla, too, has designs on the Chinese market, and tariffs aren’t helping the situation.

Click to EnlargeNeither is TSLA stock’s overbought condition. Technically, the shares have broken out above former resistance at $360. The recent surge has taken TSLA stock off it’s May lows and into record territory, leaving the shares vulnerable to profit taking ahead of next month’s update.

On the options front, speculative traders are just as bearish as short sellers. Currently, the July put/call open interest ratio rests at 1.22, among  the highest such reading taken this year.

Finally, July options are pricing in a potential move of about 12% heading into expiration. This places the upper bound at $405 and the lower bound at $318.

2 Trades for Tesla Stock

Put Spread: The bearish case is easy to make. The geopolitical situation and potentially negative fallout from next month’s production update are very real concerns. Traders taking this route might want to consider a July $350/$360 bear put spread. This spread was last offered at $4.30, or $430 per pair of contracts. Breakeven lies at $355.70, while a maximum profit of $5.40, or $540 per pair of contracts is possible if Tesla stock closes at or below $350 when July options expire.

Call Spread: We all know that TSLA stock is far from rational. Even with mounting geopolitical concerns, if Model 3 production hits Tesla’s targets, the shares could soar. Traders taking a bullish stance on TSLA stock might want to consider a July $370/$375 bull call spread.

This spread was last offered at $1.96, or $196 per pair of contracts. Breakeven lies at $371.96, while a maximum profit of $3.04, or $304 per pair of contracts is possible if Tesla stock closes at or above $375 when July options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

Legendary Investor Louis Navellier’s #1 Stock to Buy NOW

Louis Navellier — the investor the New York Times called an “icon” — just helped investors make 487% in the booming Chinese stock market … 408% in the medical device sector … 150% in Netflix … all in less than 2 years!

Now, Louis is urging investors to get in on what may be the opportunity of a lifetime. By using a unique investment strategy called “The Master Key,” you could make hundreds of percent returns over the next few years. Click here to learn about the #1 stock recommendation from one of America’s top investors.