How to Profit From Red-Hot Tesla Stock Ahead of Earnings

Tesla (NASDAQ:TSLA) stock has always been controversial. It is an emotional equity — in just the last two years it has completely transformed its financial situation. Remember, not too long ago, Wall Street was ready to leave TSLA stock for dead. Now it is healthier than ever and breaking records.

Tesla Super Charging station on Stockdale Hwy and the 5 fwy. Tesla Supercharger stations allow Tesla cars to be fast-charged at the network within an hour.
Source: Sheila Fitzgerald / Shutterstock.com

So why exactly is TSLA stock so contentious? Well, no one can agree on the thesis behind the equity. Some bulls argue it is not a car company, but rather a technology company. Others say it is an alternative energy play. This lack of agreement, and the murkiness in its business goals, makes it difficult to short.

There are too many different angles for critics to defend against. If they poke holes in its manufacturing abilities, they struggle to criticize its other potential. For example, even some of the biggest bears recognize it faces massive success in battery tech and autonomous vehicles.

Even while causing shenanigans, CEO Elon Musk remedied its cash flow situation. Tesla can now sustain its global growth. Beyond that, bears now must respond to all of its different income streams. Just as with its battery prowess, Tesla is also leading the way in solar. Just this weekend I entered a waiting list for a home battery pack for my Sunrun (NASDAQ:RUN) solar panels. I came across it through Costco (NASDAQ:COST), so I bet that will become more ubiquitous.

Do You Hate TSLA Stock? Wake Up.

Largely, the negative headlines have been about the auto manufacturing side of Tesla. If I am right about its multiple income streams, what will come next is a series of incremental upside catalysts. Bears, you better run for cover.

I want to be clear that I am not a super fan — I do not worship at the altar of Elon Musk. However, I recently changed my mind about TSLA stock because of its tangible results. In fact, even when I disliked the company, I rarely bet against it. Last May I even suggested a bullish trade. The plan then was to buy the dip into $144 or chase the rip above $175 per share. That strategy delivered a 160% rally.

This is a momentum stock so it is difficult to trade. Companies like Tesla rarely provide easy entry points because they are always running fast up or down. On the way down, TSLA stock looks like it is falling into oblivion. Recently I caught the proverbial falling knife by selling bull put spreads on bad days. They expired in my favor for maximum gains. This is not to gloat, but to make the point that investors should not let emotions get in the way of a good trade.

Stop Fighting the Power of Tesla

At this point in the TSLA stock story, it is futile to argue about why shares are acting one way or another. It is better to just trade the price action at hand. Investors should know that the current range has been consistent and the buyers are reliable — Tesla has an incredible following of convicted fans.

From here, the stock will probably trade inside the macroeconomic prism. This means that if other stocks are rallying, so will Tesla. For confirmation, keep a close eye on its earnings report, which is due out Oct. 21. Quarterly results will give us more insight into the future.

What else is in store? Just imagine the upside potential if fans start chasing headlines about battery packs or solar roof panels. As a car company, Tesla may not be a miracle. It will face competition from other electric vehicle companies down the line. But that does not matter to me. TSLA stock will benefit as long as Musk and his team can continue growing their delivery numbers.

The bottom line for any company is to deliver sales growth that is in line with expectations. The current Tesla price-sales ratio is 16.7 times, which is high but not outrageous.

Bottom Line: Buy Tesla on Any Dip

Tesla (TSLA) Stock Chart Showing Support versus Upside Potential
Source: Charts by TradingView

I am not giving the all-clear signal to buy TSLA stock today. Instead, I am proposing that Tesla is not doomed to fail. It has support on the chart into $400, and even stronger support into $350. If for whatever reason the stock falls to those levels, it would present a great opportunity to buy on the dip.

Active traders, on the flip side, can chase it above $467 per share. There could be $60 of upside waiting.

Those who know how to use options can sell December $275 puts and collect $4 per contract. This trade would win even if Tesla stock falls 30% from current levels. The breakeven on the shares would be at $271. When we have external risks from politics, it pays to use options to allow for a margin of error.

In addition to selling puts to buy shares, current investors can sell covered calls. If I own Tesla shares I can sell covered calls to put my asset to work. Investors should only do this if they truly do not mind selling the shares at a higher price.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2020/10/how-to-profit-tesla-tsla-stock-ahead-of-earnings/.

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