Talk about a rousing start to the year. Tesla (NASDAQ:TSLA) shares scored a nearly $150 gain on Monday, jamming prices north of $1,200 for the first time since before Thanksgiving. The 13.9% gain was an impressive beginning to what many hope will be a year in TSLA stock that echoes 2021.
But, of course, if the electric vehicle king simply did half as good as 2021, it’d be worth celebrating.
The catalyst for Monday’s moonshot wasn’t just New Year optimism. Sentiment like that might be good for a few percentage points, but nothing like the double-digit delight showered on shareholders.
In this case, it was the news that Tesla smashed expectations on vehicle delivery. For the fourth quarter, the company delivered 308,600 electric vehicles, far surpassing the Street’s forecasts of 267,000. The banner quarter helped Tesla’s full-year deliveries climb to 936,172. Consensus estimates called for 897,000 being delivered in 2021.
Feel free to quibble over whether the better-than-expected numbers justified such a rousing response. Tesla traders have a history of buying double-fisted after anything remotely considered good news. This week’s squeeze higher is simply the latest in a long line of price jumps.
Recall that one of the bearish arguments for Tesla over the years has been its inability to manufacture vehicles in mass quantities. Time and again, the hype and perception of a rosy future were stunted by the real-world challenges of getting cars to consumers.
News like this shows Tesla’s strides at improving its production capabilities. Company CEO Elon Musk would contend this is just the beginning. He’s stated his desire to ramp up vehicle sales to 20 million vehicles a year over the next 9 years.
A Deep Look at the TSLA Stock Charts
Let’s look at both the weekly and daily time frames to see how Monday’s rally impacted the trend. Despite severe volatility over the past quarter, the weekly trend remains bullish. Late last year, we bounced off the 20-week moving average to keep the long-term trend in pristine condition. Moreover, prices just completed a bull flag pattern, signaling a new upswing is upon us.
Based on previous ascents, the $1,300 to $1,400 price levels are both realistic targets over the coming months. The first and most realistic area to be pierced is the record high of $1,243.
One thing to keep in mind is the Average True Range (ATR) on the weekly chart is $131. That translates into 11% moves per week on average. What’s impressive is that Tesla has grown into the top five largest companies in the S&P 500, yet it has retained the insane volatility of its youth. Trading the stock continues to require intestinal fortitude.
I love the price action that preceded Monday. TSLA stock surged into Christmas and formed a shallow bull flag before year-end. Yesterday’s power-gap higher completed the consolidation pattern, carrying prices far above the 50-day moving average. We’re now within striking distance of the prior peak. Volume swelled to nearly 35 million shares, marking the highest participation since November 23, 2021.
Two Smart Spread Trades
In mapping out how to play TSLA stock here we should keep two things in mind. First, the sky-high share price and implied volatility make buying options outright cost-prohibitive. Thus, spread trades are a must. Second, we can build a higher probability strategy with a lower payout or a lower probability strategy with a higher payout.
Here are two such examples.
Bull Call Spread: Buy the Feb $1250/$1275 bull call vertical for $7.90.
With this play, you’re risking $7.90 for the potential to make $17.10 if prices rise above $1,275 by expiration. Your odds of success are 39%.
Bull Put Spread: Sell the Feb $900/$890 bull put vertical for $1.50.
Here you’re risking $8.50 to make $1.50 if TSLA stock sits higher than $900 at expiration. Your odds of success are 88%.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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