If you strip out the SolarCity Corp (NASDAQ:SCTY) acquisition, Tesla Motors Inc (NASDAQ:TSLA) appears to be headed in the right direction. Tesla’s last quarterly report ended a nasty losing streak in the earnings confessional, with the company besting expectations by more than 200%. What’s more deliveries are up, and Tesla appears to be on track.
![Tesla Motors Inc (TSLA) Stock Riding a Bumpy Road to Profits](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
But the SolarCity deal scuttled any vestige of bullish sentiment TSLA stock may have gained from its strong fundamental performance, leaving the bears in firm control.
Now Tesla has a chance to reverse the situation, at least somewhat, when it releases its fiscal fourth-quarter earnings report at the end of January.
TSLA Stock by the Numbers
By the numbers, Wall Street expects Tesla to report a fourth-quarter loss of 8 cents per share — a vast improvement over the company’s loss of 87 cents per share in the same quarter last year. What’s more, revenue is expected to rise 30.6% to $2.28 billion.
That said, sentiment is waning fast on TSLA stock. Fourth-quarter earnings targets have been revised sharply lower during the past two months, dropping from expectations for a profit of 49 cents per share during this time frame. Concerns range from Tesla hitting its deliveries target to the impact of the SolarCity acquisition, which will remain a major thorn in the company’s side until the deal shows some positive impact.
Taking a closer look at the brokerage community’s expectations, Thomson/First Call report that only four of the 20 analysts following Tesla stock rate the shares a “buy” or better. What’s more, the 12-month consensus price-target of $233.33 represents a modest premium of about 15% to yesterday’s close.
Elsewhere, short sellers continue to pile into bearish TSLA stock positions. As of the most recent reporting period, the number of Tesla shares sold short rose by 13% to 35.7 million. This wealth of shorted stock now accounts for nearly 30% of TSLA’s total float, or shares available for public trading.
Even options traders are jumping on the bearish TSLA stock bandwagon. Currently, the January 2017 put/call open interest ratio comes in at 1.83, with puts nearly doubling calls among near-term options. This ratio dips slightly to 1.19 for the weekly Jan. 27 series — i.e., those options most affected by Tesla’s quarterly report, which is expected to arrive around Jan. 25 — giving some indication that short sellers are taking light precautions against a potential rally.
Overall, January implieds are pricing in a potential post-earnings move of about 7.3% for TSLA stock. This places the upper bound at $217.25, while the lower bound lies at $187.75.
2 Trades for TSLA Stock
Call Spread: The negativity behind the SolarCity deal has to wane at some point, and a positive earnings report next month could go a long way toward mending the sentiment picture for TSLA stock. Furthermore, with so many naysayers on the sidelines, there is a wealth of potential buying fuel available to send the shares higher.
Traders looking to take a contrarian stance on Tesla stock ahead of earnings might want to consider a weekly Jan 27 series $205/$210 bull call spread. At last check, this spread was offered at $2.25, or $225 per pair of contracts. Breakeven lies at $206.94, while a maximum profit of $2.75, or $275 per pair of contracts, is possible if Tesla stock closes at or above $210 when weekly Jan. 27 series options expire.
Put Sell: If selling premium is more your thing, then a weekly Jan. 27 series $170 put sell may be what you are looking for. At last check, this option was bid at $1.88, or $188 per contract.
On the upside, you keep the premium received as long as Tesla stock closes above $170 when weekly Jan. 27 series options expire. On the downside, should TSLA trade below $170 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $170 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.