Trade of the Day: Tesla Motors (TSLA)

One of the hottest stocks in the first half of this year has been Tesla Motors (TSLA), which has more than tripled over the last six months. After hitting a high of $114.90 on May 29, it fell quickly back to $90 before stabilizing and then regaining momentum back to current prices around $110. Is this stock about to top out, or is there another move higher?

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The stock may well take a breather Friday after the strong run this week and as quarterly window-dressing winds down. I would use a breather or a pullback as a chance to get in for another run back toward $115.

Tesla, as you may know designs, manufactures and sells electric cars and electric vehicle powertrain components. And while the vehicles aren’t cheap (some run up close to $100,000), the company has customers willing to pay the price. That’s due in large measure to CEO Elon Musk, whom I’m very impressed with. To me, he resembles Steve Jobs and is on the cutting edge of technology, innovation and style.

After last week’s sell-off, I expected the stock to bounce along with the broader market, but there’s another catalyst to drive it higher in the short term: the company’s new battery swap technology. Car owners can pull into a Tesla charging station and swap out their old battery for a new one in a minute and a half, and they don’t even have to get out of the car. That’s quicker than filling a regular gas tank, and much faster than the 30 minutes it takes to recharge the battery in Tesla’s cars.

What’s also interesting is that TSLA has a fairly high short interest, making up nearly 17% of the float. Just a little bit of additional momentum could spark more short-covering that moves the stock even higher.

Recommendation: TSLA is a good candidate for call options because you can leverage a smaller move in the stock into bigger gains. I like to lower my risk somewhat with in-the-money calls.

In TSLA’s case, I like the TSLA July $105 calls, which closed Thursday at $8.19. If TSLA were to hit $115, the calls would be up about 60%. The other reason I like calls right now is that TSLA, as one of the market’s high-fliers, would be vulnerable to profit-taking in a broader market correction, and options allow you to invest in the stock without putting as much money into the trade. For that same reason, I would be inclined to take profits quickly.

Hilary Kramer is one of Wall Street’s most successful equity analysts and investment managers, with a reputation as a leading expert on today’s market movements, stock trends and economic outlook.

She is also the editor of three financial advisory services designed to help individual investors profit from her stock picking talents — Hilary Kramer’s GameChangers, Breakout Stocks Under $10, Absolute Capital Return Portfolio and High Octane Trader.

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