{"id":73467,"date":"2021-01-25T13:00:00","date_gmt":"2021-01-25T18:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=73467"},"modified":"2022-11-21T09:46:57","modified_gmt":"2022-11-21T14:46:57","slug":"teslas-earnings-report-is-coming-how-to-play-it-with-options","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/options\/teslas-earnings-report-is-coming-how-to-play-it-with-options\/","title":{"rendered":"Tesla\u2019s Earnings Report Is Coming. How to Play It With Options."},"content":{"rendered":"\n

It\u2019s a sign of these unusual times that Tesla<\/a>, one of the world\u2019s most controversial stocks, might offer stability to the weary and the wizened.<\/p>\n\n\n\n

The electric-vehicle maker\u2019s stock (ticker: TSLA) is a relatively known quantity, and arguably even an aggressively defensive investment, at a time when the old ways of advancing through the stock and option markets on the back of major technology companies may give way to stocks that have been battered by the Covid-19 pandemic<\/a>, such as cruise ship operators, airlines, and hotels.<\/p>\n\n\n\n

Tesla largely exists in a world of its own making, complete with critics and short sellers who are regularly humbled and abused by the stock\u2019s incredible advance. One might observe that Tesla is in a secular bull market, but such dry descriptions fail to convey the power of the stock. In the past 52 weeks, Tesla has gained 709% (that is not a typo), and shares are up 21% so far this year.<\/p>\n\n\n\n

The path forward for the stock market may prove to be heavily dependent on whatever fiscal stimulus plan Congress approves. Janet Yellen, the incoming Treasury secretary, essentially said during her congressional testimony that the plan was to \u201cact big.\u201d<\/a> Yet Tesla\u2019s pathway is likely beyond the influence of politicians and bureaucrats.<\/p>\n\n\n\n

As my young son recently observed, Elon Musk<\/a>, Tesla\u2019s founder and CEO, is creating the future. Many people agree, and that may explain why Tesla seems immune from the ordinary laws of markets and financial analysis\u2014at least for now.<\/p>\n\n\n\n

Thanks to the flexible qualities of options<\/a>, it\u2019s possible to calibrate any enthusiasm one might feel toward Tesla to a key event: the release of Tesla\u2019s financial results for the fourth quarter on Jan. 27.<\/p>\n\n\n\n

With Tesla\u2019s stock trading around $850, investors can sell the January $740 put option that expires Jan. 29 for about $22 and buy the January $900 call option that expires Jan. 29 for about $25. This \u201crisk reversal\u201d\u2014that is, selling a put and buying a call with different strike prices and the same expiration date\u2014costs $3. The strategy obligates investors to buy the stock at $740 and enables participation in gains above $900.<\/p>\n\n\n\n

The trade\u2019s upside profitability is predicated on Tesla\u2019s stock moving into a new, higher trading range. During the past 52 weeks, the stock has ranged from $70.10 to $884.49. The difference between Tesla\u2019s high and low price is among the widest, if not wildest, in memory. The gap between the prices is like a graveyard for skeptics and a sea of celebration for true believers.<\/p>\n\n\n\n

The risk is that the stock tumbles, leaving investors on the hook.<\/p>\n\n\n\n

Every earnings report summons a truth-or-consequences moment for a stock. All of the haters and fans will gather around to make concentrated wagers on the post-earnings direction. They will parse management\u2019s language and discount or hype whatever is said and not said.<\/p>\n\n\n\n

All that is certain as far Tesla is concerned is that the stock price tends to exhibit extraordinary swings. The ferocity of the movement is, in many ways, a perfect fit for options trading. As we have noted several times, a little bit of money spent in the options market can become a lot of money if the stock price moves in the anticipated direction. The appeal of that type of potential profit\u2014despite the significant risk of profound loss\u2014is likely why so many people treat Tesla like a messianic lottery ticket.<\/p>\n\n\n\n

We could cite all sorts of analyst commentary to support the bullish Tesla thesis<\/a> into earnings. We could note that some analysts recently increased their target price. We could cite reams of negative commentary<\/a>, too. Frankly, all of it is probably of minimal utility. Musk\u2019s vision of the future, and his command of Tesla\u2019s ecosystem, exists in what is arguably an alternative universe that children understand, even if many adults do not.<\/p>\n\n\n\n

—<\/p>\n\n\n\n

Originally Posted on January 21, 2021 – Tesla\u2019s Earnings Report Is Coming. How to Play It With Options.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s a sign of these unusual times that Tesla, one of the world\u2019s most controversial stocks, might offer stability to the weary and the wizened.<\/p>\n","protected":false},"author":31,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6,19,8,9,22,26,3],"tags":[267,161],"contributors-categories":[13583],"class_list":{"0":"post-73467","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-north-america","7":"category-options","8":"category-region","9":"category-securities","10":"category-stocks","11":"category-text-articles","12":"category-traders-insight","13":"tag-earnings","14":"tag-tesla","15":"contributors-categories-barrons"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\nTesla\u2019s Earnings Report Is Coming. 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