A no-cost options strategy to get long Tesla if this sell-off is just an emotional overreaction
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Another disappointing quarter for Tesla served as just another speed bump for shareholders. Shares plummeted more than 12% Thursday as the Elon Musk’s electric carmaker warned about slowing growth. I want to deploy an options strategy to use this emotional overreaction as an opportunity to add to my Tesla position. The slowdown, of course, was not a news flash as we have seen Lithium futures tumble 80% in the last year. However, when coupled with the second consecutive quarter that Tesla missed earning expectations, nearly $100 billion in market cap rapidly evaporated. TSLA 5Y mountain Tesla, 5 years Tesla did not help themselves in the short-term, on the conference call by removing volume guidance for 2024 since it will be notably lower. Another concerning issue is Elon is asking for a 25% voting control. He currently owns 13% but, Musk holds nearly 300 million unexercised stock options representing another 9% of Tesla’s 3.2 billion shares outstanding. Thus, investors overreacted to this in my opinion as in reality he only wants another 3% in voting power. Lastly, I think this is an idle threat…he would spend his remaining days on earth (maybe not Mars) in court if he pushed his AI building outside of Tesla. This is a lot to digest, but as a long-term investor to Tesla I have become calloused to these emotional quarters and tend to take these pullbacks as opportunities. Also, the technicals are revealing a near oversold condition below. This pullback, and if you share the opinion that investors overreacted to the Q4 earnings report, affords an investor to finance a bullish view. As I believe TSLA will reclaim $200 and potentially much more, I want to use the recent increase in option premium to establish a bullish view for a credit. The trade The option strategy that I will utilize is a credit spread, better known as a risk reversal. This credit spread can be established by selling an at-the-money put and using the premium collected in writing that put option to buy an upside out-of-the-money call. The same expiration will be used for both the put and the call options. Tesla Risk Reversal: Sold the regular expiration March $185 put for $11.00 (collected) Bought the regular expiration March $200 call for $6.50 The result in the sale of the ATM $185 put and the purchase of the upside $200 call results in a credit spread collecting $4.50 or $450 every one lot When sentiment sours so quickly, I find myself smiling. Tesla’s history has been filled with emotional potholes yet, Musk continues to find a way to grow EV sales while incubating an absolute AI giant. I am using this risk reversal approach with the belief that Tesla will recover as interest rates continue to come down and the global EV market recovers from its recent gloom and doom. The AI outlook for Tesla is challenging to measure, but I will continue to bet on the world’s richest man. DISCLOSURES: (Long Tesla, sold risk reversal) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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