3 Ways to Play Tesla Motors, Inc. (TSLA) on Earnings

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Tesla Motors, Inc. (TSLA) is a manufacturer of electric vehicles and electric vehicle components. The company’s stock is currently trading around $230.70 in a 52 week range of $117.22-$291.42. The stock has been relatively flat this year with shares rallying only 3.7% year to date. TSLA is set to report their most recent quarterly earnings today after the bell.

TSLA has rallied on earnings day 7 of the past 12 quarters with an average earnings day move of 8.71%. The stock has only managed to rally from earnings day to options expiration 6 of the past 12 quarters with an average move of 10.12%. Market makers are currently implying a move of $17.40 by this week’s expiration, pricing in a 7.5% move by this Friday’s close. This implied move can be used to calculate an upside target of $248.10 by Friday.

With TSLA shares trading above the cloud and a slight bullish bias in its historical performance record let’s look at how a trader can get long TSLA without risking the capital required to trade the stock. Let’s look at 3 different options strategies.

Trade: Buying the TSLA May 8th Weekly 240-250 Call Spreads for $2.80
Risk: $280 per 1 lot
Reward: $720 per 1 lot
Breakeven: $242.80

This trade offers a reward to risk ratio of better than 2.5-1 and sees maximum profits above $250 on expiration.

Trade: Buying the TSLA May 8th Weekly 240-250-260 Call Fly for $1.45
Risk: $145 per 1 lot
Reward: $855 per 1 lot
Breakeven: $241.45 and $258.55

This trade offers a better reward to risk ratio than the long call spread but will not profit if the stock rallies too much and trades above the upside breakeven point.

Trade: Selling the TSLA May 8th Weekly 230-220 Put Spreads for $4.00
Risk: $600 per 1 lot
Reward: $400 per 1 lot
Breakeven: $226.00

This trade has the worst reward to risk ration but will profit if TSLA rallies, stays flat, or even sells off some.

These 3 options trades all offer better reward to risk setups that trading the underlying stock and allow a trader to take a view on TSLA ahead of earnings in a low risk high reward setup.

Andrew Keene

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