Buying A Call Option On Tesla Motors (TSLA)
Buying A Call Option On Tesla Motors (TSLA)
Earnings season may be wrapping up, but that doesn’t mean there aren’t opportunities to be found. Some big companies released earnings this week, and as is typical, there was a fair amount of overreaction (or under-reaction in some cases).
Keep in mind, much of what a stock does after its earnings are announced is based on what expectations were heading into the announcement. There are plenty of times when it doesn’t matter what the company actually says in its quarterly report. It only matters how the numbers came in compared to what was expected.
And as I’ve said before, stock moves based on expectations can be irrational and short-lived. That’s where options traders can make their splash.
Take Tesla Motors (TSLA) for example.
TSLA is the world’s most important electric car company. It’s led by Elon Musk, one of the most influential businessmen of our time. TSLA’s cars are considered some of the best automobiles on the market.
However, in the most recent earnings, investors were disappointed when TSLA missed on both revenues and profits. In particular, the company posted a quarterly loss when a relatively large gain was expected. Plus, the company burned through a massive amount of cash.
Currently, the stock’s trading at $199.60, down 6% on the day. That’s 13% from the 52-week low of $177.22, and 31% from the 52-week high of $291.42.
So is now the time to buy a call option on TSLA?
As a reminder, a call option makes money when the underlying stock goes up. But TSLA disappointed investors. So is it worth it?
For a more in-depth look at TSLA, you can check here.
Here’s the deal…
I believe investors are focusing too much on the present and not enough on the future.
After all, TSLA is still a relatively new company, especially in the automobile space. Most car companies have been around for generations. Tesla basically has one product right now, with the next model not due out for another six months or so.
Moreover, the company hasn’t lowered its projections and has reaffirmed its guidance for 2015. Plus, Elon Musk has said there will be some surprises in store for the coming year (and Musk rarely fails to surprise).
What’s more, the company has stated that some of the issues with fourth quarter numbers were related to the timing of deliveries. Because of bad weather and consumer vacations, several car sales were pushed into January. That doesn’t seem like the sort of thing a company would say unless it really did make a difference.
Regarding cash burn, Musk doesn’t believe the company needs to raise additional funds. Organic cash flow should be enough, according to the CEO. Also, the large amount of cash spent this past quarter was at least in part due to the huge battery factory being built in Nevada. That’s going to be a big deal for the company’s future.
Let’s take a look at a chart of TSLA:
As you can see from the chart, the stock sold off hard after earnings. The share price is now well below the 50-day moving average.
Now could be a great time to invest in a TSLA call option.
TSLA still produces some of the best cars on the market. And, consumer demand is only going to continue rising. Plus, Musk has a strong track record of success.
As such, buying some longer-term calls in TSLA makes sense. The June 250 calls are priced at around $5 right now. Yes, it’s expensive for an out-of-the-money call. However, higher priced stocks tend to have higher priced options. And, $250 is still well below the 52-week high.
Yours in Profit,
Gordon Lewis
Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.
Category: Call Or Put Options?
