Call Options Or Put Options On Tesla Motors (TSLA)?

| September 5, 2014 | 0 Comments

TSLA OptionsTesla Motors (TSLA) is once again making headlines. This time, the electric car maker is in the news after coming to an agreement to build its gigafactory battery plant in Nevada.

Currently, TSLA shares are sitting at $277.40. The stock’s up 139% from the 52-week low of $116.10 and is just 5% below the 52-week high of $291.42.

Is this an opportunity to buy call options on TSLA because of the great deal Nevada is giving the company on its new factory? Or should you buy put options on TSLA because of the extremely high price of the shares?

The bulls make a convincing argument…

The announcement of Nevada’s deal with TSLA on its new gigafactory is a huge positive for the company. Nevada is basically throwing in $1.3 billion to get the factory built in the state.

The estimated $5 billion plant will allow Tesla to mass produce its specialized batteries. Not only will it enable the company to offer a more affordable electric car to the public, but the batteries could also be used to back up the electric grid.

We’re talking about two huge new sources of revenue. And now, TSLA is getting a huge benefit from Nevada in order to build the plant there. That’s going to provide significant cost savings to the company in years to come.

But the bears have a compelling case as well…

On the other hand, TSLA has been a cult stock for some time and investors tend to be overly exuberant about the company. Yes, it’s a good company, but there certainly seems to be some overbuying taking place.

Even CEO Elon Musk said investors can “get carried away” with the stock price and the “stock price is kind of high right now.” When the CEO says the stock price is high, you know investors have been getting a little too crazy with the buying.

After all, TSLA’s forward P/E ratio is 86x. That’s pretty darn high. It’s okay for investors to look ahead, but it’s pretty clear buyers are getting too far ahead of themselves in this case.

So is TSLA’s factory deal worth getting bullish on the stock, or is time for the stock price to regress?

If you think the bulls are right, take a look at buying the TSLA October 18th $310 calls for around $2.75.

If you think the bears are right, take a look at buying the TSLA October 18th $245 puts for around $3.00.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.