Trade Update $TSLA – Taking off Call Calendar for Gain

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Trade Update Mar 12th, 2013 at 11:40 am:  When I first initiated the TSLA call calendar ahead of earnings, my thought was that no matter what the earnings results were, the stock likely had one more visit to the $40 level simply based on the technicals and the high short interest in the name.  Well, the stock was up 6 straight days until today, basically a straight line from 34.65 to 39.

To be frank though, I expected my call calendar to be worth more in such a scenario.  As CC pointed out in his post yesterday, implied vol has fallen to multiyear lows in TSLA, which surprised me since I expected more anticipatory call buying as the stock approached the breakout level around 40.  Now that the stock is around 39, I think the risk/reward of a long delta position in TSLA here is not appealing, especially since the market is extended to the upside as well.

Action: Sold to Close TSLA ($38.90) Mar/Jun 40 Call Calendar at $2.00 for a $0.40 gain

 


Original Post Feb 12th:  New Trade $TSLA – Alternating Currents

 

The rhetoric in Tesla has gotten heated this week, as Elon Musk attacked New York Times reporting as mistaken and flawed on the Model S.  The Times traded barbs with Musk this week, defending its side of the story.

Meanwhile, TSLA got to the $40 level this month for the second time in its brief history as a public company (I’m counting its $39.95 high from March 2012 as close enough).  So the stock was close to a convincing breakout, but was instead rejected in the past week.  Here’s the lifetime weekly chart:

Lifetime weekly chart of TSLA, Courtesy of Bloomberg

Lifetime weekly chart of TSLA, Courtesy of Bloomberg

 

Going forward, 35 should act as important support, and 40 is obvious resistance.  TSLA’s next earnings report could very well be the tiebreaker.

This is a classic speculative story, where sentiment and psychology are likely to drive the stock just as much as fundamentals.  It’s a 40% short interest name, so clearly there are a lot of traders who don’t have faith in the company’s story.  Regardless, the stock is near all-time highs, so there are buyers out there believing the pitch.

I don’t have a strong directional view from here, but Kristen found an interesting trade structure that makes a lot of sense to me given the technical backdrop and the push/pull of its high short interest and recent momentum.  I like this trade and put it on even though I’m not an expert on the company, because it’s a trade with many winning scenarios and good odds:

TRADE: Bought the TSLA ($37.50) Mar / Jun 40 Call Calendar for $1.60

-Sold 1 Mar 40 call at $1.60

-Bought 1 Jun 40 call for $3.20

Trade Rationale:

Based on where I expect June vol to go in the next month, I think this trade will be profitable as long as TSLA is trading between 34 and 46 by March expiration.  That’s a very wide range of potential profitability, with earnings as the only main event that could move the stock outside of that wide range.  I expect the stock’s 40% short interest to act as support on the way down, in addition to the important 35 support area that could attract natural buyers.  In short, I like the risk/reward of playing for TSLA to settle in that wide range by next month’s expiry.