Ride Telsa Motors (TSLA)
Telsa Motors Inc. Credit Spread (NasdaqGS: TSLA)
TheOptionPlayer.com sets up a Telsa Motors (TSLA) short-term (7-day) option strategy. Investors could simultaneously:
Sell the End-of-May expiration TSLA $100 call for $1.45 (yesterday's closing price)
Buy the $105 call at $.70 (yesterday's close)
The difference between funds received and paid out is a .75 per share credit which we keep if Telsa Motors closes below $100 on Friday May 31st, but immediately exit the position if it appears the price will end up higher. If the stock price gaps higher tomorrow, then we will probably initiate the call spread at a higher strike prices with the same risk profile as described above. See Guidelines page at www.theoptionplayer.com/ for explanation on how trade is set up.
Why we recommend it:
Telsa Motors Inc. (NasdaqGS:TSLA ) shareholders have enjoyed a spectacular 165% rise in stock value culminating in an all time high a few weeks ago. As evidenced in the hourly chart, Telsa Motors' shares got a huge boost when the company reported its' first profit in 10 years on May 8th and the price started accelerating higher. Adding fuel to Telsa Motor's fire, the next day Consumer Reports announced that Motor Trend's 2013 "Car of the Year" received its' highest rating in an evaluation of the luxury sedan.
What probably really boosted Telsa Motor stock price toward its' recent high was a hardcore short squeeze. Prior to the earnings announcement investors had short interest in more than 45% of Telsa's shares available to the public. Share had the seventh highest short interest among Nasdaq listed stocks as of the April 15th settlement date. You can see in a daily chart how as Telsa stock rose, short sellers had to chase the price higher and higher to close out their positions. Even though the stock became severely overbought immediately after the earnings announcement, the 'shorts' had no choice but to keep bidding up the price to get out of the trade.
After the shorts got squeezed out Telsa stock has been trading in relatively tight trading range. Even though the major stock indexes including the Nasdaq continually made new all time highs over the past week, Telsa shares remained range bound. A recent article suggested that Telsa Motors investors should be extremely cautious as even though the company is currently ahead of its' competitors in the electric car market, the competition is bigger and better funded. And Daimler and Toyota have even enlisted Telsa help through equity stakes to help catch up! Also helping to contain Telsa stock price is the recent announcement that the company is issuing up to 3.9 million new shares at a non-discounted share price of $92.24 and also offering a convertible note to raise about $589 million. Opinion appears to be pretty evenly divided between those who believe that Tesla will continue to grow and those who believe that the company is really just another disaster waiting to happen. We are betting Telsa shares remain constrained in the short term, at the very least there is a high probability the stock will remain below the target price for another week.
52-Week High: $97.12
52-Week Low: $25.52
Average Volume (3 month): 5,608,980