Still showing positive momentum on most time frames, after a solid 51.23% rally in < 3 months. This is the type of behavior only such a momentum stock can produce.
Looking overbought on most time frames. Has been trying to work out this condition, as is visible on the (below): reversal at the historical high on Feb 14 followed by 3 lower closes until Friday.
The near the historical high on the is doubled with a on the weekly chart. Add the failed breakout above tunnel resistance and above historical high... And this spell uncertainty with potential reversal.
WHERE TO NOW?
The market is awaiting a fundamental sign to continue to push higher. This acid test will be for tomorrow, when the company announces and guidance. At this juncture, it might take a big surprise to take us higher, while the slightest disappointment could take us significantly lower. I would think that the odds are for a higher risk than reward in this trade, at this point in time.
WHAT TO DO WITH THE STOCK?
Options remain the best tool to play this event. Current owners: Could sell calls above the breakout level and use the proceeds to buy puts, hence protecting from downside risk while keeping the position live. Aggressive traders: Could simultaneously buy and sell ATM calls/puts, hence potentially benefitting from a significant move in either direction. This is a costly strategy and only justified if one expects the stock to move >7% either way. Others: Could buy options outright, depending on directional conviction, or await the to make a move (the safest action!)
In summary, and with indicative market prices:
Buy 100 TSLA = $277.48
Sell 1 16Jun17 $300 call = $14.50
Buy 1 24Feb17 $280 put = $9.50
Economics and risk/reward
TOTAL CREDIT $5/Share
If the stocks tanks --> Exercise put and make the spread b/w prevailing market price and $280/Share
If the stock flies --> Get assigned on the call and make $20/Share + Credit from strategy
If the stock does nothing: To be determined by the tone post earnings...
PS This is an interesting trade destined to fast traders with eyes on the market.
Time to make this a lucrative, risk-free trade: 1. Exercise the option to sell the shares at $280, 2. Remain short call until maturity, 3. Purchase another, same maturity $295 call for an indicative $7.91 (closing price). The risk/reward for this structure becomes exceptional: A guaranteed $9.11/Share WITHOUT ANY RISK since we have unwound the underlying stock position.
Scenario analysis at maturity:
1. TSLA < $295: Do not exercise, make the options spread of $9.11/Share;
2. $295 < TSLA < $300: Sell the $295 call at a profit and let the other expire, make $9.11/Share + capital gains on the $295 put sale;
3. TSLA > $300: If assigned, exercise the $295 call and make the spread on the options + the difference in strike prices = $14.11/Share. If not assigned, go back to scenario 2.