The Tesla Assembly plant building in Tilburg, Netherlands.
Dean Mouhtaropoulos/Getty Images
Tesla’s stock has risen 643% in the past year despite legions of skeptics, giving the electric-car company a market cap of about $640 billion. That makes co-founder and CEO Elon Musk the richest man in the world, or one of the richest, depending on the fluctuations in the share price on any given day.
Musk is a little less wealthy these days, however, than he was at the start of the year. Tesla stock (ticker: TSLA) is down 4.3% in 2021, and has fallen about 23% since first-quarter earnings were released on Jan. 27.
While some of the selling is likely due to profit-taking after an extraordinary run, Tesla’s announcements typically spark volatility in its shares. And another one is coming soon: The company is expected to report first-quarter vehicle sales in early April. For options traders, that’s a potential opportunity to ring up profits.
Tesla is expected to report that it delivered 162,000 cars in the first quarter, according to FactSet. That’s down from about 181,000 vehicles in the fourth quarter of 2020. Sales in the latest quarter are thought to have been impacted by the global semiconductor-chip shortage. Tesla’s cars are basically computers on wheels.
The stock could tumble on news of lower sales but rise if results meet or beat forecasts. If the shares advance, the value of Tesla’s typically pricey put options likely would decrease. (Call options give holders the right to buy an index or individual stock within a set period, while puts give holders the right to sell them.)
Aggressive traders might consider selling Tesla’s May $500 put or May $550 put. The puts were trading around $10.20 and $18, respectively, when the stock was at $677.97.
Tesla’s stock has ranged from $89.28 to $900.40 in the past 52 weeks.
If the stock price is above the strike price at expiration, investors can keep the put premium. But should the stock price fall below the strike price at expiration, the put seller would have to buy the stock at the put strike price, or adjust the position in the options market to avoid buying the stock.
When selling puts, it may make sense to use a cash-secured strategy, which entails depositing in a brokerage account the money needed to buy the stock at the put strike price. The strategy is similar to entering a limit order to buy a stock at a set price. But many investors prefer to use leverage and will finance put sales via their margin account, which requires much less money down.
Either way, anyone engaging in this trade must be vigilant, as triumph or trouble could come swiftly. The good news, if trouble ensues and the stock sinks, is that buying a powerhouse stock after a big decline is usually a good thing.
Moderna (MRNA), one of the companies whose successful vaccines have helped to inoculate people against the Covid-19 virus, will host a Virtual Vaccines Day on April 14. The company is expected to brief investors on vaccines and key considerations for the future. Goldman Sachs has flagged the event as a potential opportunity for investors who are bullish on Moderna’s prospects and shares.
Those fitting that description can consider buying Moderna’s May $135 call, which cost about $13 when the stock was trading at $133.75. Moderna’s stock rallied 11% Wednesday, to $130.95. Shares have traded as high as $189.26 in the past year. The stock is up 28% this year, and up 303% over the past 52 weeks.
Steven M. Sears is the president and chief operating officer of Options Solutions, a specialized asset-management firm. Neither he nor the firm has a position in the options or underlying securities mentioned in this column.
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