After weeks of going nowhere, Tesla is starting to move before its quarterly results.
The electric-car maker rallied more than 70 percent in August, followed by a sideway triangle pattern in September. Yesterday, it pushed near the top of its range. Are investors getting excited about earnings after the closing bell next Wednesday, October 21?
A drum roll of headlines has been building.
First, TSLA’s vehicle deliveries for the third quarter totaled 139,300. It was about 3,000 more than Wall Street forecast.
Next, Wedbush’s prominent analyst Dan Ives responded by predicting CEO Elon Musk is now on track to beat earnings estimates. He identified China as “a major source of strength.”
Ives also suggested TSLA may be able to reach 500,000 vehicles in 2020. Musk made a similar comment a few days later in an leaked employee email. That was the company’s target before coronavirus caused mass shutdowns. Reaching it would be a huge victory over the pandemic.
Speaking of China, Teslarati reported on October 8 that a “massive number of vehicles” have been shipped from its gigafactory in Shanghai. It cited drone footage on YouTube.
Two days later, New Street raised its price target by 45 percent to $578. The analyst sees a decade of “hypergrowth” and little competition.
Another boost came yesterday when J.P. Morgan aggressively upgraded Chinese rival Nio (NIO). The analyst sees electric-vehicle penetration quadrupling in the Asian country over the next five years.
The Wall Street consensus is looking for profit of $0.56 a share on revenue of $8.26 billion next week.
The numbers come at an interesting time because S&P Dow Jones Indices kept TSLA from the S&P 500 index last month. The stunning decision came despite the company achieving required profitability. Its market capitalization is already so large that it would rank No. 8 if it were included in the index.
TSLA also remains the most popular symbol at TradeStation in October. It’s been the most actively traded stock on our platform over the last four months.
TSLA also trades more than 800,000 options contracts per session, making it the fourth most popular underlier across the entire market in the last week. Traders can use that kind of liquidity to take positions with calls and puts. The following examples are for educational purposes only.
For example, an investor looking for the stock to rally into earnings could purchase the 23-October 500 calls. They could appreciate from the stock rallying into the results, but lose value to time decay after the report.
Traders looking to hold through the news may consider vertical spreads, which manage time decay more effectively. For example, they could:
- Buy the 480 23-October calls.
- Sell the 500 23-October calls.
- The strategy would cost a net $6.50.
- It could potentially earn about 208 percent from TSLA rising less than 10 percent to $500.
Alternately, traders could use vertical put spreads to hedge against a potential decline.
In conclusion, TSLA has been one of the most dramatic stocks in 2020. Prices calmed as it digested gains in consolidated in September, but now the excitement may return with less than a week until earnings.