Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
Investing with options - Tesla earnings
Koen Hoorelbeke
Investment and Options Strategist
Summary: Tesla publishes its quarterly earnings after the bell. Amid challenges like reduced production and narrowing margins, the market's expectations seem muted, and investors are keenly watching Tesla's next moves, especially around the Cybertruck and in-house production of the so-called 4680 batteries. As always these publications create opportunities and risks for investors, and options strategies can help navigate the turbulent waters. In this article we take a look at those opportunities and how you could profit or control risk using various options techniques/strategies.
Investing with options - Tesla earnings
Today we zoom into Tesla (TSLA), which has its upcoming quarterly earnings release, after the bell tonight.
Tesla's current landscape and forecasted numbers
As of the last trading session, Tesla stock closed at $254.92. Since its last earnings, Tesla has largely moved sideways, never crossing the opening price of the previous post-earnings date ($279.56 on Thursday, July 20th, 2023).
The market forecasts an EPS of $0.74 and revenue of $24.29B, roughly equivalent to its previous quarter's numbers. Amid challenges like reduced production and narrowing margins, the market's expectations seem muted, and investors are keenly watching Tesla's next moves, especially around the Cybertruck and in-house production of the so-called 4680 batteries.
Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
Bullish outlook: optimism with caution
Strategy: buying a call option
- Trade setup:
- Action: BuyToOpen
- Quantity: 1
- Expiry: 20-Sep-2024*
- Strike: 185
- Premium: $94.48 (per share)
- Premium and risk:
- Premium cost: $94.48 x 100 (per contract) = $9,448
- Max risk: $9,448 (if Tesla is below 185 at expiry)
- Max reward: Unlimited (potential gains amplify as Tesla's stock price rises)
- Breakeven point: $185 (strike) + $94.48 (premium) = $279.48
- Comparison with buying stock: Leverages the stock's potential upward movement while limiting the downside risk to the premium paid. It requires a smaller initial investment compared to buying 100 shares at the current price of $254.92.
* A Note on expiry
I chose options with an expiry a year from now for a reason: to give the stock ample time to reach its target, minimizing the impact of time decay. In the options world, time decay or "theta decay" refers to the rate at which an option loses value as it approaches its expiration date. The further away from the expiration date, the less the value of the option will deteriorate because of theta-decay.
Bullish outlook: buy stock using ITM put option(s)
Strategy: selling an in-the-money put option
- Trade setup:
- Action: SellToOpen
- Quantity: 1
- Expiry: 20-Oct-2023
- Strike: 260
- Premium: $9.80 (per share)
- Premium and risk:
- Premium received: $9.80 x 100 (per contract) = $980
- Max risk: Moderate (obliged to buy Tesla shares if exercised)
- Max reward: $980
- Breakeven point: $260 (strike) - $9.80 (premium) = $250.20
- Comparison with buying stock: This strategy can potentially allow you to acquire Tesla stock at a discounted price compared to the current market price, with the added benefit of premium retention
Bearish outlook: hedging and potential profits
Strategy: buying a put option
- Trade setup:
- Action: BuyToOpen
- Quantity: 1
- Expiry: 20-Sep-2024*
- Strike: 325
- Premium: $87.10 (per share)
- Premium and risk:
- Premium cost: $87.10 x 100 (per contract) = $8,710
- Max risk: $8,710 (if Tesla is above 325 at expiry)
- Max reward: Significant (gains rise as Tesla's stock price falls)
- Breakeven point: $325 (strike) - $87.10 (premium) = $237.90
- Comparison with selling stock: This strategy mitigates the risk of short selling, providing a safer route to profit from a potential decline in Tesla's stock price.
* A note on expiry
I chose options with an expiry a year from now for a reason: to give the stock ample time to reach its target, minimizing the impact of time decay. In the options world, time decay or "theta decay" refers to the rate at which an option loses value as it approaches its expiration date. The further away from the expiration date, the less the value of the option will deteriorate because of theta-decay.
Neutral outlook: extra yield with owned stock
Strategy: writing covered calls
- Trade setup:
- Action: SellToOpen
- Quantity: 1
- Expiry: 27-Oct-2023
- Strike: 275
- Premium: $2.75 (per share)
- Premium and risk:
- Premium received: $2.75 x 100 (per contract) = $275
- Max risk: moderate (missing out on potential upside if Tesla's stock price surges past 275)
- Max reward: $275
- Breakeven point: $254.92 (current stock price) - $2.75 (premium) = $252.17
- Yield:
- Yield over 9 days: 1.08%
- Annualized yield: 43.73%
- Comparison with buying stock: If you already own Tesla shares, this strategy allows you to earn a yield of 1.08% over 9 days, potentially annualizing to 43.73% if replicated successfully throughout the year.
Conclusion
As Tesla's earnings approach, options offer a versatile array of strategies to capitalize on various market outlooks. Whether you're bullish, bearish, or somewhere in between, the key is to approach each trade with a clear understanding of both its potential rewards and inherent risks.
Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)