Investing with options - Tesla earnings

Investing with options - Tesla earnings

Options 10 minutes to read
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.

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    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...
  • FX Outlook: USD in limbo amid political and policy jitters

    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 ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • Macro Outlook: The US rate cut cycle has begun

    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...
  • FX: Risk-on currencies to surge against havens

    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...
  • Equities: Are we blowing bubbles again

    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...
  • Macro: Sandcastle economics

    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...
  • Bonds: What to do until inflation stabilises

    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 ...
  • Commodities: Energy and grains in focus as metals pause

    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 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.