Products
Platforms
Accounts
Inspiration
About
Support
For institutions
Log in Open account
UAE
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider.
Show more
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX, or any of our other products work and whether you can afford to take the high risk of losing your money.
Show less
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.
 

Related articles:

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 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
    Read full article
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

    Read full article
  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

    Read full article
  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

    Read full article
  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

    Read full article
  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

    Read full article
  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

    Read full article
  • 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

    Read full article
  • 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...
    Read full article
  • 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

    Read full article

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE
Products & pricing
Platforms
Accounts & service
General
Other
Legal

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.