Tesla cars on display in Las Vegas earlier this month.
Ethan Miller/Getty Images
Tesla’s stock may still have some juice left in it after all.
Tesla stock (ticker: TSLA) has understandably struggled in 2021 after a meteoric 410% rise over the past year, but the shares jumped higher on Monday after an analyst asserted that Tesla could be the next Apple (AAPL).
When it comes to attracting attention from investors, it’s hard to beat an assertion that likens one of the market’s hottest, most controversial stocks to one of the world’s most admired, innovative companies.
But rather than dismissing the Cannacord note as the Wall Street-equivalent of clickbait, investors should instead focus on how the stock behaved in reaction to the assertion: Tesla rose 3.7%, to $701.98, on heavy volume, on Monday, while the broad market was moribund, with the S&P 500 index falling slightly.
That reinforces the notion that Tesla’s legions of passionate investors are just looking for a reason to love the stock even more. The Cannacord analyst, Jonathan Dorsheimer, backed up his bold assertion by noting that Tesla is involved in more than just cars, just like Apple does more than just make iPhones.
The Apple-like spin is admittedly aggressive, and maybe even a bit aspirational, but such is the nature of Tesla. Investors either believe in the vision of Tesla’s chief executive, Elon Musk, or they don’t. So far, it has paid to be a believer, and the stock’s Monday rally suggests that Tesla’s investors are looking for new reasons to be evangelical.
The reason to believe could come as early as April 26, when Tesla is scheduled to reports first-quarter earnings after the market closes. Should the stock surge, investors can shout hallelujah. Should the stock stumble, look for a baptism by fire.
With Tesla’s stock around $725, aggressive investors could consider buying Tesla’s April $735 call options that expire April 30 for $37.50.
If the stock is at $800, the call is worth $65. Should the stock be below the strike price at expiration, the trade fails, though the call could be adjusted within the options market to keep it alive.
During the past 52 weeks, Tesla stock has ranged from $134.76 to $900.40. So far this year, the stock is up about 3%, compared with a gain of 10% for the S&P 500.
The last time we mentioned Tesla was in early April, just before the company reported first-quarter vehicle deliveries.
We then suggested that investors sell Tesla’s May $500 or May $550 put options to trade delivery data when the stock was around $661.75. So far, the trade has worked well. The May $500 puts are trading at $3.50, down from $11, and the May $550 puts are trading at $6.85, down from $20.
Securing profits is largely a matter of discipline. Some investors will secure profits with gains of 70% on the puts, others will go for 90%. Still others will hold the puts until expiration because they are content acquiring the stock at the put strike price.
Regardless of which side of the options market appeals to you, Tesla’s earnings should be a key event, and the sell-side analysts are likely to have more salacious comments to make.
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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