As my critics lick their wounds after Thursday's blowout earnings release, I've gotten even more excited about the stock, and I don't care that it was up 4.5% Friday. In fact, I'm more bullish than ever on TSLA after hearing details from CEO Elon Musk.
Today, I'm going to show you how to play this game-changing stock for much less money by using call options.
An Industry Disruptor
Not only do I think Tesla is changing the way we drive, but I firmly believe it will go down in the history books as a pillar of American industry, an amalgam of Apple, Exxon Mobil (NYSE: XOM) and Ford (NYSE:F) all rolled into one.
Back in the late 19th century, the titans of American commerce used monopolies to gain extreme power. While Tesla might not monopolize electric cars, it is pretty darn close, controlling their ecosystem, competition, infrastructure, and to an extent, their destiny.
Initial naysayers (me included) said that America and the world are built for fossil fuels, but Tesla is remaking our transportation system.
On the earnings call Thursday night, Tesla confirmed it had broken ground in Reno, Nevada, to potentially begin construction on one of its gigafactory production sites, but noted more sites are still being targeted.
The gigabit factories will produce highly efficient, cost-effective electrical storage devices. Aside from bigger profits for Tesla, these energy systems will likely change how the U.S. electrical grid functions and have a direct impact on how Americans use and store alternative energies like solar, wind and more. And they would be made in America.
As Morgan Stanley's Adam Jonas wrote in a recent note to clients, Tesla is "arguably the most important car company in the world." While many are calling his comment absurd and unsupported, Tesla has done and is planning to do things that no car company has done since Ford.
The energy storage solar business could generate $2 billion a year in revenue for the company, according to Morgan Stanley, which is just slightly less than Tesla made in all of 2013.
Giant auto-parts manufacturing companies are already re-tooling their factories to support Tesla's cars, and remember that it only offers one very pricey model at the moment. Imagine when more affordable models hit the market.
Tesla's highbrow cache and almost universal admiration by consumers will be one of the main drivers of its success. Remember the days when only the wealthiest drove a BMW or Mercedes? In the past 20 years, those high-end automakers have designed cars for the masses while keeping their brands intact. Tesla has said it hopes to launch the Model 3 by 2017, which is estimated to cost $35,000.
Even though TSLA is trading at $233 a share and seems like it's priced to perfection, it truly isn't. In fact, I would say there is great value in the shares.
My thesis is that more and more analysts and investors will be jumping on the Tesla bandwagon when they realize the true earnings potential. I see shares easily getting back to $265 in the next three to five months.
While TSLA's options aren't cheap either, it's easier on the wallet than plunking down $23,300 for 100 shares.
TSLA Call Option Trade
Today, I am interested in buying TSLA Jan 200 Calls for a limit price of $44.50.
Risk graph courtesy of tradeMONSTER.
This call option has a delta of 70, which means it will move roughly $0.70 for every dollar that TSLA moves, but it costs one-fifth the price of the stock.
The trade breaks even at $244.50 ($200 strike price plus $44.50 options premium), which is 5% above current prices.
The $265 price target would equate to a least $65 in options premium, or a 46% return. For our stop-loss, I am willing to let this trade lose about 50% of its premium, since that is roughly our upside.
-- Buy TSLA Jan 200 Calls at $44.50 or less
-- Set stop-loss at $22
-- Set price target at $65 for a potential 46% gain in 3-5 months
-- Set stop-loss at $22
-- Set price target at $65 for a potential 46% gain in 3-5 months
By Jared Levy
Source:http://www.profitabletrading.com/options/call-put-buys/tesla-motors-tsla-stock-call-option-strategy
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