It is practically 3 months since I wrote about trading the options of Tesla Motors Inc. (NASDAQ:TSLA) in a post titled “Tesla Motors Is Taking A Serious Drubbing: How Should You Trade TSLA Options”. In that piece, I was obstinately bullish on Tesla and I opined that “I refuse to pitch my tent with the bears on Tesla. Tesla is headed back to $200 but it might be smart to stay on long calls. I recommend the TSLA Jan 2015 200.000 call (TSLA150117C00200000).”
3 Months Later
When I wrote that post, shares of Tesla were trading around $182 per share and the Jan 2015 200 call I recommended was trading around an asking price of $35.63 per contract. As at 2:40PM EDT today, shares of Tesla have traded up 30.68% from the May trading price to somewhere around $237.85 per share. The options contract I recommended is up 36.57% to trade with an asking price of $48.66. Without overemphasizing matters, it is obvious that Tesla did not wait until January 2015 to get back to winning ways and to reward bullish plays.
Why Shares of Tesla Surged Recently
Tesla reported second quarter earnings on July 31 to provide increased bullish activities on TSLA call options. Tesla came in ahead of second quarter delivery guidance as it reported the delivery of 7,759 vehicles. The company also surpassed Wall Street consensus earnings estimate of $0.04 per share to post earnings of $0.11 per share. Revenues were up 55% year-over-year to $858M while gross margins increased by 26.8%.
Tesla confirmed its goal of delivering 35,000 vehicles this year despite the fact that it had a two-week shutdown in its Fremont, California manufacturing facility. Another important takeaway that caused shares of Tesla to rise was the announcement that it has broken ground for its $5B battery Gigafactory.
Continued Increase in Production for Upside Potential
Tesla has consistently burned bears by beating expectations and soaring higher against all odds. I am optimistic about increased upside potential on shares of Tesla going forward for the following reason.
Prior to the hiatus on production at Tesla’s Fremont, Calif. Plant, Tesla was producing 800 vehicles per week. Tesla plans to deliver 7,800 vehicles in the third quarter and its goal is to deliver 35,000 vehicles by end of this year. By the end of the third quarter Tesla would have delivered 22,000 vehicles, based on the deliveries in the first, second and potential deliveries in the third quarter.
Tesla would need to deliver 13, 000 vehicles in the third quarter to meet it delivery goal for the year and Elon Musk is confident that the company will meet that target. I posit that Tesla would need to deliver more than 1,000 vehicles per week to meet that target.
I strongly believe that Tesla will be able to keep up the production level of more than 1,000 vehicles per week going forward. Tesla is aiming at delivering 100,000 cars per year by the end of 2015 and the increases being recorded in production capacity suggests that Tesla will continue to ramp up production to meet increasing demand.
How to Trade TSLA Options
I am reiterating my position on the TSLA Jan 2015 200.000 call (TSLA150117C00200000) at an asking price of $48.00. The contract has a delta of 70, which suggest a move of about $0.70 for every $1 move in shares of Tesla. I have a $60 price target on the contract in the next 3-5 months but I will set stop loss at $24.
— Daily Option Alerts