Don’t short Tesla Inc (TSLA) stock today – here’s what to do instead

By:  & 
on Apr 23, 2024
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  • In just a few hours' time, Tesla Inc. will announce their Q1 2024 financial results.
  • The company has been on the ropes lately, making it hard to predict what will happen.
  • For those wanting to trade on Tesla - here's a strategy from our Invezz analyst.

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Companies occasionally hit watershed moments – when the next few hours, and next big announcement, can determine the trajectory of its stock price for years to come.

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It certainly feels like that’s where Tesla (Nasdaq: TSLA) is today. The company is set to report its Q1 financial results for the 2024 financial year later today – and it’s certainly ‘interesting times’ for the company, as the old Chinese curse goes.

The bad news at Tesla

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At the start of this year, Tesla’s stock price opened at a magnificent $250.08 stock price. Today, it’s down to hovering at around $140.50, with a low of $138.80 yesterday. Tesla’s stock has dropped more than 40% in the year to date – and almost 10% in just the past week alone.

The reasons for this are myriad. Confusion surrounding Tesla’s new ‘robotaxi’, preceded by the company’s disastrous Cybertruck, raised eyebrows. And earlier this month, the company announced that it was conducting a brutal round of layoffs – some 14,000 people, or roughly 10% of their entire company. There certainly seemed to be blood in the water.  

As if that weren’t enough, the company’s vehicle sales volumes have dropped significantly. According to Tesla themselves, this was partially due to the early phase of the production ramp of the updated Model 3 at our Fremont factory and factory shutdowns resulting from shipping diversions caused by the Red Sea conflict and even “an arson attack at Gigafactory Berlin”.1

Source: TradingView

The technical analysis of Tesla

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Invezz analyst Ritesh A. sums up Tesla’s chart vital signs:

Tesla’s stock is in a tough spot before its Q1 earnings. Price cuts and struggles in China have made it drop 43% this year. Recently, it fell below $152 on the charts, a place where it found support last year. The next support is far away at $108. Right now, things don’t look good for the stock based on daily charts. In the last 90 days, 16 out of 17 analysts lowered their earnings estimates for Tesla. Short-term technical indicators are now in extremely oversold territory.”

Not so fast

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But things are never that simple – not when it’s Tesla we’re talking about. As Invezz analyst Ritesh A. points out:

But we should remember that a lot of bad news is already factored into the stock. So, if the earnings aren’t as bad as expected or Mr Musk makes any major announcement during the earnings call, the stock could bounce back strongly.”

And there is certainly a precedent for this. If there’s any CEO that is likely to rock the boat with an out-of-left-field announcement while on stage or on X/Twitter, it’s Elon Musk. With a canny eye on the share price, of course. And, currently, what does Tesla have to lose from a sudden bit of significant news?

A trading strategy for Tesla today

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But that is, of course, highly unpredictable. It’s just as likely that we won’t get any entertainment with our financial results today. So, what’s a trader to do?

Once again, Ritesh A. has an answer:

I’m suggesting a contrarian trade here – but not buying the stock directly, as it’s risky. Instead, traders can buy Tesla’s $150 strike call option expiring on May 17 for around $6.8 or less. This way, even if the earnings are terrible and the stock doesn’t go above $150 by May 17, one will only lose $680 but can make a lot if it does bounce back. What I am suggesting here is a contrarian asymmetrical bet where, if nothing major happens during earnings and the stock manages a bounce back, one can make quite a lot of money while risking comparatively little.”

Want to see exactly how Ritesh A. is doing it? Visit today’s Signals post on Tesla from him: https://invezz.com/p/signals/2024/04/23/long-tesla-may-17-150-call-option-contrarian-call-going-into-earnings/

Sources:

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1 Tesla, 2024.

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