Stock Options Can Help You Profit From Tesla's Earnings

Whenever Tesla reports earnings, the stock tends to move big time, so investors are watching closely. Tesla's next report is due on Wednesday. It can be helpful to take the edge off with stock options.

‍

The Susquehanna analyst Christopher Jacobson explained in a research report on Tuesday that Tesla stockholders can obtain “low-cost mid-term protection” through a collar strategy. Based on his recommendations, Tesla stock owners should buy a $150 put option and sell a $240 call option with an expiration date of September.

‍

The holder of a put option can sell the stock for a set period at a fixed price, the strike price. Stocks can be purchased through a call.

‍

This trade, suggested by Jacobson, gets its name from limiting potential gains and losses. Because the put allows holders to sell at $150, the downside is limited to 19%. There is a limit of about 30% to the upside. If the call is sold, the holder of the call can purchase Tesla stock for $240.

‍

As of Tuesday morning, Tesla stock was down 1.5% at $184.32 a share. It was a 0.4% decline for the Dow Jones Industrial AverageDJIA –0.02% and a 0.1% decline for the S&P 500SPX –0.00%.

‍

All of that can be done for a minimal cost. More or less the same amount is generated by selling the call as it is by buying the put.

‍

Experienced investors usually engage in options trades. Newbies should seek advice before investing in options.

‍

Without holding the underlying stock, selling a call option can result in large losses. When the option holder wants to exercise their right to buy, a call-option seller can just hand the stock over.

‍

In this case, Jacobson recommended options as a way to generate income, leverage a portfolio, or protect positions.

‍

Seeking protection is a good idea for a number of reasons. Tesla has been cutting prices for its vehicles around the world, which has been leading to earnings estimates. Prices have been reduced significantly since January. In comparison with three months ago, earnings estimates for the first quarter are down about 18%. In the past year, only the second quarter of 2022 saw more significant cuts.

‍

Tesla stock jumped almost 10% after the report after earnings were beaten by lower expectations for the second quarter of 2022.

‍

Based on $23.7 billion in sales, Wall Street expects Tesla to earn 85 cents a share in the first quarter of 2023. Approximately $1.05 a share was expected by Wall Street three months ago.

‍

In terms of sales, the company expects a 26% increase over last year. In the first quarter of 2022, the company generated $1.07 per share in earnings. Prices have dropped because of Tesla's price cuts, which have boosted demand for its cars.

‍

Earnings are little more than a coin flip away from exceeding or falling short of expectations. Four of Tesla's stock's quarterly reports have seen a rise and four have seen a fall. In general, Tesla stock moved about 6.5% upwards or downwards. Depending on the results, Tesla's stock is expected to move roughly 8% to 10%, up or down.

‍

Having to deal with so much volatility is tough. Lower prices can make the move a little less painful for shareholders if options are available.

‍

Shareholders can collar only a portion of their positions, of course. The underlying stock is represented by one options contract.

‍