Wednesday, December 2, 2015

TSLA Analysis

Update 1/15/2016: I exited the long leg of my TSLA diagonal, wrapping up the position entirely. The position was less productive than I had expected and my outlook on the markets in general has turned mid-term bearish. Clearly, it was time to go.

I sold the long leg for $10.65, a -63.3% loss on debit.

Overall, shares declined by 15.6% over 44 days, or a -129% annual rate. The options of the long leg and the short legs produced a -6.3% loss on debit for a -52% annual rate.

TSLAdiagonal, short leg

The electric vehicles manufacturer Tesla Motors Inc. (TSLA), headquartered in Palo Alto, California, closed above its 20-day price channel on Tuesday. With a tendency to whipsaw on bull signals and low implied volatility relative to its range over the past 12 months, it is a candidate for a direction neutral play, such as a covered call or a diagonal spread.

[TSLA in Wikipedia]


I shall use the JAN series of options, which trades for the last time 44 days hence, on Jan. 16.


Implied volatility stands at 36%, which is 2.4 times the VIX, a measure of volatility of the S&P 500 index. TSLA’s volatility stands in the 14th percentile of its annual range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

TSLA has given three bull signals in the past year. One was successful,  yielding 16.2% over 77 days. The two unsuccessful signals on average produced a 7.5% loss over 20 days. The success rate for the period is 33.3%.

That low rate of success suggests that the best strategy for TSLA is a covered call or some other time spread, such as a calendar spread or a diagonal.

TSLA began an uptrend in March 2013, and the most final leg from May 2014  peaked on July 20. Elliott wave analysis of the subsequent movement shows TSLA in the 4th of five waves, a countertrend correction to the upside within a larger downward move. One wave 4 is complete, the 5th wave will resume the downward trek to complete what appears to be wave A of a downtrend. The subsequent wave B will again carry prices higher.

Zacks Investment Research gives TSLA a rank of 3, which is neutral. The 15 analysts following the stock in aggregate come down with a -47% enthusiasm index, a fairly low level. Only a fifth of them have issued a Strong Buy recommendation.

Diagonal spread, long the $235 calls expiring June 20, 2016 
and short the $240 calls expiring Jan. 17,
bought with a debit.
Probability of expiring out-of-the-money


The premium for the long leg is a $29.18 debit and for the short leg, a $10.68 credit, or a net debit of $18.85. The stock at the time of entry was priced at $237.11.

Decision for My Account

I've opened a position on TSLA as described above.

-- Tim Bovee, Portland, Oregon, Dec. 2, 2015


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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