Wednesday, February 10, 2016

TSLA Analysis

Update 3/19/2016: The put options in my TSLA iron condor have expired without value.

Overall, shares rose by 58.0% over 38 days, or a +567% annual rate. The options position produced a 77.2% loss on debit for a -741% annual rate.

Update 3/15/2016: The short $170 call options on TSLA were assigned overnight, placing short shares in my account for a $170 credit. I exited the shares for a $212.86 debit -- big loss. I also sold the long calls for a $31.70 per share credit.

The exits leave zombie bull put spreads remaining to expire without value at the end of the week for maximum profit.

The electric vehicle and energy storage company Tesla Motors Inc. (TSLA), headquartered in Palo Alto, California, publishes earnings on Wednesday after the closing bell.
[TSLA in Wikipedia]


I shall use the MAR series of options, which trades for the last time 37 days hence, on March 18.


Implied volatility stands at 99%, which is 3.8 times the VIX, a measure of volatility of the S&P 500 index. TSLA’s volatility stands iat the peak of its most recent range. The price used in analysis was $147.41.

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 peaked in September 2014, zig-zagged to a second, slightly lower peak in July 2015, and then began a rapid decline that continues today. The most recent leg down began on Dec. 30, 2015. It is an extremely bearish chart, although TSLA remains well above its IPO price back in 2010.

Three of the last four earnings announcements have resulted in price increases the next trading session.

Brokers collectively come down with a very negative 47% enthusiasm rating, with 20% of 15 analysts issuing strong buy recommendations. Unusually, a similar number of analyst recommendations fill each of the five slots in this analysis from strong buy down to strong sell, with the hold slot leading with five analysts.

Bearish chart, bearish analysts, bullish post-earnings response. I'll attempt a direction neutral trade with the widest profit zone I can manage, with the profit zone wider on the downside.

Iron condor, short the $170 calls and long the $180 calls,
short the $100 puts and long the $90 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money


The premium is $3.23, which is 32% of the width of the position’s wings. The stock at the time of entry was priced at $147.29.

The risk/reward ratio is 2.1:1.

The zone of profit in the proposed trade covers a $35 move either way. The biggest immediate move after each of the past four earnings announcements was $23.28, and the average was $12.46. After eliminating the maximum and minimum post-earnings movements, the core tendency is $10.09.

Decision for My Account

I have opened a position on TSLA as described above.

-- Tim Bovee, Portland, Oregon, Feb. 10, 2016


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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