TESLA has been a coiled cobra ready to strike before the RoboTaxi event, Paris Auto Show, and Earnings results

Now comes the time that most of the stock investors have been waiting for a couple of years when the Federal Reserve started its QT - Quantitative Tightening with interest rate increases. Tesla's performance was lackluster among the Nasdaq 100 and is poised to beat the other industry giants - Why? Read along!

Date: Sep 27, 2024

Market Focus: Equities & Options

Time Horizon: 14-day swing

Distribution Time: Post-Market

Market Overview

• Global Sentiment and Current Market Scenario: Market sentiment hasn't changed much since our last brief and this section stays the same. After the recent Fed rate cut last week, which was more or less priced in by the stock markets in the US, now the sentiment shifted more to a cautionary approach having the market stagnant throughout the day. VIX remained stable and the market looks for further cues on upcoming rate cuts. Fed officials have indicated more room for larger rate cuts signaling a frenzy among the rates traders. IMF has warned of economic collapse in 2025 and a potential hard landing for the US if they don't start to cut faster to achieve their targets by EoY. Fed dot plot already gave us where we might be for the upcoming quarters, and investors are cheering the soft landing situation. Fed's Goolsbee from Chicago expresses more cuts for 2025. This leaves a void for the magnitude of the cut we may see before Christmas ending Q4 2024. Unless, there's a major escalation, which we don't see happening in the near term from other countries joining the war, we don't see an effect from oil either as OPEC is heavily trying to put the price under control after increasing their stockpiles with increased production. We will talk about Tesla although this is not more of a technical trade contrary to our usual approach of confluence of indicators, there are many strong reasons for acquiring exposure on this underlying.

Technical Analysis

• Major Support/Resistance Levels for Stock TESLA:

  • Support: 246, 237

  • Resistance: 265, 285, 292

• Indicators:

  • Price and MACD at the bottom - nothing else.

  • No other conflicts on lower and higher time frames.

Chart

Trade Rationale

Choose either equities or derivatives, not both, for which the risk will increase acting against our intentions

Equities

• Asset/Instrument: TESLA [Stock]

• Ticker: TSLA

• Trade Type: Long

• Entry Point: 256

• Exit Target: 300

• Stop-Loss: 230

• Position Sizing: 5% of the portfolio (don't risk more)

Derivatives

Asset class: Options

Trade Type: Bull Call Spread

Buy TSLA Nov 15 280 Call for a debitSell TSLA Nov 15 310 Call for a credit (reduces cost)

Net debit paid to open $8.25/ contract

Probability 35%

Return/Risk 2.6

Max Profit $2156

Margin/max loss $825

Time left 48 days

We are increasing our net long exposure to Tesla by using a Bull Call Spread strategy. Buying a bull call spread is more cost-effective than purchasing naked calls and offers a similar payoff profile, with a maximum profit cap. However, we plan to close the position as needed, as always. For those who have been following our trades, we have generated good profits on Tesla over the past two months using October calls. This new trade represents a re-entry with more room for theta (time decay) for the position.

Our rationale is straightforward: Tesla has broken a long-standing consolidation and negative slope on the daily chart, and is now approaching a significant resistance level that has been in place for a couple of years. Historically, the stock has consistently retreated from this resistance zone due to lackluster growth and poor guidance in its earnings results over the past 18 months. However, with interest rates - a key factor in electric vehicle sales - on the decline, it will be more affordable for consumers interested in purchasing EVs to acquire auto loans. Interest rates have a direct correlation with auto sales, among other products in different industries. As inflation decreases and prices are slashed, this should boost the company's revenue by increasing sales figures.

Yet, our main areas of interest revolve around two key events: the Robotaxi reveal at the Paris Auto Show and the upcoming Earnings Results.The recent earnings results did not impress investors, but everyone is eagerly awaiting future guidance. Sales are expected to increase in the low interest rate environment over the upcoming quarters, with sustained growth projected throughout 2025 and beyond. Another positive factor is the stock's long consolidation period of 3 years, which has resulted in no growth for investors when compared to other tech giants in the Nasdaq 100 index. Therefore, it is crucial for TSLA to surpass the long-standing resistance level shown in the chart and reach the 300s. We anticipate this move will materialize next month in October, coinciding with the US Elections.

The upcoming news about the launch of Robotaxis will be a significant factor in the company's lineup of electric vehicle (EV) products. It's important to note that Tesla is not just an automobile company; it's also an artificial intelligence (AI) company on wheels. The company has amassed an enormous amount of data to train its AI models, with the ultimate goal of achieving Full Self-Driving (FSD) capabilities in its vehicles. With these factors in mind, our strategy revolves around fundamental analysis to take advantage of the market movement leading up to these events.

We plan to take profits just before the Robotaxi event if it appears to be an attractive opportunity to exit our position. We previously held a Bear Call spread position that has now expired. Despite exiting with a small profit, we observed the stock's upward momentum, which led us to breach the resistance zone where we had sold our Tesla calls as part of the Bear Call spread position. Please note that the increased interest in the stock of Tesla will naturally increase the implied volatility, which is another extrinsic value that affects the options prices. This will benefit in our favor and we can exit the spread with greater profits than normal before the event as always, on-demand.

Strategy

• Catalysts: Robotaxi event on October 10th and Earnings results on October 16th, 2024 for Q3 performance and future guidance.

• Risk Factors: Nothing major.

• Correlation: Not applicable.

• Portfolio Exposure: This trade adds a positive exposure to the tech sector weightage and is a net bullish position for the overall portfolio exposure at the time of writing this brief.

• Maximum Risk: 1-5% of the total portfolio capital. No deviation!

• Hedging Strategy (if applicable): NA. (closed Bear Call Spread Sep27 in profits)

  
  

Summary

We plan to wait for a while, but the price might change quickly. We want to exit before the Robotaxi event or Earnings results, depending on how much the price goes up. This means we might raise our exit levels if the response to the events is good. We could also exit earlier if the implied volatility increases and supports options prices in our favor.

Closing Notes

This trade is only valid if the price doesn't move by more than 3%, typically for a day