What are your options - Tesla Earnings Trade Setups What are your options - Tesla Earnings Trade Setups What are your options - Tesla Earnings Trade Setups

What are your options - Tesla Earnings Trade Setups

Koen Hoorelbeke

Options Strategist

Summary:  The article discusses Tesla's upcoming earnings release for Q2 2023 and suggests three potential trading strategies based on different market views. The market expects a significant up or down move of around 8% in Tesla's stock price following the earnings announcement.


Tesla Earnings Preview: 3 Trade Setups


Tesla Inc. (TSLA) is set to release its earnings for the quarter ending June 2023 on Wednesday, July 19th, after the market closes. The market is expecting some volatility, with an at-the-money (ATM) straddle suggesting an expected move/range of approximately +/- $22.61 by this Friday. Based on last Friday's close this means the market expects an up- or down-move of around 8%.

With Tesla's Implied Volatility (IV) Rank at 21.64%, we are focusing on strategies that receive a credit upfront and profit from a potential collapse of IV post-earnings.

It's important to note that the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Here are three trade setups to consider based on your market view:


Bullish: Vertical Put Spread

If you're bullish on Tesla, consider a vertical put spread. This strategy involves selling a put option while simultaneously buying another put option at a lower strike price. The goal is for the stock to stay above the strike price of the sold put.

Here's the setup:

  • Sell to Open: 21-Jul-23 275 Put
  • Buy to Open: 21-Jul-23 270 Put
You are selling to open a put option with a strike price of $275 and buying to open a put option with a strike price of $270. This is a credit spread strategy where you receive a net premium of $208 (the difference between the premium received from the sold put and the premium paid for the bought put).

The maximum risk for this trade is $292, which is the difference between the strike prices of the two options ($275 - $270 = $5) times 100 (since each option contract represents 100 shares), minus the net premium received.

The maximum profit is the net premium received, which is $208.

The breakeven point for this trade is $272.92. This means that you will start to make a profit if TSLA's stock price is below this level at expiration.

The probability of profit is 62.82%. This is calculated based on the delta of the short leg.

The trade has 4 days to expiration (DTE) and the implied volatility rank is 21.64%.

The position greeks are as follows: Delta is 0.083, and Theta is 0.116. These values indicate the sensitivity of the position's value to changes in the stock price and time decay, respectively.


Neutral: Iron Condor

If you think that Tesla will stay in the expected move range right after the earnings, consider an iron condor. This strategy involves selling a call spread and a put spread on the same stock with the same expiration date. The goal is for the stock to stay between the strike prices of the sold options.

Here's a possible setup:

  • Buy to Open: 21-Jul-23 315 Call
  • Sell to Open: 21-Jul-23 310 Call
  • Sell to Open: 21-Jul-23 250 Put
  • Buy to Open: 21-Jul-23 245 Put

Reason

High Implied Volatility (IV) due to numbers out on 19th July after market close

Expectation

Limited movement in Tesla shares after releasing the figures and imploding IV

BEPs on expiry

Profit between $248.89 and $311.11

Max Risk

If you get a premium of $1.11 the max risk/loss would be $5 - $1.11 = $3.89 per share. 1 contract = 100 shares. Max Risk/Loss = $3.89 * 100 = $389.
It might be a good idea to wait and see what the premium will be just before the close of the market on Wednesday, as the IV will probably rise, and so will the premium to receive (improving your profit and lowering your risk).

For Who?

Only for clients to adhere to the view that the numbers will not cause a move outside the expected move in the share price of Tesla

 

Trade set up

Sell the Iron Condor in the last 1 – 4 hours of trading on Wednesday 19th for around $ 1,45 - $1,50 (stagger in case of bigger positions)

Closing

A GTC (Good Till Cancelled) order to close the position at $0,30 (stagger in case of bigger positions)

Emergency

If there is a big move in the underlying outside the bandwidth of the long strikes, monitor closely and close position latest on the 21th of July 2- 4 hours before expiry

Probability of Profit

79.12%
(on expiration, based on delta's of the short positions)

Expected Move

for 21th July ’23, based on ATM straddle: +/- $22.61

IV Rank

21.64%


Bearish: Vertical Call Spread

 

If you think that Tesla will drop after the earnings-release, consider a vertical call spread. This strategy involves selling a call option while simultaneously buying another call option at a higher strike price. The goal is for the stock to stay below the strike price of the sold call.

Here's a possible setup:

  • Sell to Open: 21-Jul-23 285 Call
  • Buy to Open: 21-Jul-23 290 Call

The net premium received for this trade setup is $154 (the difference between the premium received from the sold call and the premium paid for the bought call). The maximum risk for this trade is $346, which is the difference between the strike prices minus the net premium received. The maximum profit is the net premium received if TSLA stays below the strike price of the sold call ($290) at expiration.

The breakeven point for this trade is $291.54, which is the strike price of the sold call plus the net premium received. This means that TSLA needs to be above $291.54 at expiration for the trade to be profitable.

The trade has a probability of profit of 61.79%, and the implied volatility rank is 21.64. The position delta is -0.0706, and the position theta is 0.0727. These Greeks indicate the sensitivity of the position to changes in the stock price and time decay, respectively.

Options Overview by barchart.com

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.