Over the weekend I posted this comment regarding Tesla going into earnings:
Reports on Wednesday after the close. Its fundamentals doesn't look good. On a scale of 1 to 10, I will give it a 3 or 4 (with 4 being generous). But usually, companies that look bad on paper are the ones that tend to make the biggest upside moves when they report good numbers. So my low rating doesn't mean much. Also, TSLA has the habit of blowing away earnings estimate. Where I think it will likely come up short is with forward guidance. Technically (see charts in weekend post), it can go either way though I favor a drop after it reports.
What to look for:
Currently at $210.90, if we see we see a move up to 230 going into the report, then expect a drop after it reports. But if we see it move lower from current level going into the report, then expect a run up after it reports. So how it acts on Monday-Wednesday will be key. I believe we will see a move to 230 before the close on Wednesday followed by a drop to 175 shortly after it reports.
How to play it:
Buy Put options outright or buy ATM/ITM Put options and OTM Calls to protect the Puts just in case it runs up after the report i.e Strangle. Make sure to risk 100% in the trade. Also note that if the setup from Monday to Wednesday goes as predicted, then it will be great since you can use the market's money to make the earnings play.
NEW PLAN:
Based on today's price action, I'm now looking for a BULLISH (not bearish) move after it reports at the close tomorrow. I was expecting it to trend up from Monday to Wednesday then make a big drop on Thursday. But it looks like the trend will be down based on today's action. A flat or small down/up day tomorrow will confirm the downtrend. A big down day will be an even better sign. But if we see a big up day (sideways trend), it will be tricky but I will still call it bullish. So, my point is that today's move indicates a bullish move on Thursday. But I will like to see a down day tomorrow going into the report.
TSLA tends to move opposite the trend formed few days before it reports. See the most recent earnings dates and the price action thereafter (It always reports after close.):
Feb 19, 2014
Nov 5, 2013
Aug 7, 2013
May 8, 2013
Feb 20, 2013
Notice the Long-legged dojis that formed after the report on most of them, and how it made a strong move when the high or low of that day was breached.
So look to buy Call Options (preferably) or Strangle i.e ATM or ITM Call options with OTM Puts to protect the Calls.
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