• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Is There Hope for Tesla? Might Be, but Where?

There can be no doubt that the trade war was put a hurting on Tesla. Still, China is the world's largest market for automobiles.
By STEPHEN GUILFOYLE
May 29, 2019 | 10:42 AM EDT
Stocks quotes in this article: TSLA, BYND, TWTR, WB

Tesla (Again)

Seems like just last week that I wrote on my opinion concerning Tesla (TSLA) . Indeed it was last Tuesday. Eight days later it would already seem that another look would be appropriate. We touched base last week after Morgan Stanley's Adam Jonas laid out a worst case scenario where Tesla's share price could drop all the way to $10. The prior worst case price that Jonas had illustrated for investors had been $97, so this was drastically worse. It did not matter much that Jonas still had a Buy rating on the name as well as a $230 price target. I stated in that piece that I might take a small long position in Tesla in response to the oversold condition that I then thought the shares to be in. I did take that shot, I did get out of that position whole after three days, but only after averaging down twice. That was luck, not skill.

Fast Pace of News

Now, a week later, the pace of firm-specific news is flowing rapidly. As the firm's stock and the firm's bonds have come under pressure, short interest has continued to grown even larger. Currently almost 38 million shares are held in short positions, or roughly 29% of the float. Where is the cult? Will they rescue these shares as they so often have in the past? Perhaps they have moved on to Beyond Meat (BYND) , another highly shorted growth stock that supporters refer to as "the future." Since Jonas made his case others have come out with dire worst case scenario prices.

As the firm has seen profitability dissipate, and sales growth slow dramatically, the firm has resorted to cost cutting and capital raising in an effort to get past the current environment. Now, this...brokerage firm Interactive Brokers has informed customers holding Tesla stock, options, futures, or other products will see margin requirements rise from the current 30% to 40%. This increase will commence in 1% increments starting tonight (Wednesday), and reaching target by June 7th. For your information, Interactive Brokers increased margin requirement to the 30% level last summer. So, one must ask themselves. Is there hope? Oddly enough, I think there might be, but where?

Hope

While CEO Elon Musk has been curtailed on Twitter (TWTR) , Tesla has been active on Weibo (WB) . Weibo, for those who do not know, is a Twitter-like, primarily Chinese social media network. Tesla announced that the firm will make a surprise announcement in China this Friday, May 31st. In subsequent postings on Weibo, Tesla has initiated a contest for fans to guess the price for the Chinese manufactured version of the Model 3. How interesting.

There can be no doubt that the trade war has put a hurting on Tesla. Still, China is the world's largest market for automobiles. By manufacturing the vehicles in China... at the still being build factory in Shanghai, Tesla then accesses this market while avoiding cross-border tariffs. Tesla would also not have to worry about gaining access to the myriad of processed rare-earth metals necessary to the manufacture of batteries for electric vehicles. Food for thought. For the firm, revenue in China represented just 8% of the whole at $1.8 billion. The demand is thought to be there. Does Tesla need to stand with one foot in each nation? They might, in order to survive.

The Chart

Not exactly the same chart as last week, but close. The Fib levels have changed, as have the simple moving averages. Still oversold, even with today's counter market rally. A little momentum could provide a short cover. Do you want an equity stake? No easy question to answer. I will tell you what - if you have some mad money, with this pending news event coming in China this Friday, Thursday night in New York.... a May 31st $180/$200 strangle for less then $3 sounds interesting. I bet you get the whole thing on for $2.80

The Idea (Minimal Lots)

To get long both puts and calls ten dollars out of the money that expire this Friday. That keeps the premiums (net debit) a bit lower.

TSLA last sale: About $190, adjust trade idea as last sale varies.

- Purchase one TSLA May 31st $200 call (value: $1.43)

- Purchase one TSLA May 31st $180 put (value: $1.31)

Net debit: $2.74

Note: The trade is a complete loss of $274 if the shares land in between $180 and $200 by week's end. That's a lot better than risking a lot on equity in my book. This is a risk averse way for an aggressive trader to bet on short term, TSLA specific volatility. Nothing more.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.

TAGS: Investing | Markets | Options | Stocks | Technical Analysis | Trading | Automotive | Technology | China | Stock of the Day

More from Investing

Navigating the Cycles of the Market

James "Rev Shark" DePorre
Apr 17, 2021 10:00 AM EDT

How Recency Bias and the Pareto Principle impact your trading decisions.

Netflix Reports Earnings on Tuesday: 5 Important Things to Watch

Eric Jhonsa
Apr 17, 2021 8:00 AM EDT

Along with its total subscriber adds, keep an eye on Netflix's regional growth rates, as well as its free cash flow guidance and content spending outlook.

Market Indices Continue to Hide Crazy Rotational Action

James "Rev Shark" DePorre
Apr 16, 2021 4:41 PM EDT

Fundamentals and valuations are secondary to shifting money into certain sectors.

Is the Market Wrong on Bank of America? Here's What the Charts Say

Bruce Kamich
Apr 16, 2021 2:21 PM EDT

Let's check in again on BAC after its latest earnings.

Liquid Media Group Is a Hidden Gem

Timothy Collins
Apr 16, 2021 1:33 PM EDT

With the options open, I believe the near-term puts offer an attractive play.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:05 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How recency bias and the Pareto Principle impact y...
  • 02:42 PM EDT PAUL PRICE

    Wednesday on Real Money Pro

    Make this stock a 'part' of your portfolio.
  • 04:44 PM EDT PAUL PRICE

    Pretty Incredible + Hard to Believe

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login