(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of TSLA.)
Tesla Inc.'s (TSLA) options bulls are back, and they see Tesla shares rising by about 10%, to about $380, putting it within a short distance from its all-time high around $386. The latest round of bullishness comes as news broke that Tesla suspended production of the Model 3 for the week of February 20 to 24, to help clear up bottlenecks and improve production efficiencies.
Shares of Tesla have risen by about 11% in 2018, besting the S&P 500's return of roughly 4%. The strong performance for the stock comes despite the ongoing Model 3 production issues, Tesla's newest four-door, $35,000, all-electric sedan. But looking back at the stock's performance, shares have traded in a relatively broad range since November of 2017, placing the stock roughly between $300 and $350, with the stock advancing and declining on some occasions. (For more, see also: The Case Against Tesla.)
The $345 long straddle options strategy set to expire on April 20, suggests that shares of Tesla may rise or fall by 10%. That would put shares of Tesla in a trading range of $311 to $380. The $345 call options are favored by about 2 to 1, with about 1,200 open call contracts to roughly 550 open put contracts.
Analysts Slow to Adjust
But despite the bullish options outlook, analysts have been slow to adjust their revenue estimates. In fact, over the past 30 days, analysts have cut their revenue estimates for the first quarter by roughly 45 bps, to $3.576 billion, while only raising the full year estimates by 25 bps to $19.40 billion.
The journey for Tesla may not be easy based on the technical chart either, with many technical resistance levels that stand in the way from its current price around $345 to $380. The chart below shows the technical resistance level around $348, and then again at $358. That may make it tough for shares of Tesla to continue to rally on towards $380.
There is no doubt that the road for Tesla has been steep over the past six months. And it likely doesn't get easier over the next six months as the company continues to try to ramp up Model 3 production to 2,500 cars per week by the end of March, and 5,000 vehicles per week by the end of June. (For more, see also: Tesla Model 3 Revealed.)
Should Tesla reach those milestones, the stock may reward those that have been patiently bullish.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.