Just ahead of
Tesla Motors' (NASDAQ:
earnings release on Thursday, I was defending the stock on the
Fox Network, as other industry professionals doubted its ability
to beat Wall Street's estimates and turn into the biggest growth
story since Apple (NASDAQ:
As my critics lick their wounds after Thursday's blowout
earnings release, I've gotten even more excited about the stock,
and I don't care that it was up 4.5% Friday. In fact, I'm more
bullish than ever on TSLA after hearing details from CEO Elon
Today, I'm going to show you how to play this game-changing
stock for much less money by using call options.
An Industry Disruptor
Not only do I think Tesla is changing the way we drive, but I
firmly believe it will go down in the history books as a pillar
of American industry, an amalgam of Apple, Exxon Mobil (NYSE:
) and Ford (NYSE:
) all rolled into one.
Back in the late 19th century, the titans of American commerce
used monopolies to gain extreme power. While Tesla might not
monopolize electric cars, it is pretty darn close, controlling
their ecosystem, competition, infrastructure, and to an extent,
Initial naysayers (me included) said that America and the
world are built for fossil fuels, but Tesla is remaking our
On the earnings call Thursday night, Tesla confirmed it had
broken ground in Reno, Nevada, to potentially begin construction
on one of its gigafactory production sites, but noted more sites
are still being targeted.
The gigabit factories will produce highly efficient,
cost-effective electrical storage devices. Aside from bigger
profits for Tesla, these energy systems will likely change how
the U.S. electrical grid functions and have a direct impact on
how Americans use and store alternative energies like solar, wind
and more. And they would be made in America.
As Morgan Stanley's Adam Jonas wrote in a recent note to
clients, Tesla is "arguably the most important car company in the
world." While many are calling his comment absurd and
unsupported, Tesla has done and is planning to do things that no
car company has done since Ford.
The energy storage solar business could generate $2 billion a
year in revenue for the company, according to Morgan Stanley,
which is just slightly less than Tesla made in all of 2013.
Giant auto-parts manufacturing companies are already
re-tooling their factories to support Tesla's cars, and remember
that it only offers one very pricey model at the moment. Imagine
when more affordable models hit the market.
Tesla's highbrow cache and almost universal admiration by
consumers will be one of the main drivers of its success.
Remember the days when only the wealthiest drove a BMW or
Mercedes? In the past 20 years, those high-end automakers have
designed cars for the masses while keeping their brands intact.
Tesla has said it hopes to launch the Model 3 by 2017, which is
estimated to cost $35,000.
Even though TSLA is trading at $233 a share and seems like
it's priced to perfection, it truly isn't. In fact, I would say
there is great value in the shares.
My thesis is that more and more analysts and investors will be
jumping on the Tesla bandwagon when they realize the true
earnings potential. I see shares easily getting back to $265 in
the next three to five months.
While TSLA's options aren't cheap either, it's easier on the
wallet than plunking down $23,300 for 100 shares.
TSLA Call Option Trade
Today, I am interested in buying
TSLA Jan 200 Calls
for a limit price of $44.50.
This call option has a delta of 70, which means it will move
roughly $0.70 for every dollar that TSLA moves, but it costs
one-fifth the price of the stock.
The trade breaks even at $244.50 ($200 strike price plus
$44.50 options premium), which is 5% above current prices.
The $265 price target would equate to a least $65 in options
premium, or a 46% return. For our stop-loss, I am willing to let
this trade lose about 50% of its premium, since that is roughly
Recommended Trade Setup:
-- Buy TSLA Jan 200 Calls at $44.50 or less
-- Set stop-loss at $22
-- Set price target at $65 for a potential 46% gain in 3-5
By using a similar options strategy, my colleague Amber Hestla is
generating payments of $1,047, $2,435, $3,410 (and sometimes
more) from nearly any stock -- including ones you already own.
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