In other words, investors who think or hope that the sky is the limit for Tesla's stock need to readjust their approach, he explained. Tesla's stock is dangerously low to its "support" line of around $318 per share — not a good indication. Meanwhile, implied volatility in the stock is on the rise, and Tesla's earnings report could result in an "explosive" move.
The options market is in fact pricing in a more than 6-percent move in either direction, or $22 per share. As such, long-term investors, like Gordon, may want to consider hedging their position to limit the impact of any decline.
Specifically, Gordon suggests selling the weekly August 4 $335-strike call and simultaneously buy the August 4 weekly $340-strike call, which creates a credit of $125 per option.
"We're selling a call credit spread above the expected move [of 6 percent]," he explained. "So by way of options math, you could say that the market has approximately an 80 percent chance of being below $340 post-earnings."
Related Links: Tesla Investors Fret On Meeting Delivery Targets Ahead Of Q2 Earnings Scheduled For August 2, 2017Date | ticker | name | Actual EPS | EPS Surprise | Actual Rev | Rev Surprise |
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