Fund Manager's Bullish Tesla Options Bet Nets 6,000% Return

Some people may call it prescience, some may call it risky, but to ARK Invest's CEO and Managing Director Catherine Wood, when something doesn’t make sense, she takes action.

ARK Invest has long been very bullish on Tesla Inc TSLA, and recently upped its 2024 price target to $7,000. But as any Tesla investor knows, things weren’t always smooth sailing for bulls like Wood.

When Tesla was trading in the $170 to 180 range, Wood knew the depressed stock price didn’t make sense, and believed the industry didn't fully understand the company Tesla CEO Elon Musk is building.

Unfortunately, she was unable to buy more Tesla for the ARK funds because she had already maxed out their holdings at a 10% cap. But instead of sitting on the sideline, Wood took action and bought Tesla call options for her personal account.

The Trade

Options are typically riskier than stocks because the underlying stock must move to a particular price point by a set expiration date. Wood bought Jan. 21 $460 Calls when they were trading between $5 and $10. Today, these same contracts are now trading at approximately $327. This trade has potentially generated over a 6,000% return.

TOTAL INVESTMENT: To make this easier to understand, if an investor spent $2,000 to buy 4 calls when they were at $5, that would cost them 4 Calls x 100 (100 shares equals 1 call) = $400 x $5 = $2,000.

RETURN SO FAR: 4 Calls x 100 = 400 x $327 = $130,800. Those numbers represent a whopping 6,440% return so far, but it’s far more likely Wood bought far more than $2,000 of Tesla calls.

A simple $10,000 investment would have looked like this:

20 Calls x 100 = 2,000 x $5 = $10,000.

RETURN on $10,000: 20 CALLS x 100 = 2,000 x $327 = $654,000

See Also: 'Leader Of The EV Revolution': Analysts Weigh In On Tesla's Q4 Beat

Looking Ahead

Even though Wood is up considerably on Tesla's big run, she remains bullish on the stock in the long-term.

“This is an exponential growth stock, growth company. And we've lived in a linear growth world for so long, with the law of large numbers pulling growth rates down, that people find it hard to understand what exponential growth is,” Wood said.

Tesla bulls have long raised concerns over a wave of new competition in the EV market, but Wood said Tesla has fended off the competition surprisingly well up to this point.

“Well, last year when the Tesla killers came out, Audi, Taycan, and Jaguar, when they came out, you know, that's right in their category. And Tesla's market share of the electric vehicle market went up, not down. It went up to 18%,” she said.

Wood believes Tesla bears drawing comparisons to the dot-com bubble are also off base given the relatively bearish sentiment toward Tesla on Wall Street. Among the 33 analysts currently covering the stock, Tesla has just nine Buy ratings compared to 14 Sell ratings. The average price target for the stock among those 33 analysts is $432.50.

“This is the flip side of what happened in the internet -- the tech and telecom bubble -- and what that means is we're probably in one hell of a bull market and that will be sustained because we're climbing this incredible wall of worry and skepticism and doubt,” Wood said.

Tesla's stock trades around $747.22 per share as of Monday afternoon.

Jason Raznick is the founder and CEO of Benzinga. He owns shares of Tesla.

Posted In: ARK InvestCatherine WoodElon MuskPrescience PointAnalyst ColorLong IdeasShort SellersEducationOptionsTop StoriesMarketsMoversTrading IdeasInterviewGeneral