How To Trade Tesla's Weakness Ahead Of Wednesday's Earnings

Electric-vehicle giant and stock market darling Tesla Inc. reports earnings tomorrow after markets close, and for once, traders don’t seem excited by the prospect at all.

Tesla earnings are almost always preceded by a pre-earnings surge in buying. This time, TSLA shares are down.

The reason is the hyped Robo-Taxi event that the company held on October 10. Far from rekindling investor excitement in the company and its plans for fully automated cars, the event was met with widespread disappointment.

This change in how traders and investors see Tesla is creating an excellent trade opportunity.

Here’s what I’m seeing.

Using my PFP (price, flow, positioning) system, I can see that the top call strike (TCS) for TSLA options is currently at $225. In other words, traders are positioned so that TSLA shares won’t go above $225 before the earnings report.

As for what comes after the earnings, traders are positioned much more widely. There’s some big upside positional targets at $250, a likely share price if Tesla reports strong earnings, and even at $300, for a moonshot, they-smacked-it-out-of-the-park earnings result.

Meanwhile, traders are also targeting $200, for a weak earnings report, and also $190, for even worse results.

The options market is implying a move of $17 up or down after earnings as I’m writing this.

So unless you have some strong sense what the earnings report will look like and how it will be received, a play to consider be a multi-legged option trade aiming to make money from the stock moving that far after Wednesday’s earnings. I’ll be sure to update my Trading Waves members with any trades I put on myself.

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Photo courtesy of Tesla