Seeking Alpha

Adjectives in focus on earnings day at Tesla Motors

  • Tesla Motors (TSLA) reports Q1 earnings results after the close today with analysts expecting the EV automaker to show a $0.07/share profit.
  • Revenue will be higher than a year ago, but without clean-car credits from California, the company will likely show a slip from Q4's tally. Analysts see a haul of $699M vs. $562M a year ago and $761M in Q4.
  • Deliveries of around 6.4K Model S cars to customers in Q1 is expected.
  • What to watch: Sales in China won't be included in Q1 results, although a few choice words from the company on early demand could set the tone for after-hours trading. Bulls would like to hear an adjective like brisk or strong. Traders are also anticipating an update on Tesla's Gigafactory plans. Silence about the project could create some worry.
  • TSLA +1.4% premarket to $210.10.
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Comments (9)
  • David at Imperial Beach
    , contributor
    Comments (4375) | Send Message
     
    Tesla has already been highly encouraging about China, announcing, for instance, that its Beijing store is the most highly trafficked store in its network.

     

    Tesla should also include news on its right hand drive version and progress in opening up markets such as UK and others who drive on the "wrong" side of the road.
    7 May 2014, 09:57 AM Reply Like
  • Ford Prefect 1969
    , contributor
    Comments (2282) | Send Message
     
    Enjoy the traditional pre-ernings lucky dip.
    7 May 2014, 10:58 AM Reply Like
  • Reel Ken
    , contributor
    Comments (4722) | Send Message
     
    Just for those that know how ....

     

    There's an arbitrage play on TSLA, if placed today. Look at a bi-directional ratio calendar spread. Rest up to you.
    7 May 2014, 12:58 PM Reply Like
  • Reel Ken
    , contributor
    Comments (4722) | Send Message
     
    Update on the arbitrage.

     

    75% gain in three hours. Should turn into 1000% gain. Let you know tomorrow.

     

    p.s. Don't say I didn't tell you.
    7 May 2014, 03:27 PM Reply Like
  • mobyss
    , contributor
    Comments (2189) | Send Message
     
    What is the gain now?
    7 May 2014, 04:16 PM Reply Like
  • Reel Ken
    , contributor
    Comments (4722) | Send Message
     
    Hi mobyss,

     

    1000 turned into 11,000. That's 1100%

     

    I can push it a little more, holding till Friday, but the arbitrage turns into a bet.

     

    The trade was to sell a 5/9 expiry ATM straddle and buy 2X ATM straddle expiry 5/23. A 1:2 ratio calendar straddle.

     

    I sold 25 and bought 50.

     

    It's a repeatable play for hi-beta stocks around earnings. Not always there, but when it is it's a no lose bet.

     

    Just take a stock like AAPL, PCLN, AMZN etc., look at a long staddle three to four weeks out from earnings. You'll see that it has to move up/down a certain amount (usually around 10%+) and you make a profit.

     

    The problem with the far dated long straddle, is you make nothing (actually lose) if there's not a big swing.

     

    So you just need to sell enough near term (expires the week of earnings)straddle to make sure if its flat, you collect the near-term. A short straddle profits if the move is small.

     

    Since a big move is more likely on hi-beta, I make sure the far-dated long is multiples of the short, so the position profits on a big swing.

     

    This time it was an easy 1:2, but it could vary.

     

    To be fair, there's more to be made on a big swing, if I just went a long straddle. But if you work the ratio right, this trade wins wherever the underlying lands.
    7 May 2014, 05:17 PM Reply Like
  • Marc Cortez
    , contributor
    Comments (5) | Send Message
     
    Reel Ken, thank you so much for sharing this arbitrage options trade. I've diagrammed it and I'm still having a hard time understanding it. Sorry I'm slow. A couple quick questions, which shouldn't take too long.

     

    1. How do you know when this arbitrage opportunity is possible? What are the signs? Is it that the near-term options are more expensive than the longer-term options?

     

    2. How do you know what ratio to set up between the near-term options that you are selling and the long-term options that you are buying?

     

    3. Do you pull the trigger the day before earnings, or the day of earnings? Does it matter?

     

    Thanks in advance for your answer!

     

    Also, I appreciate your comments on Herbalife - they helped me realize that I don't know which side is going to win and that I do not need to get involved.
    11 May 2014, 02:34 AM Reply Like
  • Reel Ken
    , contributor
    Comments (4722) | Send Message
     
    Hi Marc,

     

    There's no way to ever know for sure.

     

    Hi beta stocks usually build in a lot of volatility in the option closest to earnings. So, the idea is that by selling a straddle you garner all this extra volatility.

     

    So, when earnings approaches, I look, first, at a long straddle, 3-4 weeks out. I pick this because time decay (theta) is slower.

     

    My broker supplied software (most everyone has some similar version) then will estimate gain/loss ....and this is important...on the date, just after earnings. Typically it will show a window of loss, usually about 10%+ either side of current price, with max loss, at the no-change line.

     

    The next step, is I just figure out the max loss, which is right at no-change, and then how many short straddles I have to sell to zero this out. So, if max loss is $10, and each short straddle credits $3.50 it's approx. 1:3. If the short straddle is $5, then it's 1:2, and so on.

     

    My broker software (Fidelity) then allows me to input both straddles, simultaneously, and I just look at the outcomes following earnings and at the expiry just following earnings.

     

    If it's there, it's there.

     

    I pull the trigger the day after earnings. Though waiting till expiry of the short option might pay off better.

     

    There can be some profit pulling just before earnings, but there's so much vol still packed in, it's just short theta vs. long theta and not much.
    11 May 2014, 06:06 AM Reply Like
  • Frank Greenhalgh
    , contributor
    Comments (2637) | Send Message
     
    Comment in "The Street"
    http://bit.ly/1qeVg9d
    7 May 2014, 02:02 PM Reply Like
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