Tesla Motors Inc stock was trading around $204 when one trader on Thursday morning spent $1.3m on a bet that the stock would hike up 15% in a time period of one month. One trader’s plan is to make millions of dollars by betting on Tesla’s stock, notes a report from CNBC.
Potential gain of around 1000%
The risk is limited to the amount spent, but if the stock sees a big rally in the next month, then he could get an unexpected gain of around $12.6m in just a month. Option experts refer to this trade as a “call spread,” where one bullish option is bought and another is sold. The price level of the higher-up call ($235) and date of expiration of the options (Oct.21) let us guess what the trader is upto, notes CNBC.
Dennis Davitt, a portfolio manager at Harvest Volatility Management, said, “it looks like a really smart way to play Tesla to the upside.” On CNBC’s “Trading Nation,” Davitt said the short time frame and the high anticipations for the stock make this play quite positive, and a potential gain of around 1000% “is really good.”
Tesla could lose its edge to premium automakers
A recent survey by UBS suggests that the electric car maker could lose its rank to premium auto companies in the long-run even though it has advantages in electric vehicle sales and production currently. UBS’s ongoing survey of 9,400 individuals from six countries points that the sales of battery-powered electric cars will most likely be strongest in the premium end of the market.
In the survey of households earning more than $100,000, around 41% to 52% said they will choose an incumbent brand, whereas only 20% to 29% choose Tesla Motors Inc . Based on this, UBS said that Tesla is likely to lose its competitive edge soon, adding that German carmakers have the main advantage. Families earning more than $100,000 preferred a BMW (BMWYY), Porsche, Audi, or a Mercedes over Tesla.
2016 – a difficult year for Tesla stock
For Tesla Motors Inc shares, it has been a difficult year. This year so far, the shares have dropped nearly 14% as concerns over missed delivery goals and SolarCity merger have hit the stock. The concerns about the autopilot feature have not helped as well. Also, the analyst community is not very optimistic on the stock. According to FactSet, most of the analysts have a hold rating on Tesla’s stock, with the median target price of $206.53.
Jeffrey Osborne, from Cowen, initiated coverage on the stock on September 8 with a $160 target and an underperform rating. Osborne said the stock has “a material amount of execution risk over the next 12 to 18 months,” making for an “asymmetric risk/reward profile for the stock at the market’s current valuation.”
2016 could be the first negative year for the U.S.-based automaker as a public company.
Aman Jain owns no shares of Tesla Motors In. at time of writing, but positions can change at any time.
Disclaimer: The above should not be considered or construed as individualized or specific investment advice. Do your own research and consult a professional, if necessary, before making investment decisions.