Sometimes when things are moving fast, we need to slow down and wait. Such may be the case with Tesla shares. I'll describe how options traders will bet the bottom is in and the levels they may find attractive to do so. Tesla (TSLA) announced what Gene Munster of Deepwater Management described Wednesday on CNBC's “Fast Money” as “the most sobering outlook that I have seen from Tesla, when they talk about a notable step down in growth rates” As a stock, Tesla leaves a bit to be desired. It's quadrupled revenues since 2019, but a naysayer will point out that it's still much smaller than Ford, GM or Toyota in terms of revenues, but the valuation dwarfs those others. In fact, Tesla's enterprise value is 8.6 times the size of GM and Ford combined. Tesla's margins of nearly 11% are twice those of the 2 biggest U.S. automakers, but a bear will point out that Porsche margins are 13%. The Model Y is the best-selling car in the world and the first EV to do so, but pickup trucks are where it's at…and it isn't clear that the Cybertruck is going to resonate with buyers. Even still, it's not clear that the legacy automakers can compete long term with Tesla or China's BYD. Ten years ago I would have said the infrastructure, the cash flow, the dealer networks and the brand loyalty would have made it virtually impossible for Tesla to compete. Yet here we are and the Model Y is the best selling car, their margins are twice the big U.S. automakers generally, and the U.S. automakers cannot make profitable EVs at all. Tesla's superchargers are easy, fast and everywhere. It isn't Tesla that needs to prove itself, it's Ford and GM. Tesla is the better company. Is it the better stock? So here I find myself in a quandary. Tesla is a constituent of something I like to call the “Holly Index”, an index made up of the companies that make the products my wife spends her money on (or at). Apple, Amazon, Costco, Lululemon, Nike, Yeti and Tesla are, if the actual dollars spent are measured, high on this list. I learned many years ago. Don't short stocks on the Holly Index. The reason is that my wife and kids are far more dialed into what's popular than I am. However, even net of these declines at greater than 50 times earnings and greater than 30 times EV/EBITDA, it's not yet an attractive entry point with a sufficient “margin of safety.” TSLA YTD mountain Tesla YTD Sometimes, whether it's a fast car, or a fast-moving stock, the best thing to do is wait. After a stock gaps down we usually want to give a few days to find it's new level before assessing the next move. The trade: Sell puts Technically, by some indicators at least, the next level of support is $167, substantially below where we are now. If we get to that level I expect options premia will be pretty elevated as traders bid up the price of downside protection, and we might use that opportunity, should it arise, to sell some cash-covered puts to look for entry into the stock at lower levels. We will collect the income from selling the put and won't mind if the stock is put on us at these lower levels. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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