(Note: The author of this fundamental analysis is a
financial writer and portfolio manager. He and his clients own
shares of TSLA.)
Tesla Inc. (TSLA) shares appear to have broken out and
could continue to rise from current levels. In an August 29
Investopedia article, we noted that Tesla shares could be
getting ready to surge higher. (See: Why
Tesla Could Be Getting Ready To Surge Higher.)
On September 11, the stock rose roughly 6 percent, signaling a
potential technical breakout. Meanwhile, the options market
signaled expectations of elevated levels of volatility to come,
paving the way for a possible rise toward $400.
If Tesla stock rises to $400, that would be an increase of
nearly 10 percent from current levels. At that price, the
electric carmaker would have added nearly $6 billion to its
market cap, taking it a total of $66 billion.
In the prior article, we noted that Tesla had a formed a chart
pattern called a symmetrical triangle, as
illustrated by the combination of the red and green lines in
the chart above. The chart reveals that the stock price has now
broken above the red trend line, signaling a breakout. The
breakout is significant because since peaking in mid-June, the
stock has been consolidating, continually making a series of
higher lows and lower highs. It seems possible at this point
that Tesla should be able to regain its prior highs around $390
and push toward the psychologically important $400 level.
The 15-minute chart shows how the stock has risen right back
toward the $363 level, which finds its roots back to mid-June
as well. This likely is a significant technical support level
for the stock in the future should there be a pullback.
Option Market Expecting Highs Levels Of Volatility
Interestingly, the options market is pricing in a lot of
volatility ahead for Tesla stock, with an implied volatility of nearly 40 percent
for options set to expire on January 19, 2018. By comparison,
similar S&P 500 options have an implied volatility of only
The $360 put-call spread is also pricing in massive volatility
for the stock, pricing in an 18 percent move at the $360 strike
price. The range is from $330 to $396, about a 9 percent move
in either direction from the current stock price of around
$364. Amazingly, the $400 calls are trading at a price around
$19.70, meaning the stock would have to trade to $419.70 to
just break even by the expiration date.
The options market is telling us that traders are expecting a
big move in Tesla shares by the middle of January 2018, while
the chart is looking increasingly bullish. Pulling all of this
together gives the sense that investors are gearing up for the
stock price to rise over the next couple of months.
Of course, we know the market can be very fickle and change at
a moment’s notice. But for now, with the absence of any major
news or surprises, the chart and the options market suggest
higher prices are on the horizon.
Michael Kramer is the Founder of Mott
Capital Management LLC, a registered investment adviser,
and the manager of the company’s actively managed, long-only
Thematic Growth Portfolio. Kramer typically buys and holds
stocks for a duration of three to five years. Click here for Kramer’s bio and his
portfolio’s holdings. Information presented is for
educational purposes only and does not intend to make an offer
or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments
involve risk and unless otherwise stated, are not guaranteed.
Be sure to first consult with a qualified financial adviser
and/or tax professional before implementing any strategy
discussed herein. Upon request, the advisor will provide a list
of all recommendations made during the past twelve months. Past
performance is not indicative of future performance.