Tesla stock looks attractive for aggressive investors who can handle being bullish when so many others are bearish—and can handle a little surrealism.
Beyond the polarizing persona of CEO Elon Musk is an innovative electric-vehicle company in an unusual predicament that is rarely associated with companies worth almost $1 trillion.
Musk, as the world knows, is President Donald Trump’s key adviser. He runs the Department of Government Efficiency, which is trying to optimize the sprawling federal bureaucracy.
Though Musk owns and operates a complicated business empire, he is spending an extraordinary amount of time helping Trump. Musk also comments, seemingly all the time, on controversial issues on X, his social-media platform. Unfortunately for Tesla shareholders, Musk has disproved the axiom that all publicity, even if it’s bad, is good. Tesla’s falling stock price and weak car sales are evidence.
The pioneering company, which has traditionally appealed to liberals, now repulses many of them. Vandals have torched Tesla cars, and the company faces boycott calls. All this because of Musk’s politics.
Shares surged on Trump’s election but have since fallen for eight straight weeks and are below their 200-day moving average, or long-term trend line, which in Wall Street speak denotes dead money.
Recrossing the 200-day moving average is difficult, but not impossible. If Tesla demonstrates technological advances, or if sales surge, Wall Street will stop fretting that Musk might be too distracted to focus on commercial endeavors.
Of course, so many investors and car buyers are disgusted with Musk that it is hard to imagine that he or Tesla ever regain their popularity—and therein lies the allure. Investors are usually either too bearish or too bullish. Sooner or later the mob regains its emotional equilibrium, and that often makes catching sentiment shifts profitable trades.
In the options market, Tesla is priced like a car wreck. The stock’s implied volatility is sharply higher than that of the S&P 500 index. On any given day, the market prices Tesla in anticipation of dramatic 5% swings, up or down, in its stock, which makes its options very expensive. It needs a parabolic move up or down to emerge from the market’s subterranean penalty box—or to sink further into the abyss.
At this moment in market time, Tesla is like a salmon swimming upstream as hungry bears plan their attack from the shoreline. This bearish sentiment can be monetized and turned into a reasonably priced wager, with defined risks, that Tesla will overcome its difficulties later this year.
In June, Tesla is expected to introduce its long-awaited self-driving robo-taxis, a development that has been heralded as a revolutionary innovation. Before then, the company will have reported quarterly earnings and updated sales data, and perhaps even introduced a lower-cost car. These events are opportunities for Tesla to show that it merits respect.
With the stock at $225.31, aggressive investors can sell Tesla’s November $215 put option and buy the November $265 call option. The trade generates a small credit to wager on a recovery in return for agreeing to buy the stock at $215. During the past 52 weeks, Tesla shares have ranged from $138.80 to $488.54.
The risk-reversal strategy—selling a put and buying a call with a higher strike price and the same expiration—also positions investors to profit from Tesla’s recovery for less money than buying stock outright.
If Tesla’s stock is at $350 by the November expiration, the call is worth $85. Should the stock fall to $215 at expiration—a clear risk—investors must buy the stock. The strategy is a wager that, over time, Tesla repairs the damage that has been done at the start of 2025. B
Email: editors@barrons.com