is offering a new incentive on one of its electric-vehicle models heading into the end of the quarter. It’s good for car buyers, but it might concern investors. One analyst, however, has an idea of how protect recent Tesla stock gains.
The EV maker is offering three months of free supercharging for Model 3 sedans bought from existing inventory before the end of the second quarter. It’s another carrot to buy now. Cars in inventory are already discounted slightly, on top of recent base-model price cuts at the beginning of 2023.
Incentives can signal weak demand. Tesla (ticker: TSLA) isn’t offering the same deal on its better-selling Model Y. What’s more, Model 3 inventories in the U.S. are up, and about 2.5 times higher than Model Y inventories.
Still, there are a couple of mitigating factors. For starters, most Tesla vehicles are made to order, and the 1,000 or so Model 3 sedans in inventory represent about one to two days of Model 3 sales in the U.S. Car dealers typically operate with 30 to 60 days of inventory.
And Tesla doesn’t just make EVs. It’s the dealer, and car dealers often offer incentives that aren’t immediately apparent to investors. Not so in the case of Tesla, because all its deals are posted to its website.
Tesla also operates, essentially, a network of EV filling stations, and the new incentive is like getting a prepaid card at the dealer.
More incentives might be weighing on shares. Tesla stock opened down about $8 in Thursday trading. Shares have clawed their way back and are down 0.1% at $256.45. The
are up 0.6% and 0.5%, respectively.
Tesla stock is just coming off a 13-day winning streak that has sent shares up more than 40%. SIG options and derivatives analyst Christopher Jacobson has an idea for protecting some of those short-term gains.
“Alongside a tremendous run for the shares, we highlight an apparent near-term downside put-spread buyer,” wrote Jacobson in a Thursday report.
He’s talking about a put-spread trade. Jacobson noticed an investor bought put options expiring July 7 with a “strike price” of $220. That gives the holder the right to sell Tesla shares for $220 each to the seller of the options. The investor also sold put options with the same expiration date with a $200 strike price. If Tesla stock slips under $200 on the open market, the investor could be forced to buy Tesla shares at $200 each, but the investor can fund that transaction by selling Tesla shares at $220 each.
The put-spread strategy costs money, and the right to sell Tesla stock at $220 a share is worth more than the right to sell it at $200 a share. But it limits the downside if Tesla stock drops in the coming weeks. It’s like buying insurance.
Jacobson points out another way to protect against a drop. Tesla holders could sell a call option with a strike price of $295. The money from that can buy a put option with a strike price of $230. If Tesla stock dives on the open market, the strategy limits the drop in the investor’s shares to $230. If Tesla stock goes above $295, however, the Tesla shareholder will have to sell stock to the person who bought the call option, limiting the shareholder’s upside. This trade is lower-cost insurance.
Both can work as risk management tools. Options strategies can be difficult to execute and less experienced traders should always ask a broker or financial advisor for help.
Write to Al Root at firstname.lastname@example.org
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