Futu Research | Latest Tesla Stock Analysis, Performance Research, Investment Strategy
Futu Research | Tesla Stock Price Volatile: How Do Investors Respond?
In recent times, the stock market has been very volatile, full of opportunities and risks. Historically, we have seen that Tesla shares have a great deal of volatility. We take Tesla, for example, to trade in a wide range of stock price fluctuations.
There is a big premise here that the company/asset structure is good enough. The logic itself is upward. If you feel that the long-term profit (dividend) of the company's operation/assets (dividends) will not hold, then there is no long-term value.
Note: The following analysis does not consider the impact of handling fees.
Strategy 1: What to do in the holding if Tesla stock price does not rise or fall
If we determine that Tesla stock price is currently in a range that does not fluctuate too much before events driven by results, operating data disclosures, etc., we can capture the time value and volatility value of covered call options.
For example: on August 14, 2024, Tesla shares were priced at $201.38, and if we think it is worth selling to $220 (people here have different views on the target price, it is best to sell near our target price), then we can choose to sell an exercise option at $220, Bullish options with an option fee of $2.32 for August 30, 2024.
Strategy Overview
This is essentially an options strategy, i.e. by selling bullish options at the same time as holding a stock, such as holding 100 shares of Tesla, you can sell a bullish option based on your default target price.
If the stock price is below the exercise price when the option expires, the option becomes worthless and we can keep the option fee as an income.
Source of income
Options Fee: The $2.32/share option fee earned by selling bullish options is the value of the time value and volatility of the option, which is the money ultimately lost by the buyer of the option.
Stock Price Rises: If the stock price rises but does not reach the warrant price, we can keep the stock and earn the proceeds of the increase in the share price.
Revenue Analysis
Suppose we hold 100 shares of Tesla stock, and by selling bullish options, we immediately receive an option fee of $232 ($2.32/share* 100 shares).
If Tesla's share price is below $220 at maturity on August 30, 2024, the option will not be exercised, we will keep this $202 option fee as income, and any value added to the stock is yours.
If the share price rises to $220 or more, options may be exercised and we will be forced to sell the stock at $220/share.
At this point, our earnings will be part of the share price increase plus the option fee, that is (220-201.38) *100 shares +232=$2094. Relative to holding only the ordinary shares, you can earn more than $232.
If you say that the share price has not reached the target price and you do not plan to sell it, you can earn income from the option fee in the long term.
Risk analysis
If the Tesla share price rises significantly above the exercise price, the higher share price gains are lost, because the shares must be sold at the exercise price after the option is exercised.
If there are only 100 stocks, but some call (bullish options) are sold, then if the stock price rises below the target price ($220/share), there will be a net loss of trade and a huge loss.
As shown in the figure above. Therefore, do not sell bullish options that hold more positive stocks.
Utilization of funds
The option fee received can be used for other investments, such as depositing cash hoards, for additional interest income.
Strategy 2: What to do if the Tesla share price is bullish for a long time, but the target price is not reached?
If we are optimistic about the long-term value of Tesla, but do not reach the target price, we want to buy stocks at a lower price when the Tesla share price falls. Then we can sell the bearish option at the expected psychological buy price for the option fee, while providing us with a potential low cost buy point. If the share price stays above the option price, we will keep the option fee as profit; if the share price falls and hits or breaks the option price, we may be required to buy shares at the exercise price.
For example, if Tesla shares were priced at $201.38 on August 14, 2024, and choosing to sell a stock option at $170, with an expiration date of August 30, 2024, and an option fee of $0.84, there are the following possible outcomes:
Revenue Analysis
1. Stock Price Above Market Price: If Tesla's share price is above $170 by the option expiration date, the bearish option will become worthless because no one is willing to sell the stock at a price above the market price.
In this case, the option fee received is retained as income, i.e. $0.84 per share for a total ($0.84/share* 100 shares) of $84.
2. Stock price equal to or below the exercise price: If the price of Tesla shares is equal to or below $170 on the maturity date, the bearish option will have an intrinsic value, the option holder may choose to exercise the option and sell the stock at a price of $170, i.e. we will receive it at a price of $170, at this time our total cost Will be net outlay after option fee income, i.e. ($170/share* 100 shares - $84) $169916, i.e. $169.916/share.
3. Sharp drop in stock price: If Tesla's share price falls significantly below $170, it risks buying stocks higher than the market price.
For example, if the stock price fell to $150, then we would buy the stock at a price of $170, with a loss of $20 per share, and net loss minus the option fee, the total net loss would be $1916.
Risk analysis
If the share price falls significantly, you may be at risk of buying stocks higher than the market price, then you can simply go for a pickup, or close the bearish option.
The maximum yield is fixed, that is, the option fee charged.
And the maximum loss is theoretically unlimited, because the share price can fall indefinitely, such as a complete market pullback.
Utilization of funds
The option fee received can be used for other investments, such as depositing cash hoards, for additional interest income.
Strategy 3: Analyze Tesla Stock Price Using Technical Analysis
If you say Tesla without holding 100 shares and Tesla purchases with less than 100 shares on account (the basic option threshold), then you can trade using the psychological price levels formed by a jump in the share price.
Tesla shares that have fallen in price and we can find strong psychological support/resistance levels formed by their trendlines/technical indicators to trade.
Here's a big premise to keep in mind: Since technical analysis relies more on the psychological level, short-term trends generally work best only when they hit the trend line the first time they hit the trend line, and weaker the second, because short-term means “zero and play” to earn the fear of others Panic money, then make your first trade near a strong target price, at which time the success rate is highest.
However, in the long run, if there is a repeat hit at a certain price, a stronger support will form.
First of all, we recommend that you go to study a course on technical analysis, the link is below.https://course.futunn.com/course/79162
