July 19th, $Tesla Motors(TSLA)$ released its Q2 earnings, and the stock fell by approximately 4%. Honestly, it is not significant volitility for Tesla.

As there are monthly delivery reports, the performance of new energy vehicle companies usually doesn't come with major surprises. The Q2 performance has been extensively reported in the news. Tesla itself has summarized the key points for us.

Positives

- Increase in delivery volume

- Decrease in gross profit margin

- Growth in revenue and gross profit from non-automotive business

- Reduction in average vehicle cost due to decreased raw material costs

Negatives

- Price reduction

- Costs and other related expenses of 4680 battery production ramp-up

- Increased expenses for other major projects like the electric pickup Cybertruck, AI, and FSD

- Adverse currency exchange rates ($600 million)

About Margin

The gross profit margin declined to 18.2%. Tesla began reducing prices for higher sales volume this year, which inevitably sacrifices profit margins. Musk believes this approach is feasible in the current economic environment.

As for the claim of "below expectations," I don't fully agree.

Market expectations are an average, including all analysts who track this stock. However, not all analysts timely adjust their models. Many analysts who updated their Tesla valuation models recently have already lowered their profit margin expectations. Analysts who haven't updated their reports in over 30 days often retain outdated expectations, which are not in line with reality.

Therefore, although the expected gross margin ranges from 16.2% to 22%, newly issued reports tend to have a lower average, mostly below 18%.

So, instead of saying it fell below expectations, it's more accurate to say that some analysts didn't adjust their models based on the actual situation of the past two months and raised their expectations.

About Cybertruck

Since Tesla officially announced the first Cybertruck's production and the launch of "mass production tools" last week, investors had high expectations for new explosive news during the conference call.

However, Musk only mentioned that "Tesla will begin volume production of the Cybertruck next year, with deliveries starting later this year," and he referred to the Cybertruck as "containing a large amount of technology," with "production difficult to predict."

It's like pouring cold water on their expectations.

About Non-Auto Revenue

FSD technology has always been part of Tesla's plan, corresponding to the Robotaxi autonomous driving ride-hailing service.

However, there are no substantial products yet, and all plans are still in the planning stage, requiring investors' imagination for valuation.

How to trade Tesla?

Firstly, if you are a value investor, regardless of whether you currently hold Tesla or not, follow Musk's advice and hold Tesla for the long term, just like Buffett. This will likely be a wise choice with high returns over the next 10 years.

TSLA vs SPX

But the question is, can you withstand the volatility?

Tesla is one of the tech stocks with the highest volatility, with post-earnings single-day fluctuations exceeding 9% several times, bringing strong uncertainty to investors' portfolios.

Many investors take advantage of Tesla's high volatility and profit from "selling" volatility through options selling. Since most investors are more afraid of naked bearish call options, selling PUT options becomes the most significant way for the bulls to sell volatility.

I usually consider the Bollinger Bands' upper and lower bounds as reference strike prices.

1. After a one-month continuous trending market, I would choose PUT options with a strike price close to the lower Bollinger Band and expiration date within 30-40 days (the difference from the current price is not significant).

2. After a continuous oscillating market, I would choose PUT options with a strike price close to the lower Bollinger Band when the oscillation began (the difference from the current price is larger).

   

If you are concerned about increased volatility during the earnings season, you can extend further out-of-the-money.

Of course, if your goal for selling PUT options is to acquire the stock, then consider this as unsaid.

If you hold the underlying stock, use the same approach to select the upper bound to sell Covered CALL options.

Why continue to be bullish on Tesla?

Since May, TSLA's continuous rise is very similar to the "Gamma Squeeze" periods in 2020 and 2021, which squeezed out many short sellers.

If you are a short seller, seeing the current rally, what is your plan? Will you continue short-term shorting or wait for a longer-term short?

Let's recall the period last year when TSLA fell from $350. The snowball effect was obvious, but who was the dominant short seller?

Right, it was Musk himself. He wanted to buy Twitter, pledging many TSLA stocks and causing the stock price to drop. When it continued to decline, the dog investment banks mercilessly closed his positions. As a result, the more it fell, the more he sold.

The bull and bear sides of Tesla are distinct. Once one side becomes dominant, it can push the stock to extremes in a one-sided market. The bears never expected Tesla to reach $100.

At the current price, although the valuation is high, both the bulls and bears have their arguments about the unquantifiable part. The upcoming good news in Q3-Q4, whether from the Berlin factory or Cybertruck production, is foreseeable. What if there is a breakthrough in FSD progress?

Therefore, being a short seller would undoubtedly be under immense pressure.

Of course, one short-term bearish factor is the special weighting adjustment of the Nasdaq 100 index, which is expected to reduce Tesla's weight by about 1 point.

This might be a good opportunity to trade volatility.

Happy Trading!