Tesla is currently facing a challenging period marked by a combination of declining stock performance and operational challenges. The company's share price has dropped significantly in recent times, down 43% year-to-date, and Tesla has experienced a seven-day consecutive decline in stock value.
Tesla is expected to report a 5% decline in sales, marking the first year-over-year revenue drop since 2020 when operations were disrupted by the COVID-19 pandemic. Additionally, the company has recently announced further price cuts on its vehicles and premium driver assistance system, as well as workforce layoffs exceeding 10% of its staff.
Tesla's quarterly deliveries report was disappointing, and key executives Drew Baglino and Rohan Patel have recently departed from the company, adding further uncertainty to Tesla's future outlook. Overall, the company is navigating a period of market uncertainty and operational adjustments, requiring careful strategic management to address these challenges.
Given Tesla's current situation, here are a few strategies to consider for taking advantage of IV crush during earnings season:
1. Selling Options:
Given Tesla's anticipated earnings report and recent decline in sales, you may consider selling options to capitalize on the expected IV crush after the earnings announcement. By selling options, you collect premium and benefit from the decrease in IV after earnings. For example, you could sell a call or put option at an out-of-the-money strike price, depending on your market outlook.
2. Iron Condor:
An iron condor strategy can be an effective way to take advantage of IV crush while limiting your risk. This strategy involves selling a call spread and a put spread on Tesla, with strike prices set above and below the current stock price. The aim is to profit from the decrease in IV and any resulting consolidation in Tesla's stock price post-earnings.
3. Straddle/Strangle:
If you expect significant movement in Tesla's stock price after earnings but are uncertain of the direction, consider a straddle or strangle strategy. By buying both a call and a put option (straddle) or using different strike prices (strangle), you can benefit from potential large price swings. However, be mindful of the cost of options and the risk if the stock price does not move enough.
4. Covered Call Writing:
If you already own Tesla shares and expect the stock to remain stable or slightly increase post-earnings, consider writing covered calls. This involves selling a call option on your shares, providing additional income from the premium collected. The risk is capped by the stock you already own.
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