Investment Banks Bullish on Tesla: Is It Time to Buy Calls?
Deutsche Bank has recently issued a rare bullish report on $Tesla Motors(TSLA)$ , upgrading its rating to "Buy" and naming it a top pick in the automotive sector. Previously, the bank had maintained a "Neutral" stance on Tesla. Deutsche Bank has also reinstated its price target for Tesla, setting it at $295.
Tesla Technology Platform
Deutsche Bank viewed Tesla as a tech platform with the potential to transform multiple industries.
Analyst Edison Yu highlighted the company's potential in autonomous driving and humanoid robots as reasons for its unique premium. Additionally, Tesla's energy storage business is seen as reaching a significant growth and profitability inflection point, with expected sales of $13 billion by 2025.
Analysts forecast Tesla will deliver 461,000 units in Q3, up from 444,000 units in the previous quarter and 435,000 units a year ago. This includes an estimated 181,000 Model S/X deliveries, 430,400 Model 3/Y deliveries, and 128,000 Cybertrucks. For Q4, analysts expect Tesla to deliver 494,000 units.
Elon Musk has expressed on X (formerly Twitter) that he sees full self-driving Robotaxis and the Optimus humanoid robot as Tesla's future. In July, he stated that once Tesla solves full self-driving and achieves mass production of Optimus, any remaining short positions on Tesla will be “obliterated,” including those held by Bill Gates.
Morgan Stanley analyst Adam Jonas also maintained a "Buy" rating on Tesla, with a price target of $310.
For investors looking to go long on Tesla, considering a Bull Call Spread strategy might be worthwhile.
What is a Bull Call Spread?
A Bull Call Spread is an options trading strategy where an investor buys a call option with a lower strike price and sells a call option with a higher strike price, both with the same expiration date.
Compared to simply buying a call, this strategy lowers the net cost and shifts the breakeven point to the left, increasing the probability of a profitable trade. Essentially, it's a low-cost way to bet on a moderate rise in the stock price.
Tesla Bull Call Spread Example
Here's how you can set up a Bull Call Spread with Tesla:
Step 1: Buy a Call Option: Strike price of $225, expiring on October 11, paying a premium of $1,730.
Step 2: Sell a Call Option: Strike price of $285, expiring on October 11, receiving a premium of $235.
Maximum Profit and Loss
Net Cost: The premium for buying the call option is $1,730 and the premium for selling the call option is $235, so the net cost is $1,495.
Maximum Potential Profit: The maximum profit is achieved if Tesla’s stock price is at or above $285 at expiration. Here’s the calculation:
($285 - 225) × $100 - $1,495 = $5,855
Maximum Potential Loss: The maximum loss is limited to the net cost of the strategy, which is $1,495. This occurs if Tesla’s stock price is below $225 at expiration.
Breakeven Point: The breakeven point is calculated by adding the net cost to the lower strike price:
$225 + $14.95 = $239.95
The strategy will be profitable if Tesla’s stock price is at or above $239.95 at expiration.
This Bull Call Spread is a good choice if you expect Tesla’s stock to rise moderately but not exceed $285. It’s designed for situations where you anticipate a gentle upward movement in the stock price, offering limited risk and controlled costs.
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