To The Moon

$Tesla Motors(TSLA)$ is set to hold its highly anticipated Robotaxi event on October 10, where it will finally unveil its long-delayed autonomous model.

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Elon Musk has claimed that this event will be “historic” and potentially the most significant in the company’s history. Many are calling it Tesla’s “most important moment” since the launch of the Model 3, to which Musk positively responded: “yes.”

This event was originally scheduled for August 8 but was postponed, creating a lot of buzz and anticipation. When the delay was announced, Tesla's stock took a significant hit, underscoring the market's high expectations.

Market Impact and Historical Volatility

Investors are keen to see how the launch will impact Tesla's stock price. Historically, major product events have led to significant stock fluctuations. For instance,

• After the Model 3 was revealed in March 2016, Tesla's stock surged by 12% within five days.

• After unveiling the Optimus humanoid robot during AI Day in 2022, the stock fell by 16% in the same timeframe.

• When Musk announced limited production of Optimus starting next year on September 5, 2024, the stock jumped over 4%.

According to renowned analyst Ming-Chi Kuo from TF International Securities, the potential for Tesla's stock to rise hinges on two factors: the visibility of the positive contributions from the new offering and how easily investors can understand and embrace the innovative business model.

For those looking to go long on Tesla, a bull call spread strategy may be a good option.

Bull Call Spread Strategy

This strategy involves selling a call option while simultaneously buying another call option with the same expiration date but a lower strike price for the same underlying asset. Since the premium received for selling the call option is typically higher than the premium paid for the bought call option, investors usually end up with a net premium.

The bull call spread is ideal for investors who expect an increase in market price but anticipate that the rise will be limited. This strategy allows them to benefit from price appreciation while minimizing exposure to significant downturns.

Tesla Bull Call Spread Case Study

Let’s consider a scenario involving Tesla. On October 10, before the U.S. market opens (Beijing time), Tesla's trading price is $241.05. An options trader expects the price might reach as high as $300 within a month but is also concerned about potential downside risk.

1. Strategy Setup

Step 1: Sell a call option with a target price of $300, expiring on November 15, at a price of $62.5, receiving a premium of totaling $6,250.

Step 2: Buy a call option with a target price of $240 simultaneously, also expiring on November 15, at a price of $18.6, paying a premium of $1,860.By selling the $300 call, the trader collects $6,250. If Tesla's price at expiration exceeds $300, the sold call expires worthless, and the trader keeps the entire premium.

By purchasing the $240 call option, the trader pays $1,860, which provides protection if the price falls below $160.

2.Profit and Loss Analysis

- Maximum Profit: If the stock price is above $300 at expiration, both options expire worthless. Net premium received = $6,250 (from the sold call) - $1,860 (paid for the bought call) = $4,390.

- Maximum Loss: If the stock price falls below $240 at expiration, both options would be executed. The trader buys the underlying asset at $300 and sells it at $240, resulting in a loss of $60 per share.

- Total loss = $60 × 100 shares = $6,000. Net loss = Max loss - Premium earned = $6,000 - $4,390 = $1,610.

3.Break-even Point

Break-even point = Strike price of the sold call - Net premium received = $300 - $43.9 = $256.1.

Conclusion

This bull call spread strategy is well-suited for traders expecting a modest increase in the underlying asset's price while still managing downside risk effectively.