Tesla Surge? Goldman Recommends Call Options Before Key October Events

Long call options offer traders a way to profit from rising stock prices without needing to own the underlying stock. 

With the right timing, this strategy can generate substantial returns, particularly for stocks that are known for their volatility. 

One such stock is Tesla (TSLA), a company that has become synonymous with innovation and disruption in the automotive and technology sectors.

Tesla has always been a focal point for both investors and traders, with its stock experiencing significant price swings due to its ambitious projects and charismatic CEO, Elon Musk. 

The company isn't just about electric vehicles (EVs); it's pushing boundaries in energy storage, solar technology, and even artificial intelligence.

For traders who believe in Tesla's long-term vision but are cautious about the short-term volatility, call options provide a way to potentially capture upside without the same level of capital commitment as owning the stock.

GOLDMAN SACHS RECOMMENDS TESLA CALL OPTIONS

Goldman Sachs recently turned its attention to Tesla, highlighting a couple of key events in October that could serve as catalysts for the stock. 

John Marshall from Goldman's derivatives research team suggested that investors consider call options to take advantage of potential price movements.

These events, including the release of third-quarter delivery numbers and a much-anticipated robotaxi event, are seen as pivotal for the company’s near-term trajectory.

Goldman Sachs Automobiles analyst Mark Delaney expects “the company’s technology and business outlook for Full Self Driving (FSD)/Robotaxis to be a prominent part of the event. On 2-Oct the company is also expected to report 3Q24 deliveries and production data which Mark estimates to come in-line with Visible Alpha consensus at ~460k.”

Goldman’s optimistic outlook comes at a time when Tesla’s stock has been under scrutiny due to production concerns and competition in the EV space.

The upcoming events could provide much-needed clarity on Tesla's future growth prospects, particularly in the realms of autonomous driving and fleet services.

For those willing to take on some risk, this could be an opportune moment to leverage call options and position themselves for potential gains.

Let’s take a look at how a long call option trade might look.

Goldman have suggested buying the October 25th, 255-strike calls. 

They were trading for around $22.10 yesterday.

The breakeven price for this call option is equal to the strike price plus the premium paid, which would make the breakeven price $277.10.

The most the trade can lose is the premium paid of $2,210, which would occur if TSLA finished below 255 on October 25.

However, if TSLA stock shoots higher, the upside above 277.10 is unlimited.

Using options in this way can be a great way to gain exposure to a stock without risking as much capital as would be required to buy the stock outright.

Here is the expiration profit and loss graph for the long call trade. 

RISK MANAGEMENT

One issue with long calls is that we need the stock to have a strong rally to get past the breakeven price.

To reduce the risk, traders could consider selling an out-of-the-money call, turning the trade into a bull call spread.

For example, selling the October 25th, $290-strike call would reduce the trade cost by around $965 but would also limit the upside above $290.

Cutting the risk from $2,210 to $1,245 might be a good idea given the odds of Tesla getting above $290 are likely pretty slim.

Here is the profit and loss graph for the bull call spread version of the trade:

A stop loss could be set if TSLA stock drops 8% from the entry point.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.