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05/04/18

Elon Musk doesn’t hold a boring earnings call, that’s for sure.

Yesterday Tesla (TSLA) shares dropped more than 8% intraday before paring their losses after the company’s Wednesday earnings call, which featured an unfiltered performance from CEO Musk that at least one observer described as “the best call I've heard in a long time.”1

Tesla (TSLA), 5/3/18. Tesla daily price chart. Post-earnings reaction

Source: OptionsHouse

It was a big move, but volatility is possibly what interests some stock and options traders in TSLA shares in the first place. It’s not like TSLA was a boring stock before Wednesday: Over the past year, TSLA’s average daily range was in excess of $10, and the average close-to-close price change was nearly 2%. The daily chart below shows the stock more than doubled in price between December 2106 and June 2017, ultimately peaking around $390 while forming an incredibly wide, weakening trading range that prices definitively broke to the downside in March, when shares dipped below $250.
Tesla (TSLA), 12/17/17 – 5/3/18. Tesla weekly price chart. Volatile history

Source: OptionsHouse

Almost lost in the noise was the fact that Wednesday’s numbers actually surprised to the upside, including revenue of $3.41 billion vs. an estimated $3.22 billion, and per-share losses of -$3.35 vs. the expected -$3.58. Also, the company has recently made strides in ramping up production of its Model 3 production, and Musk asserted Tesla would be able to meet its Q2 goal of banging out 5,000 of the vehicles per week, and would not need to borrow additional funds to keep operating.2

Emotions aside, the stock’s early April low around $245, which is also the approximate level of the early 2017 swing low, is arguably a big line in the sand for near-term bulls. But the fact that the stock was able to pare its losses to around -5% late in yesterday's session is telling. If cooler heads decide the decline was more about reactions to the tone of an earnings call than the company’s prospects, shares could snap back.

And something for options traders to think about: After spiking higher in March to around 56%, Tesla’s implied volatility (IV) of around 49% is still well above its 200-day average of 42%, which means options sellers are potentially getting more bang for their buck (especially for puts, given the recent down move), since high IV inflates option premiums.

Whichever direction the stock goes, one thing’s for sure: The ride is far from over—and it’s bound to be a fast one.

Futures Watch: We’ve been down this road before this year, but after giving back more than half of their year-to-date gains in March, front-month corn futures swung back to the upside, and earlier this week traded to their highest levels since mid-2016 (see chart below). Worries about a cold, wet planting season, increasing exports, and diminishing stockpiles may have contributed to the run.3 September corn futures (CU8) broke out above their March-April highs on Tuesday, and on Wednesday rallied to within 10 cents of their 424.25¢/bushel contract high.

September corn (CU8), 11/10/14 – 5/3/18. Corn futures daily price chart. Upside breakout

Source: OptionsHouse

 

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1 CNBC.com. Cramer defends Elon Musk's crazy call: Every CEO would love to go off like that. 5/3/18.

2 Tesla beats earnings expectations, cuts expenses and promises profits. 5/3/18.

3 farmdoc Daily. Weekly Outlook: Is Corn Setting Up for a Rally? 4/23/18.