Tesla is set to report its Q1 earnings this Wednesday after the close, and the setup is more complex than usual. Despite the messiness, there are ways to navigate this event.
Background
Tesla’s Q1 deliveries missed expectations, with 358,000 vehicles delivered against 408,000 produced, resulting in 50,000 unsold units. The stock price is currently at $390, the same level as in October 2021. Additionally, there are 21 active lawsuits against the company, covering various issues, and the implied volatility (IV) for this week’s expiry is running at 77%, a 26-point premium over annualized vol.
Positioning in TSLA
To understand the market’s expectations, we can analyze the options positioning using a gamma positioning tool. The top gamma strike (TGS) is at $400, which is a sticky level that the market will likely gravitate towards in the absence of a strong catalyst. Below $400, call gamma weakens, and below $380, puts take control, leading to increased volatility and potential for faster price movements.
The key levels to watch are:
- $400: TGS and a sticky level
- $380: Where put gamma takes control
- $370, $360, and $350: Minor put clusters
- $405 and $410: Call gamma builds
- $420: A solid call cluster
Flows in TSLA
As of now, flows are leaning bearish, with traders selling calls and buying puts. However, there are pockets of meaningful call buying, suggesting some traders are making directional bets on a positive earnings outcome. Notable positioning includes selling $430 calls and buying $355 puts, which is consistent with a market that’s hedging rather than committing.
Price Action on TSLA
On the 5-minute chart, Tesla made a bullish impulse leg on April 15th, running from the low $360s to the $380s. Since then, the price has entered a corrective consolidation, oscillating around the $400 TGS. The top put strike (TPS) is at $380, and the market is effectively pinned between $380 support and $400 resistance ahead of the catalyst.
Trading Strategies
The current implied move for the earnings release is $13.25 in either direction. Based on this, there are two possible trades:
Scenario 1: “Meh” Earnings (Vol Collapse)
If earnings are neutral, the 77% IV will collapse. In this case, selling an iron condor or strangle targeting $410 on the upside and $380/$375 on the downside could be profitable.
Scenario 2: Earnings Beat
If earnings beat expectations, long bull call spreads for the Apr 27 expiry or later could be a good strategy. Targeting $405 and $410 to the upside, using a spread structure to offset theta and vega risk, could provide a defined upside.
These strategies are designed to navigate the complex setup surrounding Tesla’s earnings report. By understanding the positioning, flows, and price action, traders can make informed decisions and manage their risk effectively.