Tesla Inc. (TSLA) has dominated the electric vehicle industry, but its position is increasingly being challenged. Here’s how to trade it with options. The growing presence of Chinese EV manufacturers, such as BYD and NIO , is significantly intensifying competition in key markets. These competitors are rapidly gaining market share with high-quality, cost-effective alternatives. With Tesla’s eye-watering valuation, it is priced for perfection, leaving little room for error as deliveries faces increasing pressure. With Q4 earnings set to be reported on January 29, we see elevated risks of missed expectations or cautious guidance, particularly given ongoing global competition and challenges in maintaining delivery momentum. If we look at the chart for TSLA, it has recently shown signs of exhaustion. After reaching overbought conditions on both daily and weekly timeframes, momentum has started to turn negative. The recent rally that started in August of 2024 was coupled with outperformance relative to the S & P 500, but in the past month, it has given back and started to underperform the overall market. TSLA is at risk of a correction to the initial $350 target level, with extended targets of $265 below that. Fundamental picture concerning Tesla’s fundamentals are deeply concerning when compared to its peers. While TSLA boasts higher expected EPS growth of 11% and revenue growth of 12%, these figures hardly justify its nearly 1,300% premium to the industry median of 9 times forward earnings. Additionally, the company’s net margins of 12.08% are impressive but increasingly under threat as the EV market becomes more saturated. Chinese EV makers are capturing market share in both domestic and international markets, offering competitive pricing, and expanding their presence in Europe, a key Tesla market. These pressures are exacerbated by Tesla’s reliance on continued growth in deliveries to sustain its lofty valuation, making any miss in its upcoming earnings report a significant downside risk. Tesla’s earnings on January 29 are a pivotal event. The market will closely scrutinize its delivery numbers and guidance for 2025. Given the heightened competition and potential for delivery misses, we believe Tesla’s earnings could serve as a negative catalyst for the stock. The trade With these factors in mind, this creates an attractive risk/reward opportunity to establish bearish exposure in TSLA heading into earnings. With implied volatility on TSLA elevated and options on the expensive side, to capitalize on this bearish outlook, we suggest buying a Feb 7, 2025 $385/$335 put vertical @ $16.15 debit. This structure allows us to risk less to potentially make more while offsetting the cost to outright buy the Feb 7 $385 Puts. This strategy entails: Buying the Feb 7 $385 Put for $22.50 Selling the Feb 7 $335 Put for $6.35 (View this trade with updated pricing on OptionsPlay) This trade provides a maximum reward of $3,385 if TSLA is below $335 at expiration and a maximum risk of $1,615 if TSLA is above $385 at expiration. The breakeven point for this trade is $368.85, and it profits if TSLA declines below this level by expiration. With earnings on the horizon and elevated valuation concerns, this trade positions us to benefit from a potential correction in Tesla’s stock DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
