How to Trade Tesla Inc After It Announces Vehicle Deliveries
Tesla Inc (NASDAQ:TSLA) : How to Trade Tesla Inc After It Announces Vehicle Deliveries
Date Published: 2018-06-29
Disclaimer
The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
LEDE
There is a bullish momentum pattern in Tesla Inc (NASDAQ:TSLA) stock 1 trading day after it reports automobile deliveries (quarterly), if and only if the stock showed a large gap up after the actual earnings announcement.
Tesla has two earnings events every quarter -- the first is a company report on automobile deliveries and it occurs well before the actual 'normal' earnings event where the company discusses cashflow and EPS. The next one is due out over the weekend of June 30th, 2018.
In Trade Machine, we use the dates that Tesla reports sales figures for automobiles, which is done quarterly, as earnings dates, not the date that it reports EPS and revenue.
It's this event that has a repeating pattern. This back-test is a conditional entry -- the company reports automobile deliveries and if the stock move off of that report is a 3% gain or larger, then a bullish position is back-tested looking for continuing momentum. The event is rare, but when it has occurred, the back-test results are noteworthy.
Tesla Inc (NASDAQ:TSLA) Earnings
Simply owning options after an earnings event, or in this case, an automobile delivery event, blindly, is likely not a good trade, but hand-picking the times and the stocks to do it in can be useful. We can test this approach without bias with a custom option back-test. Here is the timing set-up around earnings:
Rules
* Condition: Wait for the one-day stock move off of the delivery numbers, and if it shows a 3% gain or more in the underlying, then, follow these rules:
* Open the long at-the-money call one-trading day after earnings.
* Close the long call 14 calendar days after earnings.
* Use the options closest to 21 days from expiration (but more than 14 days).
This is a straight down the middle direction trade -- this trade wins if the stock is continues on an upward trajectory after a large earnings move the two-weeks following earnings and it will stand to lose if the stock does not rise. This is not a silver bullet -- it's a trade that needs to be carefully examined.
But, this is a conditional back-test, which is to say, it only triggers if an event before it occurs.
RISK CONTROL
Since blindly owning calls can be a quick way to lose in the option market, we will apply a tight risk control to this analysis as well. We will add a 40% stop loss and a 40% limit gain.
In English, at the close of every trading day, if the call is up 40% from the price at the start of the trade, it gets sold for a profit. If it is down 40%, it gets sold for a loss. This also has the benefit of taking profits if there is a stock rally early in the two-week period rather than waiting to close 14-days later.
Another risk reducing move we made was to use 21-day options and only hold them for 14-days so the trade doesn't suffer from total premium decay.
RESULTS
If we bought the at-the-money call in Tesla Inc (NASDAQ:TSLA) over the last three-years but only held it after the delivery numbers were reported and after a stock pop higher, we get these results:
| TSLA Long 50 Delta Call |
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| % Wins: | 100% | ||
| Wins: 4 | Losses: 0 | ||
| % Return: | 239.2% | ||
Tap Here to See the Back-test
The mechanics of the TradeMachine® Stock Option Backtester are that it uses end of day prices for every back-test entry and exit (every trigger).
Track this trade idea. Get alerted for ticker `TSLA` 1 days after earnings
Looking at Averages
The overall return was 239.2%; but the trade statistics tell us more with average trade results:
➡ The average return per trade was 57.49% over each 13-day period.
DISCOVERY
We found this result by using the Pro Scanner,looking at the NASDAQ 100 and the "1 day after earnings jump, long call" scan.
And the results show that over the last three-years, only 3 companies out of the entire NASDAQ 100 show a 100% win-rate for this strategy.
WHAT HAPPENED
Bullish momentum and sentiment can be quite powerful with the tailwind of an earnings beat, if you can discover where to look. This is just one example of what has become a tradable phenomenon in TSLA. To identify patterns that repeat, empirically, watch this quick demonstration video:
Tap Here to See the Tools at Work
Risk Disclosure
You should read the Characteristics and Risks of Standardized Options.
Past performance is not an indication of future results.
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.