☕ A Tesla Earnings Trade Idea

Good morning! 👋 

That didn’t last long. 

More sellers were at the table on the heels of yesterday’s run earlier today only to have given way to the buyers marching in en masse. 

Not a big deal. 

Sometimes that’s how things go, particularly ahead of big earnings from Google (which is in the news for all the wrong reasons this morning) and Tesla. 

Traders can’t make up their minds but, thankfully, we have no such problems. 

Here’s my playbook. 

1 - Wiz to Google: talk to the hand 

Terminator 3: SkyDance - all rights belong to their respective owners

Wiz just walked away from Google’s $23B deal to pursue its own IPO. (Read) 

The official story is that Wiz voiced antitrust concerns. 

Like heck.

Wiz makes cloud security products and I think co-founder Assaf Rappaport senses a very lucrative opening on the heels of the CrowdStrike debacle that’ll help propel the company to his stated goal of $1B+ a year in sustainable annual recurring revenue.  

I also think he quickly figured out how behind Google really is, something we’ve been talking about for quite some time.  

MyPOV: I won’t invest in companies that are facing severe headwinds if I think they’re leadership challenged. Google led the way for a long time, but I increasingly think the company is a one trick pony and playing catch-up on many fronts. The public increasingly resents the fact that they've been turned into a product without their permission. Regulators have a grudge worldwide. And Pinchai has been playing catchup since Microsoft caught him and Team Google flatfooted and all but destroyed the company's cache.

Barring a complete Hail Mary in today’s earnings call...  

Putskies or simply avoid. 

2 – Tesla Earnings Trade Idea 

Every argument we’re hearing today for betting against Musk is the same tired old schlock voiced by the “smartest people in the room” for the past 5+ years.  

And still just as wrong imho. 

Tesla has returned 1,364.15% over the past 5 years. The SPY, a popular indexer’s choice, has returned 101.91%. 

I made the comment that I expected the company to triple at about $140 and we're on the way (again). At least for now anyway.

I think traders will (pretend to) pitch a fit and obsess over any perceived delay in whatever topic they want that plays well in the headlines. 

Volatility is already high which makes pricing a straddle – an options bet that is direction indifferent I would otherwise think about in this instance - challenging because a) it’s expensive and b) the potential break evens are higher than they would be otherwise.  

Handicapping this is worse than going to the track. 

Volatility suggests a potential move between roughly $225 and $275 per share. 

My guts tell me that traders will flush the weak hands out to the low side first, then potentially run higher. Doing so would trap the “stops” as low as $210 before igniting the FOMO buyers to $300 over the next 3-6 months. 

A one, two punch might be something to think about. 

BTO $200 16AUG24 P this morning, last traded $1.93. Then and if the drop happens following earnings, BTO a $250 C which ought to be good and cheap following an overnight selloff. 

Alternatively, simply sell an August $250 Straddle for around $34 or so and be done with it (but only if you are prepared for unlimited risk, have the options approval needed and the discipline to manage the trade which could get out of control very quickly).  

Adding wings – meaning purchasing calls and puts - could mitigate that risk but are beyond my ability to discuss here so YOU ARE ON YOUR OWN if you decide to pursue this. 

As always, do NOT try this if you have no idea what I am talking about or lack the requisite skills and experience. It’s your money and your responsibility. 

3 – GM's beat is dangerous for all the wrong reasons 

Talk about a hat trick! 

News agencies are reporting that GM easily beat expectations and, importantly, raised yearly financial targets. No surprise, the company’s North American operations were largely responsible, driven by truck sales – pun absolutely intended.  (Read) 

My view is different. 

I see this as a massive problem. 

American buyers finance 80-85% of the vehicles they buy which means that GM sold a huge pile of debt, not trucks or even cars. Repo auctions are up 23% YoY through June 30th and defaults are up 11% during the 1st half of the year at a time when nearly 5% of Americans are in “serious delinquency.” 

That’s not a business model I want to own. 

4 – UPS doesn't deliver 

This is one of those things that is so simple it defies the imagination. (Read) 

At least to me, anyway. 

I have told you to avoid UPS stock since at least 2022 and hope to heck you have.  

Shares are down roughly –42% since. 

The package freight delivery business is in deep kimchi and will continue to be for the foreseeable future as the world digitizes. Long-haul, big cargo, more needed than ever – that's different. 

5 – Defense stocks are still a no-brainer 

I wish it wasn’t so but that’s the world we live in. 

Lockheed Martin raised 2024 sales targets on fighter and missile demand. The company also announced a 9% YoY increase in net sales to $18.1B. (Read) 

The True Shareholder Yield, a metric I focus on intently, is 4.85%, nearly double the listed yield of 2.34% most investors look at. 

Hooyah! 

Bottom Line 

The next generation of millionaires is being created right now. Do NOT miss the boat. Find the right companies, learn the needed tactics, hone your craft. 

I’ll be here if you need me. 

As always, you got this and let’s MAKE it a fabulous day. 

You got this. 

Keith 😊