Tesla was the biggest loser in Q1
During Q1 2024, Tesla experienced a significant downturn in stock performance, making it as the primary casualty within the S&P index.
Market analysts attribute it to the anticipated release of disappointing production and delivery figures by Tesla for the quarter. Additionally, the implementation of price reductions across various Tesla models is expected to impact corporate profitability.
According to data from FactSet, 11 analysts covering Tesla anticipate the company to announce approximately 457,000 deliveries for the period. This projection only reflects an 8% increase from the previous year—a period that even the most optimistic analysts described as tumultuous. However, pessimistic forecasts from some Tesla skeptics suggest delivery figures as low as 414,000!
This diminished outlook is attributed to heightened competition in China, Tesla’s second-largest market. In the final quarter of 2023, Chinese company BYD surpassed Tesla as the world’s leading EV brand. Continuously challenging Tesla’s dominance, BYD introduced two EV models priced below $16,000 in the early months of the year.
Furthermore, other Chinese competitors are poised to enter the EV market. Recently, Xiaomi, a prominent cellphone manufacturer, announced plans to introduce a fully electric SUV priced at approximately $30,408—approximately $4,000 cheaper than Tesla’s entry-level sedan.
Recent data from the China Passenger Car Association illustrates a decline in Tesla’s sales momentum. In February, Tesla sold 60,365 units of its China-manufactured models, a decrease from the 71,447 units sold in January, which in turn fell short of December’s sales figures of 94,139 units.
In essence, Tesla faces a mounting challenge in China, exacerbated by intensifying competition, which is likely to exacerbate in the foreseeable future.
Trading Put Debit Spreads
If you would like to enter a bearish options trade which is also fully hedged, the put debit spread could be the perfect trading strategy for you.
Understanding Put Debit Spreads:
A Put Debit Spread involves buying a put option and simultaneously selling another put option with the same expiration but a lower strike price, resulting in a net debit position.
Key Components:
Long Put Option: This option grants the right to sell the underlying asset within a set timeframe, acting as insurance against potential market downturns.
Short Put Option: To offset costs, traders sell a put option with a lower strike price, creating an obligation to buy the underlying asset if the market moves unfavorably.
Benefits:
Limited Risk: Put Debit Spreads cap maximum losses at the initial debit paid, balancing risk.
Profit Potential: Traders can profit from downward price movements, with gains capped at the difference between strike prices, minus the initial cost.
Defined Timeline: These spreads have a clear expiration date, aligning strategies with specific market events.
PUT DEBIT SPREAD EXAMPLE
Below is the profit profile breakdown for a Put Debit Spread on TSLA expiring on May 17. It’s important to note that this analysis is solely for illustrative purposes and should not be construed as a trade recommendation.
Trade Order:
Buy to Open (BTO) 05/17/24 180 PUT
Sell to Open (STO) 05/17/24 170 PUT
Limit: $550 Debit (It’s advisable to always use limit orders, aiming for a slight improvement over the current market price, particularly for high beta stocks like TSLA)
The tool utilized here is optionstrat, favored among option traders for its ability to visualize trades and fine-tune them until they align with one’s strategy.
- Long 180 PUT: This represents the purchased option at the 180 strike price.
- Short 170 PUT: This denotes the sold option at the 170 strike price, which helps offset the cost of the 180 PUT.
- Max Profit Zone: Profit is maximized when the stock falls below 170 by May 17.
- Maximum Loss Zone: The maximum loss occurs if the stock rises above 180.
CFU traders play all sides of the market: bullish, bearish, and neutral. We can make money in all situations and our trading systems assist us in knowing which direction holds the most likely outcome for profit and then we trade it using the most efficient strategy. 1-2 punch and it delivers results.
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Stephen
President, CFU
