September 2016: The cult of Tesla

February 18, 2017 11:00 AM

In September 2016 we dug deep into the fundamentals and psychology of Tesla (TSLA) mania. We pointed out how Ronnie Moas called it right when he put on a sell recommendation for Tesla in April when it was trading above $250 with a $180 target, which was hit subsequent to the issue. Others, however, were continuing to drink the Kool-aid. Chip Chowdhry of Global Equities sang the praises of Tesla targeting $385. Tesla set its high for the second half of 2016 on Aug. 1 at $236.63. The low came on Nov. 14 at $178.19 and TSLA was trading around $215 on the last trading day of the year. Of the 16 TipRanks analysts covering Tesla at the time, four rated it a “buy,” four rated it a “sell” and eight a “hold.”

Joseph Spak of RBC Capital (hold) and Brad Erickson of Pacific West (hold) came closest with their targets of $210 and $212 respectively. Along with Chowdhry, Ben Kallo of Robert W. Baird reiterated a buy with a target of $338 and Rob Chira of Sterne Agee CRT initiated a buy with a $300 target. Several of the shorts (outside of Moas) missed their targets before Tesla reversed higher. Robert Lutz, a Tesla bear, argued that traditional automakers had turned things around and were ready to compete, while Chowdhry argued that they were relics and could not match the innovation of Tesla. Traditional automakers Ford (marginally) and GM (dramatically) outperformed Tesla since Aug. 1. 

It was appropriate we featured Tesla in our options-focused issue because the volatility of Tesla required the additional tools options provide for managing risk and volatility. While outright longs and shorts may have suffered depending on the timing, the volatility may have been successfully managed with the proper use of options, and long straddles or strangles on Tesla most likely would have been successful.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.