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How to Capitalize on Market Makers’ Mistake With Tesla Earnings

by | Oct 20, 2021

After a long wait, we’re back in the thick of earnings season… And like I mentioned in Monday’s piece, tech titan Netflix has set the tone. 

The company had a fair amount of momentum heading into the report. Shares were up more than 5% since the start of October and riding high with a boatload of positive headlines over its biggest hit ever, “Squid Game.” 

Netflix Inc. (Nasdaq: NFLX) beat expectations across the board for earnings, revenue and subscriber growth… 

But forward guidance wasn’t strong enough to satisfy Mr. Market, and shares are down around 2.5% on the day — helping weigh down the Nasdaq in the process… 

It may not be the tone we were hoping for, but it’s a valuable message for traders at the start of many more tech earnings reports to come. 

There’s no need to run away screaming, but traders will certainly need to make a few earnings strategy adjustments with the other big names like Tesla Inc. (Nasdaq: TSLA), set to report after the bell Wednesday… 

Tesla Earnings Strategy Adjustments

If you’ve been following along for a while, you know I’m not always kind to Tesla or its CEO, Elon Musk. 

But just because I’m not sold on the prospects of Tesla being the EV for the masses 5 to 10 years down the road, it doesn’t mean the company is a fraud like so many others in this space… 

After all, I put $40,000 in a structured note in Tesla earlier this year

But what has my motor running on TSLA heading into earnings Wednesday isn’t its record manufacturing or sales numbers, and it certainly isn’t its oddball CEO… It’s the options premiums. Quite frankly, they’re on the cheap side for Tesla…

The market makers’ implied move for the earnings event is a little more than $30 a share for TSLA. That’s about a +/- 5% move in the stock, which is nothing special for this company. 

In the lead up to Wednesday’s event, I was thinking of YOLOing some calls. But with the reaction to Netlifx, I’m looking to make some earnings strategy adjustments for Tesla. 

Buying straight options is still more risk than I like to spend for a lotto ticket bet — so spreading out the earnings risk with a call fly, bull call spread or bull put spread as a strategy adjustment can help make those risk versus reward ratios more reasonable with Tesla. 

Check out the video below for my thoughts on the trade during Tuesday’s special earnings season session in the Daily Profits Challenge War Room.

P.S. Many traders probably know this, but most “popular” trading strategies that novice investors use actually lose money. Think about it… If we could simply Google a winning strategy, everyone would be making money

Wall Street knows this… so it takes the opposite side of those trades… In other words, big firms bet against common strategies that many retail traders use.    

But there’s a way for us to take advantage of this pattern.

Click here to see how.

WRITTEN BY<br>Lance Ippolito

Lance Ippolito

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