What Is The Options Market Saying About Tesla Earnings?

It’s quarterly earnings season once again. Traders and investors alike have been keenly focused on companies’ first-quarter results. It is fair to say that markets have been generally pleased with what they have seen thus far, as evidenced by the following chart:

S&P 500 Index (SPX), 2 Week Chart

(Click on image to enlarge)

S&P 500 Index (SPX), 2 Week Chart

Source: Interactive Brokers

The chart begins on April 13th, the day before earnings season kicked off in earnest with reports from JP Morgan (JPM), Wells Fargo (WFC), and Goldman Sachs (GS).Despite some volatility, SPX has trended higher as results from a wide range of major companies reported generally positive results.

But as I wrote last week, “The results have been great, the guidance and reactions less so. But what we saw this week is largely an opening act.We have yet to hear from the top 8 companies in the Nasdaq 100 Index (NDX), which represent about 50% of the index’s weight.Six of them top the S&P 500 Index (SPX), where we are still waiting for most of the companies that make up the top 25% of index weight. The main event begins next week.”In short, this is really the make-or-break week for earnings season. 

The first of the mega-cap tech stocks reports after the today’s close.Tesla (TSLA) is clearly a polarizing company.Regardless of whether you believe that the company is a beacon for the future or an overhyped bubble, you need to pay attention to its results.TSLA is the 6th highest weighted company in SPX and the 5th highest in the NASDAQ 100 Index (QQQ)[i]. Like it or not, it has become too big to ignore.

According to Bloomberg data, the street estimate for TSLA EPS is $0.804.At today’s price, it implies that the P/E of TSLA will decline from nearly 1,000 to somewhere under 500[ii]. Both of those numbers are stratospheric and imply immense expectations for future growth.With any normal company, that would present an incredibly high bar and any slip-up could create a wave of disappointment.But TSLA is by no means treated as a normal company by its most faithful holders.For that reason, it is crucial to look for clues to market sentiment wherever we can find them.Fortunately, the options market gives us plenty of clues. We can start by using the Probability Lab feature on the Trader Workstation[iii]

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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