In Q3, Tesla reported modest results with a 5% YoY increase in automotive revenue and a 9% YoY increase in total revenue, attributed to price decreases, lower sales volume, and production. Despite this, the company generated positive free cash flow (FCF) of $0.8 billion, with a 3.4% FCF margin.
Analysts are more optimistic about Q4, forecasting a 10.6% potential gain in adjusted non-GAAP EPS to 73 cents and a 9.5% increase in total revenue to $25.7 billion. However, Tesla’s stock (TSLA) has seen a decline, down 8.1% in the last month and 20.1% from its peak in July, possibly reflecting pessimism.
Option premiums are high due to this pessimism, providing an opportunity for investors to sell short near-term out-of-the-money (OTM) puts as an income play. For instance, by selling the $220 strike price expiring on Dec. 8 for $4.35, investors can achieve an immediate 1.98% yield for three weeks.
Investors must secure $22,000 in cash or margin to sell 1 put contract, potentially making $7,395 annually if the trade is repeated every three weeks. However, this strategy carries risks, as TSLA could drop below the breakeven level, requiring the investor to purchase 100 shares at the strike price.
To manage downside risk, investors can buy puts at a lower OTM strike price, such as the $210 puts, reducing potential losses. Alternatively, a very conservative approach involves shorting the $210 puts for immediate income and a lower breakeven level.
Investors should carefully monitor market conditions and adjust their strategy accordingly, potentially selling $210 puts for income once it appears unlikely that TSLA will fall near that price within the next three weeks.