Recent reports highlight a notable surge in out-of-the-money (OTM) put options for Tesla Inc. (NASDAQ:TSLA) stock with a 37-day expiration period. This surge suggests that TSLA may have hit a bottom, offering an attractive income opportunity for current shareholders.
The premium for these put options, priced at $3.45 per contract on the bid side, implies an immediate yield of 2.223% for investors shorting these contracts. Assuming monthly repetition, this translates to an expected return of approximately 22.23% annually, albeit subject to market conditions.
Beneficial for Shareholders
Additionally, existing investors can capitalize on this situation by shorting these OTM puts, enhancing their returns on TSLA stock. With a breakeven point set at $151.55 per share, significantly below the current price of $170.41, investors are shielded from losses unless TSLA stock experiences a substantial decline.
Moreover, recent indications suggest a potential recovery in TSLA stock from its recent low of $162.50 on March 14, making it an opportune entry point for investors anticipating further upside.
Risk Considerations
However, inherent risks exist, particularly with Tesla’s upcoming Q2 earnings report in early May. Uncertainty looms over the company’s financial performance following a challenging Q1, characterized by modest revenue and EBITDA growth.
Price Target Assessment
Looking ahead, optimistic estimates suggest a significant rise in Tesla’s free cash flow (FCF) for 2024, potentially driving its market capitalization higher. With projected revenue growth, conservative estimates still indicate a notable increase in FCF, indicating a potential undervaluation of TSLA stock.
Opportunity for Extra Income
Shorting OTM put options presents a viable strategy for existing shareholders to earn additional income while also offering a disciplined approach to buying TSLA stock at potentially lower prices. With a calculated expected return of over 23%, this income play could further bolster returns for investors, contingent upon TSLA stock reaching the target price.
In summary, leveraging the opportunity to earn extra income through shorting TSLA put options appears favorable, particularly for existing shareholders looking to enhance their returns amidst market uncertainties.
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