Earnings Volatility: Is Tesla Stock a Buy Before Earnings?

Stock prices may see larger-than-normal moves during earnings season, making it a potentially attractive time for options traders. For investors looking to trade against these moves, you should always keep track of how the options might shift after their earnings. Here are the top earnings and volatility for this week:

-Earnings Date: July 19th Post-Market

-Implied Move: 8.0%

-Absolute Average Actual Move for the past 4 Quarters: 9.3%

-Absolute Average Actual Move for the past 12 Quarters: 5.9%

-EPS Normalized Estimate: $0.82; Revenue Estimate $24.67B

Option Valuation Relative to Absolute Average Actual Move for the past 4 Quarters: Options are pricing in a move that is lower than the average actual move for the past 4 quarters, indicating that they are undervalued.

According to recent data from Market Chameleon, options for Tesla may be currently undervalued, with the implied move of 8.0% lower than the average actual move for the past 4 quarters (9.3%), yet higher than the past 12 quarters (5.9%). The options market overestimated TSLA stocks earnings move 67% of the time in the last 12 quarters. The predicted move after earnings announcement was ±8.2% on average vs an average of the actual earnings moves of 5.9% (in absolute terms).

Tesla reported second-quarter deliveries of 466,000 vehicles earlier this month, well above Wall Street expectations.

Argus Research analyst Bill Selesky said he had expected deliveries of around 450,000 vehicles for the quarter, so "we have some upside to our second-quarter earnings forecast due to strong demand."

"We see further upside in the shares over the next 12 months and believe the likelihood of the company hitting its production target of 1.8 million units is now a likely more than ever," based on first-half results to date, Selesky said.

Pay attention to inquiries regarding how Tesla executives perceive the impact of these developments on future revenues and the company's plans for expanding its charging infrastructure.

Tesla has finally built its first Cybertruck. Elon Musk first showed off the electric pickup in November 2019. Bloomberg's Ed Ludlow reports on Monday.

In addition, attention will be on Tesla's ongoing adjustment of its pricing strategy. While recent price cuts have boosted sales, they have also impacted profit margins.

Tesla's connector, now known as the North American Charging Standard (NACS), has been adapted by multiple competitors including: GM, Rivian and Ford.

Morningstar analysts also suggest keeping an eye on updates regarding the company's statements during the first-quarter call, where management indicated that the costs of raw materials would start to decrease.

Additionally, here are the top earnings volatility reports by the highest options volume for today and tomorrow:

Before significant corporate events such as earnings announcements, product launches, or clinical trial results, implied volatility tends to increase. However, after the news has been released, the implied volatility can drop significantly due to the sudden clarity in the market and the stock price reaction to the news. This phenomenon is referred to as IV crush.

IV crush can lead to a decrease in option prices because the Implied volatility is lowered dramatically. This decrease in option prices due to IV crush can be a risk for options traders who have purchased options at a higher price with the expectation of making a profit from a significant move in the underlying stock price. Conversely, IV crush may not be as prevalent if the option is undervalued and the stock price moves drastically, which can pose a risk for option sellers. It's important for traders to be aware of IV crush and factor it into their trading strategy when considering options trades around significant corporate events.

Not all options are affected equally by an IV crush. IV crush affects short-term option prices more than long-term option prices.

Nonetheless, it's important to note that trading options always involve risks, and investors should consult with a financial advisor before making any trades.