The introduction of Model 3 electric sedan by renowned electric car maker, Tesla Motors (TSLA), has turned the market’s attention, as expected, towards the company.
In less than two months, the share price of Tesla had soared by $100. Optimists believe that there is still gas left to pump the stock above the crucial $270-$280 zone, where the major resistance exists. Likewise, there are pessimists who believe that the shares are overvalued and a decline is imminent. A binary options trader can arrive at a conclusion only by validating the pros and cons of the Model 3.
The bookings for the Model 3 sedan was well above the expectations of analysts’, traders and the company CEO (Elon Musk) himself. On Sunday afternoon, Musk tweeted:
276k Model 3 orders by end of Sat
— Elon Musk (@elonmusk) 3 April 2016
The pre-order count was 10 times the analysts’ expectation for the first few weeks.
Tesla
On the negative side, Tesla will take at least 18 months to start delivering the vehicle. Secondly, the pre-orders were taken with a token refundable deposit of $1000. Thus, many of the buyers may not go in for the purchase at the end. Most of the bookings were made by the prospective buyers who anticipate a $7,500 federal tax credit on electric cars. However, it should be noted that such a facility is available only till a manufacturer reaches a sales volume of 200,000 electric vehicles. The Model 3 is expected to surpass the tax credit level before the first car is delivered.
A look at the past history of Tesla reveals that about 25% of the Model S sedan was cancelled. Similarly, cancellations of the Model X utility vehicle range from 15% to 30%.
Most of these cancellations were because of the delays in delivery. Thus, a cancellation of 30% can be expected in this case. Even the CEO indicated that he expects cancellations between 25% and 50%. Still, at an average price of $42,000 per car, the sales would result in revenue of at least $5 billion for the company. The company is expected to earn a margin of 30% on each car. Thus, gross income from the sales would be $1.5 billion. So, the long-term prospects are good. Even with a forward looking PE of 25, the price would hit $340 per share.
However, the market would act further only when data related to production and delivery of the Model 3 sedan comes out. Till then the stock would fundamentally remain range bound with bullish bias.
Technically, the stock has repeatedly faced stiff resistance in the 270 to 280 zone. Thus, given the overall positive sentiment and the current price of $240, it would be safe to assume that the share price would indeed make an attempt to break the resistance at $280 level in the coming weeks.
Tesla Stock Price: April 5th 2016
So, a binary options trader should consider purchasing a one touch call option contract. The target level for the one touch call option contract should be preferably around $270. With an expiry date in the first week of May, the trade has very little probability of a loss. For more binary options tips why not checkout dedicated Education section.
