Tesla is set to report earnings Wednesday, and TradingAnalysis.com founder Todd Gordon says the charts are making a strong bullish case for the stock going into the event.
“Tesla’s looking very good heading into earnings on Feb. 7,” the trader said Friday on CNBC’s “Trading Nation.” “I like the technical position and I like the implied volatility of these options heading into earnings.”
Gordon is referring specifically to the Elliott wave theory, which posits that stocks tend to move in a five-wave pattern. The trader believes that after seeing two rallies and two pullbacks, Tesla is in the middle of a fifth wave that will see it head up to complete its Elliott wave cycle.
“So heading into 2018 and into 2019, I’m bullish on this stock for a move up,” he said, predicting that Tesla could even be close to $500 by the end of that wave.
Since the electric-car maker is scheduled to report earnings Wednesday, Gordon is looking to sell a bullish put spread given the spike in implied volatility heading into the event. He wants to sell the February 9 weekly 350-strike put and buy the February 9 weekly 345-strike put for a credit of $2.23. This means that if Tesla closes above $350 on Feb. 9 expiration, then Gordon would make a maximum profit of $223.
However, if Tesla were to close below $345 on that day, Gordon would face a maximum loss of $277. On Friday, the stock was trading at about $345, below the break-even level of $347.95.
Tesla is up 11 percent year to date.