JPMorgan Says Tesla Options Understate Risks in SEC Vs. Elon Musk
(Bloomberg) -- Tesla Inc. is facing multiple legal events and rising key-man fears regarding billionaire CEO Elon Musk that aren’t being adequately priced into options, according to JPMorgan Chase & Co.
“The option market is embedding no volatility premium for upcoming legal events in the case of SEC v. Elon Musk,” strategists led by Shawn Quigg wrote in a note Monday. “Surprising given these fears previously caused a significant decline in Tesla shares and a surge in volatility to multi-year highs.”
They recommend buying Tesla puts expiring in April to take advantage of the mispricing.
While it’s difficult to determine what the result of the legal developments will be, JPMorgan said “another slap on the wrist (i.e. a larger fine) appears unlikely” given Musk’s “ongoing public belligerence” toward the U.S. Securities and Exchange Commission, among other things. He could even be removed as chief executive officer, they noted.
JPMorgan auto analyst Ryan Brinkman is one of Wall Street’s most bearish on Tesla -- he’s underweight the stock, with a 2019 price target of $230. The shares have lost 17 percent this year, closing Friday at $275.43, their lowest price since October.
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In addition to the legal issues, Tesla shares aren’t rebounding from negative news and are failing to gain on positive headlines, the strategists wrote. They cited the resignations of the chief financial officer and general counsel, softening demand for Tesla models, the Model Y reveal and erratic behavior by Musk as examples.
“The once impenetrable Tesla narrative appears to be eroding,” the strategists said. “Tesla remains a story of vision, steered, for better or for worse, by Elon Musk.”
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