The YieldMax TSLA Option Income Strategy ETF (TSLY) ETF jumped by 8.135% in the extended hours after Tesla published strong financial results and provided an exciting update of its business.
Similarly, the closely-watched Direxion Daily TSLA Bull 2X Shares ETF (TSLL) ETF jumped by 24% to $11.18. Before that, the fund was down by over 37% year-to-date.
Tesla earnings and forecasts
Tesla, the biggest company in the electric vehicle industry, published stronger results than expected, pushing its stock upwards by over 12%.
The company said that its production rose to 469,796, while its vehicle deliveries were 462,890.
These deliveries pushed its automotive revenues up by 2% to $20.0 billion. Previously, it made $19.8 billion in the second quarter and $17.3 billion in Q1.
These results showed that the company’s business was doing well even as the EV industry went through major challenges. The biggest issue is that customers, especially in China, have multiple choices, including vehicles from Nio, Huawei, XPeng, and BYD.
The energy generation and storage revenue jumped by 52% YoY in the third quarter to over $2.37 billion. This division will likely continue doing well in the coming months if the Fed continues to cut interest rates.
The services and other revenue division, which includes regulatory credits, jumped by 29% to $2.7 billion. These numbers mean that Tesla is now making about a fifth of its revenue on its energy and services business.
Tesla’s margins continued rising, reflecting the fact that it has not slashed prices this year as it did in 2023. Also, the cost of doing business was reduced during the quarter. Its EBITDA margin jumped to 18.5%, while its free cash flow jumped by 223% to $2.7 billion.
Tesla shares also jumped because of Elon Musk’s commitments to the future as he promised that the robotaxi business would go in business in California and Texas in 2025. The service will let people share their EVs and start making money.
Tesla’s surge also happened as investors reflected on the upcoming US general election, in which polls suggest that either candidate could win. The prediction market in websites like Predictit, Polymarket, and Kalshi estimates that Donald Trump will win the election.
Trump is widely seen as being a negative president for electric vehicles. For example, he has campaigned against the substantial sums offered by the Biden administration to support the industry.
However, as president, there is little he can do to slow the sector. Besides, he has received millions of dollars from Elon Musk, who will join the administration to lead the proposed Department of Government Efficiency.
Read more: Don’t short Tesla Inc (TSLA) stock today – here’s what to do instead
TSLY and TSLL are alternatives to Tesla stock
There are numerous ways of investing in Tesla. The most straightforward approach is to invest in Tesla shares straight away. This has been a good way to make money as the company’s market valuation has jumped to over $800 billion.
TSLY, on the other hand, is a popular approach for investors focused on dividends and monthly distribution. The fund offers a unique exposure to Tesla by using a covered call approach, which helps it to have a dividend distribution rate of 124%.
The fund generates this return by doing two things. First, it invests most of the funds, about 80% in assets tied to Tesla shares. This investment helps it to benefit from Tesla’s price movement.
Second, the fund then sells call options with a strike price between 0% and 15% of the current share price with a 1-month expiry. By selling these call options, the fund generates a premium, which it uses to fund the monthly distributions.
The benefit of the fund is that if Tesla shares fall, the premium still remains, helping to offset the losses. On the other hand, if Tesla shares surge, as they did after earnings, it may miss the upside if the strike price is hit.
TSLY’s dividend helps to offset the weakness in the ETF price. For example, TSLY has crashed by over 50% in the last twelve months. With the dividend included, it has dropped by just 7.1%.
TSLL, on the other hand, is a leveraged ETF that provides two times the daily return of Tesla shares. In the long term, it does well when Tesla shares are doing well, and vice versa. It has dropped by 35% this year as Tesla shares have fallen by 14% (before the post-earnings jump).
Therefore, there is a likelihood that the TSLL stock will do well in the coming months as investors move back to Tesla after its strong results.
So, which is a better way to invest in Tesla? I believe that investors highly optimistic on Tesla should buy its shares and then complement the purchase with the TSLL ETF. For long-term investors, allocating cash in the TSLY ETF is not ideal as its returns have constantly underperformed Tesla.
Read more: Wedbush predicts Tesla to hit $1 trillion market cap again: Buy or wait?
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