A few months ago, we purchased Tesla (TSLA) shares in our QW Select Enhanced Global Equity Fund. Opinions regarding Tesla are divided: some investors believe it is just another car manufacturer, and so it’s overpriced; others think it’s a leading technology company and will be a world leader in Artificial Intelligence (AI). We tend to see the glass as half full and believe there is significant potential for Tesla to excel in several areas.

Tesla is one of the Magnificent 7 Stocks (along with Apple, Microsoft, Alphabet (Google), Amazon, Nvidia and Meta (Facebook)). Most of the Magnificent 7 tech stocks did well in the first few months of 2024. Not Tesla: it started the year at about $250 per share but closed at a low for 2024 of $142.05 on April 22.

Tesla, like many stocks, is a news-driven company and there was a slew of negative news about car sales earlier in the year. We felt people were focusing on the outlook for the car company and disregarding the rest of Tesla’s potential. We bought about $4 million of Tesla at $149 per share in the QW Select Enhanced Global Equity Fund.

Our view was that Tesla had been unfairly beaten down and that there was a strong chance it would rebound once some positive news started occurring. We especially felt that the Robotaxi presentation that is planned for August 8 could be a significant catalyst.

The “Twist”: normally when a stock is in free fall, there can be a fear of “catching a falling knife”. Fortunately, we can use options to reduce volatility. We reduced our risk by adding an “options collar” when we purchased the stock. This collar is expected to protect us if Tesla fell a further 20%, but our upside would be a 30% gain for the remaining eight months of 2024. That seemed like a reasonable arrangement for a company we were generally bullish about.

We have used this same option collar strategy with several other holdings the last few years, including Nvidia. We have had to reset the collar a few times as a stock has surged, but that is a good problem to have. That means we achieved solid gains, and we were trying to lock in some of those gains while giving the fund more potential upside. Hopefully we will have to reset the Tesla collar at some point because of strong gains as well!

Mike Holden
Portfolio Manager
Q Wealth Partners