Following Tesla's second-quarter earnings report, the company's stock fell approximately 14.5% after it reported revenue of $28.2 billion, which exceeded expectations, but adjusted earnings per share of 34 cents fell short of the consensus estimate of 50 cents. The operating margin also compressed to 1.4%, and a significant increase in capital spending resulted in negative free cash flow.
This performance indicated that investor expectations were overly optimistic, as evidenced by the market's reaction. The trader who shorted Tesla is now contemplating two options: either to close the position and secure profits or to use the gains to invest in Palantir, which is set to report earnings soon.
Palantir's ambitious revenue growth targets and competitive pressures in the large language model space raise concerns about its upcoming performance. The options market anticipates a 9.5% move in Palantir's stock post-earnings, which is below its historical average.
The trader plans to close the Tesla position by selling a put spread and potentially buy a put spread on Palantir, defining risk while aiming for a profit if Palantir's stock declines significantly