By Steven M. Sears
No eternal friends. No eternal enemies. Only temporary alliances.
This framework for navigating Washington offers investors a way to think about Tesla now that its founder, Elon Musk, has fallen from President Donald Trump's favor like a rocket tumbling back to earth.
When the world's wealthiest man and the world's most powerful man were like Bert and Ernie, the electric car maker's stock enjoyed a Trump bump. Musk was da Vinci reincarnated, applying his genius to solving America's hardest problems.
And then their friendship soured. When their social-media war erupted on June 5, Tesla's stock value plunged by $152.4 billion. The amount is so large as to almost defy comprehension, but it exceeds the market capitalizations of Danaher, Deere, and Applied Materials -- indeed, most of the world's companies.
Tesla's price volatility is the first case study of Trump's power over stocks that he has endorsed, or that Wall Street thinks will prosper from his policies.
This connection between specific stock prices and a president is unprecedented. Many investors are trying to harness the phenomenon; others are passively benefiting by owning stocks like Palantir Technologies, whose data analytics are often used for political purposes.
Tesla's experience demonstrates that Trump is the world's most powerful investment analyst. His ratings, which take the form of social-media posts and media comments, move stocks with unprecedented power. Yet those orbiting Trump's investment universe should contemplate the fleeting nature of a presidential Buy rating and the impact of investor positioning on favored stocks. There are ways to manage the Trump halo.
Palantir seems like an obvious at-risk stock, but the company has successfully navigated Washington for so long that its executives are unlikely to be banished. Besides, it's an integral part of the defense and intelligence communities. Tesla lacks those qualities, suggesting shares will continue to be the physical manifestation of Musk's presidential conflict.
Investors who want to insulate themselves from Trump's market impact can employ a one-by-two put option spread while selling call options. The strategy is intended to offset stock declines while positioning investors to buy more stock at lower prices. It expresses a belief that presidential stock favor is a type of financial volatility that creates defined trading ranges.
Consider Tesla as an example of how investors might maneuver in this rough frontier of power and pomp. If Trump uses his immense power to punish Musk, Tesla's stock will almost certainly suffer. Shares are already down 22% this year, though still up 84% over the past 12 months. During the past 52 weeks, Tesla has ranged from $167.41 to $488.54.
With Tesla's stock at $326.09, investors could buy an August $315 put and sell two August $275 puts for about $1.70. The hedge is worth a maximum profit of $38.30 if Tesla's stock is at or below $275 at expiration.
The hedge can be complemented by selling an August $400 call for about $14.60. Should the stock stay below $400, the call premium is kept. Above $400, you can sell the stock into strength, which is likely prudent until Tesla demonstrates that it should be viewed on its own merits and not as presidential jetsam.
If our assessment is accurate, the strategy will generate income and offset some losses. If we are wrong, the call can be covered and any loss can possibly offset gains elsewhere.
Still, it's hard to imagine Trump letting Musk enjoy too much adulation, which is why Tesla should be considered a range-bound prisoner in a presidential prison that is awaiting a pardon.
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June 13, 2025 21:30 ET (01:30 GMT)
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