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Tesla Motors Inc (NASDAQ:TSLA) saw about half as much options volume yesterday as it typically does, but that doesn't mean the session was devoid of what look to be smart trades. In fact, one individual trade caught our eye, employing the automaker's December 160 and 170 calls.
Less than an hour after Thursday's opening bell, matching blocks of 459 contracts traded at the two aforementioned strikes. The December 160 calls changed hands at the ask price of $1.55 per contract, and data from the International Securities Exchange (ISE) confirms they were bought to open. Meanwhile, the December 170 calls crossed the tape at the bid price for $0.55 apiece, and ISE data shows they were sold to open.
In other words, yesterday's big speculator initiated a bull call spread. Under the terms of the two-legged transaction, the optimistic trader expects TSLA shares to advance from their current perch at $139.04 past $160 (i.e., the long call strike) by the closing bell on Friday, Dec. 20. His profits will be maximized if the underlying is sitting at or above $170 (i.e., the short call position) upon expiration. On the other hand, if TSLA expires out of the money, yesterday's trader will forfeit the $1.00 net debit he paid to buy each pair of contracts.
So why do we like this trade? Well, for one, Tesla has been a technical juggernaut of late, more than quadrupling in value in 2013 alone. More recently, the shares could also be seen bouncing sharply off of their ascending 40-week moving average, setting them up for further gains in the near future.
Despite that technical picture, option traders have been relatively bearish toward TSLA. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 50-day put/call volume ratio of 0.95, which ranks in the pessimistically skewed 75th percentile of its annual range. In short, an unwinding among the option bears -- in the face of TSLA's withstanding technical strength -- could push the shares even higher.
Similarly, outside of the options pits, Tesla Motors Inc (NASDAQ:TSLA) has been heavily shorted. Specifically, short interest rose 22% during the last two reporting periods, and short interest now comprises a lofty 32.1% of the equity's available float. With a potential short-squeeze situation on the horizon, TSLA shares could stand to gain.