Schaeffer's Trading Floor Blog

Tesla Motors Inc (TSLA) Options Traders Have to Pay to Play

Implied volatility has been on the rise in TSLA options pits

by 2/5/2014 3:11 PM
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Tesla Motors Inc (NASDAQ:TSLA) has been quite a story over the past year, and CEO and co-founder Elon Musk has attracted quite the cult following. This mystique -- along with the stock's year-over-year gain of roughly 365% -- has not been lost on speculative players, who have been willing to shell out more to speculate with Tesla short-term options.

According to Trade-Alert, the stock's 30-day at-the-money implied volatility measure has jumped from 56.7% on Jan. 22 to its present reading of 71.1%. In fact, the volatility reading is higher now than it's been since late October.

Daily chart of Tesla Motors Inc (TSLA) implied volatility

In a similar vein, the stock's Schaeffer's Volatility Index (SVI) has shot higher of late, from 58% on Jan. 22 to 80%, which ranks in the 61st percentile of all annual readings. In essence, short-term option buyers are willing to pay elevated premiums (relatively speaking) for Tesla Motors Inc (NASDAQ:TSLA).

It looks like most of these elevated premiums are being absorbed by option bulls. During the last 10 trading sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 101,809 calls have been bought to open, versus 53,902 puts. The resulting 10-day call/put volume ratio of 1.89 is higher than 84% of similar readings taken during the last 12 months. In other words, calls are being scooped up (over puts) at an accelerated pace in recent days.

In today's action, the most active option is the at-the-money weekly 2/7 175-strike call, which expires at the end of this week. Volume exceeds open interest, however, a healthy portion of the positions traded at the ask price, and implied volatility is on the rise, suggesting at least some contracts are being purchased as a bet on short-term gains in the shares. Meanwhile, the stock has logged a 2.4% drop to $174.78. This week, in fact, Tesla Motors Inc (NASDAQ:TSLA) has surrendered 3.7% of its value.

The electric vehicle manufacturer is tentatively scheduled to issue its fourth-quarter earnings numbers during the week of Feb. 17. It's been a rather rocky road for the company, as far as the earnings confessional is concerned. Tesla has delivered four positive and four negative earnings surprises in the last eight quarters. What's more, in the week immediately after its quarterly results, the equity has spiked by as much as 52% (following its May 8, 2013 earnings report) but has also dropped more than 22% (following last quarter's earnings news).

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