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Near-Term Put Players Flock Toward Tesla Motors Inc (TSLA)

However, not all of TSLA's put activity is bearish in nature

by 5/2/2013 12:53 PM
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Tesla Motors Inc (NASDAQ:TSLA) shares have climbed in parity with the broader market today, tacking on 1.4% to explore the $54.04 area. Nevertheless, put players have taken a shine to the stock, as nearly 7,600 of these contracts have changed hands so far -- an 18% mark-up over TSLA's expected intraday volume.

However, not all of this put activity is of the bearish variety. Close to 1,300 contracts have traded at the May 45 strike -- almost all of them at the bid price, suggesting they were sold. These deep-out-of-the-money puts crossed at a volume-weighted average price (VWAP) of $0.72. Meanwhile, implied volatility has ticked higher since the opening bell, signaling the initiation of new positions.

In other words, speculators are betting on TSLA to stay north of the $45 level through the close on May 17, when front-month options expire. This would render the puts worthless, allowing them to pocket the initial premium received. Not surprisingly, the delta for these options stands at negative 0.14, meaning they have only a 14% chance of finishing in the money. Should the shares drop by more than 16.7% between now and May expiration, though, the put sellers could find themselves at risk of assignment.

This preference for puts over calls is in keeping with Tesla Motors Inc's recent trend in the short-term options pits. The equity's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.28, with puts outstripping calls among options scheduled to expire in the next three months. This ratio is just 4 percentage points shy of a yearly peak, meaning near-term traders have rarely been more put-heavy toward the equity during the past year.

Technically speaking, TSLA sports a year-to-date gain of more than 59%, and has outperformed the broader S&P 500 Index (SPX) by close to 38 percentage points during the past two months. On the charts, the stock continues to trade north of its 10-day moving average, which has served primarily as a floor since early March.


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