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Tesla Motors Inc (TSLA) Bounce Sparks Bullish Betting

Tesla Motors Inc's front-month options are trading at a historical discount

by 5/12/2014 11:41 AM
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Option Brief: Tesla Motors Inc (NASDAQ:TSLA) has advanced 1.8% today to $185.35, bringing its year-to-date gain to 23.2%. However, while the shares still have a ways to go before closing last week's post-earnings bear gap -- which sent TSLA south of $200 and into three-month-low territory -- options traders are rolling the dice on more short-term gains.

The 10 most active TSLA strikes thus far expire at Friday's closing bell. What's more, the stock's Schaeffer's Volatility Index (SVI) of 47% sits just 6 percentage points from an annual nadir, implying that TSLA's short-term options are inexpensive right now, from a historical standpoint. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) rests at a lofty 94, suggesting TSLA has tended to make outsized moves on the charts, relative to what the options market has priced in. In other words, now is an opportune time to roll the dice with front-month contracts.

Most popular so far is the equity's May 185 call, where roughly 4,000 contracts have changed hands. The majority of the calls have crossed on the ask side, implied volatility is 2.5 percentage points higher, and volume has surpassed open interest at the strike -- all signs of buy-to-open activity.

The buyers' goal is for TSLA to be sitting north of breakeven at $188.45 (strike plus volume-weighted average price of $3.45) at Friday's close, when front-month options expire. Delta on the call stands at 0.49, suggesting the odds of an in-the-money finish are roughly similar to a coin flip. Risk, meanwhile, is capped at the initial premium paid for the calls, should the security backpedal beneath the strike.

While Tesla Motors Inc (NASDAQ:TSLA) is attempting to make up some ground on the charts, the company is facing a potential direct-to-consumer ban in Missouri. If legislators pass the bill, the state will be the fourth to adopt such a plan. Elsewhere, TSLA recently announced it will stop supplying battery packs to Toyota Motor Corp (ADR) (NYSE:TM) amid plans to launch its own line of crossover vehicles.


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