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Tesla Motors Inc (TSLA) Option Bulls Bet On a Bounce

Are Tesla Motors Inc shorts buying options insurance?

by 3/31/2014 2:08 PM
Stocks quoted in this article:

Option Brief: Tesla Motors Inc (NASDAQ:TSLA) initially ticked higher on news of a compromise with New York auto dealers, but has since erased its gains to trade 1.4% lower at $209.25. Nevertheless, TSLA remains a broad-market standout, boasting a year-to-date gain of 39% and outperforming the S&P 500 Index (SPX) by nearly 40 percentage points during the past 60 sessions. What's more, options traders today are either gambling on or hedging against a short-term rebound on the charts.

TSLA has seen roughly 49,000 calls change hands so far today, compared to around 39,000 puts. Short-term options are in demand, as evidenced by the equity's 30-day at-the-money (ATM) implied volatility (IV) of 55.7% -- a 2.4% uptick from Friday's close.

Most popular has been the weekly 4/4 215-strike call, where more than 5,300 contracts have crossed the tape, primarily at the ask price. Plus, volume has exceeded open interest at the strike, and IV is more than 10 percentage points higher -- all signs of buy-to-open activity.

Assuming the buyers are "vanilla" bulls, their goal is for TSLA to be sitting north of $218.62 (strike plus volume-weighted average price of $3.62) by Friday's close, when the weekly options expire. However, considering short interest accounts for more than one-third of the stock's total available float, it's possible the shorts are buying out-of-the-money calls to limit losses in the event of a rally this week. Either way, the most the buyers can lose is the initial premium paid for the calls, should TSLA remain south of the strike through expiration.

While the equity's 30-day ATM IV is trending higher, now is still an opportune time to buy premium on TSLA. The stock's Schaeffer's Volatility Index (SVI) of 52% sits just 17 percentage points from an annual low, implying that short-term options are historically inexpensive right now. Plus, the security's Schaeffer's Volatility Scorecard (SVS) rests at a lofty 100, suggesting TSLA has tended to make outsized moves during the past year, compared to what the options market has priced in.

As alluded to earlier, Tesla Motors Inc (NASDAQ:TSLA) shares have been on fire, more than quintupling during the past year. In fact, the stock has been so successful, even CEO Elon Musk is pleasantly surprised.


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