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Tesla Motors Inc (TSLA) Option Players Eye Short-Term Support

Tesla Motors Inc traders are writing newly front-month puts

by 2/24/2014 10:58 AM
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Option Brief: Tesla Motors Inc (NASDAQ:TSLA) short-term options are in demand, as evidenced by the stock's 30-day at-the-money implied volatility of 51.4%, a 2.7% change from Friday's close. Approximately 90 minutes into today's trading session, roughly 38,000 contracts have changed hands, almost half of which are on the put side. Digging deeper, some speculators are employing the puts to place neutral-to-bullish bets ahead of CEO Elon Musk's upcoming announcement about the company's "gigafactory."

The most active option thus far is the deep out-of-the-money (OOTM) March 185 put, where more than 2,850 contracts have changed hands. Roughly two-thirds of the puts traded on the bid side, and volume has surpassed open interest at the newly front-month strike, hinting at sell-to-open activity.

By writing the OOTM puts to open, the sellers expect Tesla Motors Inc (NASDAQ:TSLA) shares will remain north of $185 through the close on Friday, March 21, when the options expire. In this best-case scenario, the puts will expire worthless, allowing the sellers to retain the entire net credit received at initiation. Historically, the $185 level rejected TSLA's rally attempts on several occasions from early October until earlier this month, but could now switch roles to act as support.

Considering TSLA shares are currently trading at $212.35 -- a 1.3% gain from Friday's close -- it would take a drop of 12.9% in order to breach the 185 strike. Delta on the puts stands at negative 0.15, implying a roughly 15% chance of the contracts being in the money at expiration.


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