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Tesla Motors Inc (TSLA) Option Traders Anticipate More Upside

Are Tesla Motors Inc call buyers merely short sellers looking for a hedge?

by 6/5/2014 11:18 AM
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Option Brief: Tesla Motors Inc (NASDAQ:TSLA) is 2% higher at $208.11, bringing its year-to-date gain to more than 38%. What's more, options traders are rolling the dice on more upside in the next week, with speculators picking up short-term calls.

So far today, around 24,000 TSLA calls have traded, compared to fewer than 15,000 puts. Short-term options are the contracts of choice, as the stock's 30-day at-the-money implied volatility (IV) has jumped 3.1% to 41.6%, and nine of the 10 most active options expire within the next six sessions.

Most active is the weekly 6/13 210-strike call, where close to 3,800 contracts have traded. The majority of the calls crossed on the ask side, IV has popped 3 percentage points, and volume exceeds open interest at the strike -- collectively pointing to newly bought bullish positions.

By purchasing the calls at a volume-weighted average price (VWAP) of $3.63, the buyers stand to make money if TSLA is docked atop $213.63 (strike plus VWAP) at next Friday's close, when the options expire. Profit potential is theoretically unlimited north of breakeven -- which represents expected upside of 2.7% from TSLA's current perch -- while risk is capped at the initial premium paid for the calls, should the equity remain south of the strike through the option's lifetime.

In light of TSLA's advance today, delta on the call has jumped to 0.43 from 0.33 at yesterday's close, implying a roughly 43% chance of an in-the-money expiration for the contracts. If the calls remain out of the money, the buyers can rest assured knowing they picked up the contracts at a relative discount. The stock's Schaeffer's Volatility Index (SVI) of 40% sits just 3 percentage points from an annual low, suggesting TSLA's short-term options are inexpensive right now, from a volatility perspective. Likewise, the security's Schaeffer's Volatility Scorecard (SVS) of 100 signifies that the stock has tended to make outsized moves on the charts, relative to what the options market has priced in.

However, if the call buyers are short sellers, their primary goal is for the options to expire worthless, and for TSLA to stage a retreat. Short interest represents nearly 28% of TSLA's total available float, so there's a chance the aforementioned buyers are actually shorts looking for a relatively cheap hedge against additional gains in the short term.

As alluded to earlier, Tesla Motors Inc (NASDAQ:TSLA) has been a technical standout in 2014, and has advanced more than 15% since bouncing off its 40-week moving average in early May. Meanwhile, the electric car maker has also drummed up lots of attention off the charts, with CEO Elon Musk recently hinting at a "fairly controversial" patent decision on the horizon.

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