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Tesla Motors Inc (TSLA) Traders Exploit Bargain-Basement Options

Tesla Motors Inc speculators are buying 190-strike options with a short shelf-life

by 5/16/2014 1:01 PM
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Option Brief: Tesla Motors Inc (NASDAQ:TSLA) is up 0.8% at $190.10, and options traders are gambling on the automaker's afternoon trajectory. What's more, the stock's short-term options remain priced to move, as its 30-day at-the-money (ATM) implied volatility hit a 52-week low earlier in the session, and was last seen down 1.1% at 43.9%.

Garnering the most attention today has been the ATM May 190 strike, where roughly 7,900 calls and 6,700 puts have changed hands. Volume has surpassed open interest on both sides of the fence, and the majority of the options have traded on the ask side, hinting at newly bought eleventh-hour bets.

The volume-weighted average price (VWAP) of the calls is $1.17, meaning the buyers will reap a reward if TSLA is sitting north of breakeven at $191.17 (strike plus VWAP) at the close today, when front-month options expire. On the flip side, the VWAP of the puts is $1.53, indicating a breakeven of $188.47 (strike minus VWAP) at the closing bell. However, even if TSLA settles the session right at $190, the most either set of options buyers stands to lose is the initial premium paid.

As alluded to earlier, now is an opportune time to buy Tesla Motors Inc (NASDAQ:TSLA) short-term contracts. The equity's Schaeffer's Volatility Index (SVI) stands at an annual low of 44%, suggesting TSLA's short-term contracts are inexpensive on a historical basis, and its Schaeffer's Volatility Scorecard (SVS) of 100 implies that TSLA has tended to make outsized moves, relative to what the options market has priced in.


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