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Tesla Motors Inc (TSLA) Earnings Don't Meet Bulls' Expectations

TSLA March 40 call the busiest strike for electric car maker

by 2/21/2013 10:15 AM
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At last check, option traders were bullish on the prospects of electric car maker Tesla Motors Inc (NASDAQ:TSLA - 35.31) in advance of its fourth-quarter earnings. A check on Wednesday's trading showed not much had changed -- overall volume was double that of a normal day, with about 15,000 calls crossing the tape -- more than 2.5 times more than normal. The most popular of these was the March 40 call, which saw nearly 3,800 contracts change hands. But those results, released yesterday after the market closed, may have those bulls rethinking their strategy.

Some of the March calls went off at the ask price, and implied volatility ticked up significantly, suggesting that a portion of the contracts were bought to create new positions. With a volume-weighted average price (VWAP) of $1.99, TSLA shares need to close at $41.99 (strike price plus VWAP) when the options expire on March 15 for the trades to break even -- a close below the strike price means the traders lose the premium paid. The breakeven mark is nearly 19% from the stock's current trading level, and the option now has a delta of 0.12, meaning it has a 12% chance of expiring in the money. (At last night's close, delta stood at 0.44.)

The traders could face some technical headwinds, especially after yesterday's earnings results. TSLA reported losses of 65 cents a share in the fourth quarter, 12 cents more than analysts had estimated. Revenue was higher than anticipated, however, and the company said it could be profitable as soon as the current quarter. The stock is off more than 8% in early trading today, and has been battered a bit lately over reports from The New York Times that the battery for TSLA's latest electric car model didn't last as long as advertised in cold weather. TSLA has fired back, saying the test was done incorrectly and some of the results are fabricated. Yet despite that turmoil, TSLA shares are up more than 4% so far this year, and after a few months of treading water after bottoming out at $25.52 on Aug. 2, the stock has steadily climbed upward - hitting an annual high of $40.00 on Feb. 8.

Overall sentiment toward TSLA among option traders remains mixed. The stock's Schaeffer's put/call open interest ratio (SOIR) is 1.05, indicating a slight surplus of puts among options expiring in the next three months. That reading is in the 62nd percentile of similar data over the last 12 months, meaning option traders are slightly more put-oriented now than in the past year. But the equity's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 2.82, indicating traders have been buying to open calls over puts by an almost 3-to-1 margin during the past two weeks. And that reading stands higher than 64% of others in the last year, signifying a moderately more bullish approach to TSLA of late.

Two other data points could also provide either headwinds or tailwinds for TSLA shares. The recent results could move some of the 12 analysts covering the stock, and they are divided, with seven showing a "buy" or better rating, and five giving TSLA a "hold" or worse. A move by one or more of those in either direction could also move the share price. In addition, the company's current short interest stands at a whopping 37.1% of TSLA's outstanding float, and it would take those short traders nearly 16 days to unwind their positions. Any upward movement could then be accelerated by those shorts looking to get out.


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