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Tesla Motors Inc (TSLA) Options Trading Reaches Fever Pitch

Front-month options active as TSLA takes a 14% plunge

by 7/17/2013 8:58 AM
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Faced with a less-than-glowing outlook from Goldman Sachs, Tesla Motors Inc (NASDAQ:TSLA) took it on the chin in Tuesday's trading, shedding 14.3% of its value to rest at $109.05. As it made this move -- gradually, throughout the trading day -- options traders emerged, rushing to scoop up speculative plays on both sides of the aisle. Per data from Trade-Alert, yesterday marked a two-month high for TSLA in terms of single-day option volume.

Call volume was active, exceeding normal levels by more than 3.5 times, as 143,000 contracts changed hands. Not surprisingly, puts were in even greater demand as TSLA shares tumbled. All told, roughly 170,000 put contracts crossed the tape, quintupling the stock's typical daily put volume. Once the stock's single-day loss surpassed the 10% level, it was added to the short-sale restricted list, making puts the most viable and efficient way to bet on further downside.

Meanwhile, Tesla's 30-day, at-the-money (ATM) implied volatility spiked amid the falling stock and increased demand for options. Specifically, this measure spiked from 73.5% at Monday's close to 81.8%, an increase of more than 8 percentage points (or over 11%). In fact, it is the highest 30-day ATM implied reading since late May.

Five of the top six most active strikes in Tuesday's trading were puts, but the one exception was the July 120 call. Open interest rose by 2,445 contracts overnight at this out-of-the-money strike, implied volatility spiked more than 31 percentage points, and a fair amount of the volume traded at or near the ask price, suggesting some buy-to-open activity. Breakeven for these option buyers at Friday's close is $121.84, or the strike price plus the volume-weighted average price (VWAP) of $1.84. During the session, the option's delta plunged from 0.84 to 0.14, as the likelihood of an in-the-money expiration tumbled along with TSLA shares.

On the put side, the strike seeing the heaviest open-interest translation overnight (1,638 contracts) was the out-of-the-money July 105 put. In yesterday's trading, speculators scooped up these bearish bets for a VWAP of $1.65, and delta on the option zoomed to negative 0.32 from negative 0.009.

TSLA has seen its fair share of unrelenting bearish speculators throughout its jaw-dropping surge higher of late. This is evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.52, which shows that put open interest trumps call open interest by a margin of more than 3-to-2 among options expiring in the next three months. This ratio is just 18 percentage points away from an annual bearish peak, meaning that investors have not often been more put-focused during the last 12 months.

Even with yesterday's sharp pullback, TSLA bulls have a lot to celebrate. The newest member of the Nasdaq-100 is still up more than 220% in 2013 alone. Also, yesterday's pullback was stopped short at the equity's 40-day moving average. Tesla Motors Inc (NASDAQ:TSLA) has not breached this trendline since late March, but whether this trend will continue remains to be seen.


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