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Although Tesla Motors Inc (NASDAQ:TSLA) remains a popular choice among speculative bears, the largest trade Monday in the electric-vehicle pioneer was on the (moderately) bullish side of the fence. One neutral-to-bullish options trader employed a short-term credit spread to wager on limited downside through the remainder of the week.
Around midday, blocks of nearly 1,400 contracts traded at both the September 155 and September 150 put strikes. The 155-strike options changed hands at the bid price of $0.48 per contract (implying they were sold), while the lower-strike options were executed at the ask price of $0.28 apiece, suggesting buyers. Open interest increased at both front-month strikes overnight, confirming positions were added.
This short (or bull) put spread will reach its maximum profit -- the net credit of $0.20 per spread -- if TSLA stays above the $155 level through Friday's close. The spread seller will be profitable, in fact, as long as TSLA is trading north of $154.80 (the short strike less the net credit).
On the flip side, the maximum loss is $4.80 (the difference in strike prices, less the initial net credit), should Tesla tumble south of the $150 mark over the next four days. Currently trading at $164.76, this represents a downside move of nearly 9%. (TSLA would need to drop 5.9% to move south of the breakeven point.) Because the puts are so far out of the money – and therefore have a greater shot at expiring worthless -- the risk/reward profile on the trade is roughly 4.2% (the potential total reward divided by the potential net risk).
Investors have expressed caution ahead of this week's Federal Reserve meeting, which is likely to provide clues as to when the central bank's bond-buying efforts will cease. At the stock level, though, Tesla Motors Inc (NASDAQ:TSLA) has actually seen a decline in implied volatility. Specifically, the equity's 30-day, at-the-money implied reading has dropped to 51.9% from 62.2% 10 days ago. What's more, Tesla's Schaeffer's Volatility Index (SVI) reading of 56% is lower than 72% of all similar readings from the past year.
Over the last three weeks, Tesla Motors Inc (NASDAQ:TSLA) has been consolidating sideways into its 20-day moving average. This trendline has contained all but three daily closes in the shares since late March, and is currently located around the $164 level.
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