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Option traders have been scooping up Tesla Motors Inc (NASDAQ:TSLA - 39.28) calls at a faster-than-usual clip, either to gamble on or hedge against a post-earnings rally. What's more, some speculators are employing TSLA puts to bet on long-term support for the automaker.
During the past couple of weeks, traders have bought to open more than two TSLA calls for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the stock's 10-day call/put volume ratio of 2.56 ranks in the 61st percentile of its annual range, suggesting option buyers are scooping up long calls at an accelerated pace.
However, it's worth noting that short interest edged 1.1% higher during the most recent reporting period, and now accounts for a substantial 37% of TSLA's total available float. At the equity's average daily trading volume, it would take more than three weeks to buy back all of these bearish bets. Against this backdrop, it's possible that some of the recent call buying could be attributable to pre-earnings hedging activity among the shorts.
As alluded to earlier, other traders are employing puts to place neutral-to-bullish bets on TSLA. During the course of Tuesday's session, the stock saw roughly 12,000 puts cross the tape -- almost three times the norm. More than 2,100 of the contracts traded at the September 37 put, mostly in one large block at the bid price of $5.20, suggesting they were sold. Plus, put open interest swelled overnight, confirming our suspicions of newly opened positions.
By selling the puts to open, the traders are expecting TSLA to remain north of $37 through the next several months. In this best-case scenario, the puts will remain out of the money, allowing the sellers to retain the entire net credit of $5.20. However, considering time decay is an option seller's best friend, writing longer-term puts is relatively risky, since there's more time for the stock to move against you. Should TSLA breach the strike within the options' lifetime, the traders could be on the hook to buy the shares at $37 apiece -- a premium to Street value.
Over the past month, though, the $37 level has emerged as a technical foothold for TSLA. In addition, the security is once again trading atop its 10-day and 20-day moving averages, which have ushered the shares nearly 16% higher in 2013.
Fundamentally, TSLA has reported a steeper-than-expected per-share loss in three of the past four quarters, according to Thomson Reuters. Ahead of tonight's turn in the earnings confessional, Wall Street is calling for a fourth-quarter loss of 53 cents per share.