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Despite Tesla Motors Inc (NASDAQ:TSLA - 38.51) trading roughly 2% lower in today's session, option traders are scooping up calls at a feverish pace. Around 13,000 contracts have changed hands so far, nearly four times the average intraday volume for call options. Near-term bulls are betting on a quick rebound by week's end, and are targeting TSLA's February 41 and 42 calls.
Of the 1,806 contracts traded at the stock's February 41 call, 51% have changed hands at the ask price. With implied volatility surging 6.9 percentage points, and volume outstripping open interest, it can be assumed that a portion of the day's activity is of the buy-to-open variety. The volume-weighted average price (VWAP) for these out-of-the-money calls is $0.23, making breakeven $41.23 (strike plus VWAP). Delta for the calls is currently perched at 19%, implying a roughly 1-in-5 chance these options will finish in the money by the time the closing bell sounds on Friday, at which point front-month options expire.
Meanwhile, about half of the 1,675 February 42 calls that have traded have gone off at the ask price. Implied volatility was last seen 3.6 percentage points higher, and only 950 contracts make up open interest here, hinting at the initiation of new positions. By purchasing these further out-of-money calls for a VWAP of $0.17, traders need TSLA to rise 9.5% above current levels by the end of the week to topple breakeven at $42.17.
Technically, the stock has risen an impressive 15% in 2012. This positive price action has been highlighted by the equity's 10-day moving average, which helped push TSLA to a record peak of $40 last Friday.
Fundamentally, the electric car concern is slated to unveil its quarterly earnings report after tonight's close. The company has a mixed history in the confessional, and has fallen short of analysts' per-share profit expectations in three of the last four quarters. For TSLA's fourth quarter, Wall Street is calling for a loss of 53 cents per share.
Should TSLA's earnings results fail to impress investors, the most today's call buyers stand to lose is the initial premium paid.