Tesla Motors Inc (TSLA) Sees a Surge of Pre-Earnings Call Buying

Tesla Motors Inc (NASDAQ:TSLA) will report first-quarter earnings after tomorrow's close

May 3, 2016 at 10:45 AM
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Elon Musk's Tesla Motors Inc (NASDAQ:TSLA) will follow a long line of tech firms -- including Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB) -- when it unveils first-quarter earnings tomorrow night. TSLA stock has a history of making big single-session post-earnings swings, including an 11.2% pop in November 2015, and an 11.3% plunge in May 2014. Overall, TSLA has averaged a 6.6% move in the session subsequent to reporting over the past eight quarters. This time around, though, the options market is pricing in a lofty 12.2% swing.

By the looks of it, options traders have been betting on this post-earnings price action to resolve to the upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), TSLA's 10-day call/put volume ratio of 1.26 ranks higher than 80% of all comparable readings taken in the past year. In other words, calls have been bought to open over puts at a faster-than-usual clip in recent weeks.

Echoing this call-skewed backdrop is TSLA's Schaeffer's put/call open interest ratio (SOIR) of 0.77, which sits lower than 98% of all comparable readings taken in the past year. Simply stated, speculative traders are more call-heavy than usual toward options expiring in three months or less.

Drilling down on the past 10 sessions, TSLA's weekly 5/6 220-strike and June 240 calls have seen the biggest rise in open interest -- with a combined 5,382 contracts opened -- among options that have not yet expired. For those purchasing new positions, the goal is for TSLA to be sitting north of the strike prices at the respective expiration dates of this Friday's close and the close on Friday, June 17.

Outside of the options pits, however, sentiment is tilted toward the skeptical side. In fact, although short interest is down 15% from its early March record high, it still accounts for nearly 29% of TSLA's available float. As such, it's possible that some of the recent call buying -- specifically, at out-of-the-money strikes -- is a result of shorts hedging against any upside risk.

Looking at the charts, TSLA shorts have good reason to be on edge. The stock has rallied 67% off its Feb. 9 two-year low of $141.05 -- thanks in part to a strong reception for its lower-priced Model 3 sedan. Meanwhile, a recent pullback from its April 7 year-to-date high of $269.34 has been contained in the $234-$235 region -- home to TSLA's 10-week moving average. In fact, although Tesla Motors Inc (NASDAQ:TSLA) dipped as low as $233.57 earlier amid broad-market headwinds, the stock was last seen down 2.4% at $235.89.

Weekly Chart of Tesla 2 May 3

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