Option Bulls Gear Up For Tesla Motors Inc (TSLA) Earnings

Tesla Motors Inc (TSLA) call options have been popular in the days leading up to tomorrow's earnings report

by Alex Eppstein

Published on Aug 2, 2016 at 2:19 PM

Auto stocks are getting absolutely demolished today following July sales results. Ahead of tomorrow night's earnings report, Tesla Motors Inc (NASDAQ:TSLA) is in the same boat as many of its sector peers. The stock is down 1.7% at $226.05, extending its losses from yesterday, which were triggered by the automaker's controversial M&A move. Below, we'll take a closer look at pre-earnings expectations for TSLA, as well as the stock's longer-term technical performance.

Looking back at the past eight quarters, Tesla stock has been a mixed bag in the immediate aftermath of earnings. While the shares have gained five times in the day following these reports, that leaves three sessions in which they've taken a step back. Last time around, TSLA dropped 5% in the trading day following its earnings results, and on average, the stock has swung 5.8% in either direction during these post-event sessions. By contrast, the options market is pricing in a much bolder 10% move for Thursday.

Based on data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options players foresee TSLA resolving to the upside this time. Over the last 10 days, traders have bought to open 1.11 calls for every put -- a ratio that ranks in the high 71st percentile of its annual range.

From the looks of it, we're seeing more of the same this afternoon. Potential buy-to-open activity is detected at the weekly 8/5 230-, 240-, 250-, and 260-strike calls. In other words, these options traders are expecting a dramatic reversal for TSLA shares -- which are already down 3.7% week-to-date and 16.1% since their near-term highs in early April -- by Friday's close.

That said, an ulterior motive could be in play. Nearly 28% of Tesla Motors Inc's (NASDAQ:TSLA) float is sold short, leaving open the possibility that short sellers have been hedging their bearish bets via protective calls. At the auto stock's typical trading volume, it would take seven sessions to cover these positions.

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