Soaring Tesla Stock Could Have Gas In the Tank

With Tesla Inc's (TSLA) recent technical strength, short sellers could be getting nervous

Feb 9, 2017 at 1:05 PM
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Tesla Inc (NASDAQ:TSLA) is popping, up 2.8% at $269.33 -- and just off a fresh annual high of $271.18 -- on news the automaker plans to begin producing a test version of its Model 3 this month. In addition, ahead of Tesla's Feb. 22 earnings date, a Baird analyst reaffirmed the brokerage firm's "buy" rating and price target of $338 for TSLA shares -- in uncharted territory -- saying "several upcoming catalysts could drive the stock price higher," including an expectation that the Model 3 will "outperform its competitors." What's more, Tesla's rally could have legs, should short sellers hit the exits.

TSLA shares are now up more than 50% since their mid-November lows near the $180 mark, supported by their 10-day moving average. Further, TSLA recently broke north of the $260-$265 vicinity, which has been a thorn in its side since mid-2016; this could signal a trend change.

TSLA stock news

Pessimism Prevails, Despite TSLA's Surge

However, plenty of skepticism remains on the shares, and TSLA's recent technical strength could spook the bears. Short interest is at an all-time high, with 29.7% of TSLA's float sold short -- an amount that would take 6.3 days of trading to cover, at TSLA's average daily volume. A short squeeze could send TSLA shares even higher.

What's more, despite the brokerage crowd also remains pessimistic about the electric automaker. Of the 17 analysts weighing in, 14 rate TSLA a tepid "hold" or worse, with TSLA's current average target price at $240.94 -- a 10% drop from TSLA's current perch. Another round of bullish brokerage notes could add fuel to TSLA's fire.

Echoing that, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.45 is higher than 82% of all other readings from the past year, indicating near-term options traders are more put-biased than usual. Today, however, TSLA calls are trading at twice the average intraday clip, and outpacing put options. Roughly 68,000 calls have traded, compared to fewer than 60,000 puts. Most active is the weekly 2/10 270-strike call, with some eleventh-hour buyers possibly betting on more upside through tomorrow's close, when the options expire. Or, perhaps the aforementioned shorts are seeking a very short-term, cheap hedge.

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