A Closer Look at Tesla Stock Options Ahead of Earnings

Tesla will report earnings after tomorrow's close

May 2, 2017 at 3:43 PM
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Tesla Inc (NASDAQ:TSLA) will report first-quarter earnings after tomorrow's close. Ahead of the scheduled event, TSLA stock is down 0.9% at $319.86, trading lower with its fellow car stocks amid soft April auto sales. Nevertheless, TSLA shares hit a record high of $327.66 before slipping into the red, continuing the stock's impressive price action since its early December bottom near $180 -- an upside move that allowed Tesla to become the largest U.S. automaker in terms of market cap.

While put open interest on the electric car stock currently exceeds call open interest by roughly 130,000 contracts, most of the put activity on TSLA is centered on LEAPS contracts. In fact, seven of Tesla's top 10 open interest positions are puts that reside in the January 2018 and 2019 options series, accounting for 95,500 contracts -- or one-fifth of the total open TSLA puts.

Shorter-term traders, meanwhile, have targeted call strikes recently. Specifically, over the past five sessions, TSLA's weekly 5/5 330- and 332.50-strike calls saw some of the biggest increases in open interest. It looks as if there's been a mix of buy- and sell-to-open activity at both out-of-the-money strikes. Those buying to open the calls expect TSLA to surge to even higher highs by week's end, when the weekly options expire. Conversely, those selling to open the calls are betting on the strikes to serve as a short-term ceiling for TSLA shares.

Meanwhile, one options trader seems to be hoping TSLA bucks its historical trend of volatile post-earnings moves. Specifically, it looks as if a short straddle was initiated yesterday using TSLA's June 330 call and put. If this is the case, the goal is for the stock to stick close to $330 through June options expiration. However, the spread strategist could also be hoping for a post-earnings volatility crush.

Looking back over the past eight quarters, TSLA stock has averaged a single-session post-earnings move of 5.2%, regardless of direction. This includes a 6.4% drop in February, as well as an 11.2% pop in November 2015. This time around, the options market is pricing in a bigger post-earnings swing of 8.3% for Tesla Inc (NASDAQ:TSLA) in Thursday's trading. 

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