Call Traders Pounce as Tesla Stock Pullback Widens

UPS ordered 125 Tesla electric semi trucks on Tuesday

Managing Editor
Dec 20, 2017 at 12:59 PM
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Yesterday, electric car company Tesla Inc (NASDAQ:TSLA) received its largest pre-order to date of electric semi trucks from United Parcel Service (UPS). UPS joins PepsiCo (PEP), Wal-Mart Stores (WMT), and J.B. Hunt (JBHT) on a growing list of companies that have placed orders for Tesla's truck since the mid-November unveiling. Today, we will take a closer look at TSLA stock and see how sentiment both in and out of the options pits is stacked up on the electric automaker.

At last check, Tesla stock was down 0.6% to trade at $329.05. The equity is pacing for a three-day losing streak, down 4% week-to-date. This recent pullback is nothing new; although TSLA stock has added 54% year-to-date, the equity has shed 15% since touching an all-time high of $389.61 on Sept. 18, and is now testing its 200-day moving average. This trendline kept a tight lid on the security last month.

Lost in the semi truck news yesterday was RBC raising its price target on Tesla to $380 from $340. While the brokerage firm foresees 2018 as another volatile year, it expects the company will resolve its Model 3 bottleneck issues. Despite the upbeat note yesterday, most analysts are skeptical of Tesla. Of the 18 brokerages covering the equity, 12 rate the shares a "hold" or worse. 

Short sellers continue to hone in on the electric car company. Short interest increased by 15% since the Oct. 1 reporting period -- which may partially explain the stock's retreat from record highs -- to 31.16 million shares, the most since mid-May. This represents a whopping 26% of TSLA's total available float. 

Call buyers, however, have been active on TSLA, but perhaps some of that -- at least at out-of-the-money (OOTM) strikes -- is attributable to short sellers seeking an options hedge. The security has a 10-day call/put volume ratio of 1.33 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 90th percentile of its annual range.

Digging deeper, the weekly 12/22 347.50- and 340-strike calls have seen the biggest rises in open interest during the past 10 days. Data from Trade-Alert shows a mixture buy-to-open and sell-to-open activity at these strikes. Call buyers expect the stock to climb above the respective strikes before the options expire on Friday, while those writing the calls see the overhead strikes as offering short-term resistance.

Shifting gears to today, roughly 80,000 calls have traded -- 1.7 times the average intraday norm, and call volume pacing for the 91st percentile of its annual range. The weekly 12/22 330- and 332.50-strike calls are most active, with new positions being initiated.

While today's activity appears to be another mix of buying and selling, Tesla has consistently rewarded premium buyers over the past 12 months. This is based on the stock's Schaeffer's Volatility Scorecard (SVS), which is docked at a lofty 98, meaning TSLA has made stronger-than-expected moves on the charts relative to what the options market had priced in.

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