Signal Says Don't Sweat the Tesla Stock Pullback

The options pits are flashing serious bullish activity

Deputy Editor
Oct 14, 2020 at 12:43 PM
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Tesla Inc (NASDAQ:TSLA) has been an anomaly during this pandemic-laden year, brushing off the tumultuous market activity and enjoying a 451.8% rise in 2020. In fact, TSLA notched an all-time high close of $498.32 on Aug. 31, the day that the company followed through on its historic five-for-one stock split. More recently, however, the equity has pulled back to its 40-day moving average -- a trendline that, if history is correct, could propel the stock even higher.

According to Schaeffer's Senior Quantitative Analyst Rocky White, the four other times TSLA tested support at this trendline, it was higher half the time, and averaged a one-month gain of 5.9%. A move of similar magnitude from the stock's current perch of $460.17 would put the equity north of $487, and well on its way back to the aforementioned peak.

TSLA Chart October 14

It should come as no surprise then that call buying in the options pits has been more popular than usual in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the security with a 50-day call/put volume ratio of 1.69, which ranks higher than all but 1% of readings in its annual range.

Today's options pits are showing a preference for calls as well, with over 523,000 crossing the tape so far -- 1.6 times the intraday average and volume pacing in the 98th percentile of the last 12 months. The most popular by far is the October 460 call, which has new positions opening and is right in line with current levels. That's followed relatively closely by the 500 call from the same series, where new positions are also opening.

What's more, options traders are pricing in relatively low volatility expectations at the moment, per the stock's Schaeffer's Volatility Index (SVI) of 77% which sits higher than just 8% of all other annual readings. Plus, TSLA's Schaeffer's Volatility Scorecard (SVS) ranks at a high 96 out of 100, meaning the equity has tended to exceed these expectations during the past year.


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