Are Options Bears Ahead of the Tesla Curve?

Tesla stock's -50% year-to-date level could also be a figure to watch going forward

Managing Editor
Nov 18, 2022 at 12:18 PM
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    Subscribers to Chart of the Week received this commentary on Sunday, November 13.

    Following its multi-month and major billion-dollar takeover deal, Twitter -- formerly carrying the ticker TWTR on the New York Stock Exchange (NYSE), has moved back into being a private company, as its now owned by Tesla Inc (NASDSAQ:TSLA) CEO, Elon Musk. The deal, which finalized in the last days of October, came with a slew of layoffs, including that of former CEO Parag Agrawal. The $44 billion-dollar takeover now makes Musk the mogul of five companies, including SpaceX and two small startups.

    Tesla is just a few weeks off its latest earnings report. After the closing bell on Wednesday, Oct. 19, the electric vehicle (EV) producer posted better-than-expected earnings for its third quarter, alongside a revenue miss. The equity suffered a slew of bear notes immediately following the lackluster report, and has since funneled lower in the ensuing weeks, culminating in a nearly two-year low of $177.12 on Nov. 9.

    To say the EV giant has struggled in 2022 is quite an understatement. Its declining 30-day moving average contained rallies in October while the $310 level has thwarted numerous breakout attempts in the past two years. The -50% year-to-date level could also be a figure to watch going forward.

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    Options have unsurprisingly taken a front seat, in the past 10 days of trading. Another not-so-riveting discovery is the preference to puts over calls -- even if only slightly. Per data from Schaeffer’s Senior Quantitative Analyst Rocky White, 12,837,500 puts have been traded for most option volume all equities, compared to 12,794,122 calls. The most popular contracts during this time frame were the weekly 10/28 230-strike call and weekly 11/4 call for the same strike, however. In simpler terms, traders were expecting the stock to make a shift of recovery up to $230 by the contracts’ respective expirations.

    This sentiment is echoed on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), too. Specifically, the equity's 50-day put/call volume ratio ranks in the 86th percentile of its annual range. Finally, Tesla stock's Schaeffer's Volatility Scorecard (SVS) ranks at 97 out of 100, indicating the carmaker has exceeded option traders' volatility expectations during the last year.

    One last note to keep in mind; Musk’s takeover of Twitter has been nothing short of a disaster. Mass layoffs, advertisers fleeing the scene, and half-measure attempts at “improving” verification have intensified the spotlight on the embattled CEO. He even had to sell another $3.95 billion worth of Tesla shares right after the Twitter acquisition to help pay for it, per an SEC filing. It’s allowed many observers of the trainwreck to realize that just because you’re a billionaire, you may not know everything about running a business. Wedbush said it best, noting the "Musk overhang gets worse by the day" and “Musk has essentially tarnished the Tesla story/stock and is starting to potentially impact the Tesla brand with this ongoing Twitter train wreck disaster.” If Elon continues to get exposed, publicly, as a blowhard in over his head, it could lead to more suffering for Tesla stock.

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