Tesla Options Traders Optimistic Ahead of Semi Reveal

TSLA stock has struggled amid negative press in November

Nov 14, 2017 at 12:50 PM
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It's been a rough month so far for electric vehicle maker Tesla Inc (NASDAQ:TSLA). The stock is staring at a November loss of 6.4%, triggered by a post-earnings bear gap on Nov. 2, which sent the shares below their 200-day moving average for the first time in 2017. Below, we'll take a look at the recent media coverage of the automaker, and how TSLA options traders are aligned ahead of a big event later this week.

Negative Press of Late

This weekend's Barron's cover posed the question, "Will Traditional Auto Makers Steal the Future From Tesla?" The article states that today's price/earnings multiples of auto shares (subscription required) are "historically low," though Tesla "is looking overvalued." However, while Elon Musk's company "continues to lose money and grapple with production woes," every car that rolls off Tesla's production line "arguably spurs the rest of the auto industry to innovate, adding value for all stakeholders, including investors."

This week, meanwhile, an African-American former employee reportedly called Tesla's production line a "hotbed for racist behavior," and is seeking permission to sue the firm on behalf of more than 100 similar workers. Meanwhile, venture capitalist Steve Jurvetson is stepping down from the Tesla and SpaceX boards, and is leaving his own company, allegedly amid a sexual harassment investigation.

Tesla Semi Will 'Blow Your Mind'

However, Tesla is hoping to turn the tide on Thursday, Nov. 16, with the company planning to unveil the Tesla Semi via live webcast. CEO Elon Musk has called the truck "seriously next level," and said it will "blow your mind clear out of your skull and into an alternate dimension."

TSLA Stock at a Crossroads

At last check, TSLA stock was 1.6% lower at $310.22.  The shares' 200-day moving average recently made a bearish cross with the 20-day trendline, which last happened in September 2016, and preceded some weakness in the shares. Further, these two trendlines are converging in the $320-$330 area, which is where TSLA was trading before its last earnings bear gap, and an area that's acted as both support and resistance for the past few months. The stock is also testing support in the $300-$310 area, which has provided a round-number foothold and is home to a 38.2% Fibonacci retracement of the equity's rally from late 2016 to its September 2017 peak.

tsla stock chart

TSLA Options Traders Remain Optimistic

Analysts and short sellers are skeptical, with Tesla stock sporting just six "buy" or better endorsements, compared to 12 "hold" or worse ratings. Meanwhile, short interest represents almost 24% of the stock's total available float, or more than a week's worth of pent-up buying demand, at TSLA's average pace of trading.

During the past 10 weeks, though, options traders have picked up bullish bets over bearish at a faster-than-usual clip. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 1.18 is higher than 76% of all other readings from the past year.

In the past two weeks, the November 320 call has seen the biggest increase to open interest, with nearly 6,000 contracts added. The November 315 call has also seen noteworthy additions, and a healthy portion of the action at both strikes appears to be buy-to-open activity. By purchasing the calls to open, the buyers expect TSLA stock to rebound north of the strikes before Friday's close -- when the contracts expire, and when speculators will have a chance to react to the Tesla Semi reveal.

Whether bullish or bearish, Tesla's near-term options are attractive, from a historical volatility perspective. The equity's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 95, indicating TSLA shares have handily exceeded options traders' volatility expectations in the past year.



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