Eisman Shorts Tesla Stock Ahead of Earnings

TSLA is headed toward its lowest weekly close since June 1

Jul 27, 2018 at 1:48 PM
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In an interview with Bloomberg, Steve Eisman said he's short Tesla Inc (NASDAQ:TSLA). The portfolio manager -- whose successful bet against the 2008 subprime mortgage crisis was featured in "The Big Short" -- also called CEO Elon Musk a "smart man," but called out "execution problems." In reaction, TSLA stock is down 3% at $297.41 -- on track for its lowest weekly close since June 1.

Today's slide just highlights recent weakness seen in the stock. Since topping out at a year-to-date high near $374 in mid-June, the shares have shed 20%. What's more, the security's 3.3% loss on Monday following reports Tesla is seeking refunds from suppliers brought the shares below their 80-day moving average, which has served as both support and resistance over the last year.

tsla stock daily chart july 27

Tesla stock could be at risk for even bigger losses next week, if history is any guide. The automaker is scheduled to report earnings after the market closes next Wednesday, Aug. 1. The stock has closed lower in the session subsequent to Tesla earnings in five of the last eight quarters --- including the three most recent. On average, the equity has moved 5.2% the next day, regardless of direction. This time around, the options market is pricing in a much larger 9.8% swing.

Options traders appear to be betting on another post-earnings move to the downside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), TSLA's 10-day put/call volume ratio of 1.04 ranks in the 94th annual percentile.

Likewise, Tesla's Schaeffer's put/call open interest ratio (SOIR) of 2.00 indicates puts double calls among options set to expire in three months or less. This ratio ranks in the 100th annual percentile, pointing to an unusual put-skew among short-term traders.

Those looking to purchase premium on Tesla puts should take note of the elevated volatility expectations being priced into short-term options, which could make it difficult to reap the benefits of options leverage. The stock's 30-day at-the-money implied volatility (IV) of 61% ranks in the 97th annual percentile. Plus, TSLA's 30-day IV skew of 18.8% arrives in the 81st percentile of its 12-month range, meanings puts are currently more expensive than calls, from a volatility standpoint.


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