Citi says to sell Tesla stock amid the SEC uncertainty
The shares of Tesla Inc (NASDAQ:TSLA) are sinking today, after the Securities and Exchange Commission (SEC) said it filed a lawsuit against the carmaker's CEO Elon Musk. The regulatory agency is alleging Musk committed securities fraud when he tweeted about taking Tesla private for $420 per share back in August, which could potentially result in his removal as head of the company and a possible ban on holding a corporate officer or board position at any public company.
According to CNBC, the SEC lawsuit comes after Musk pulled out of a previous no-guilt deal with the regulatory agency to settle accusations of fraud, which would've resulted in him surrendering his chairman role. "Integrity is the most important value in my life and the facts will show I never compromised this in any way," said Musk in a statement. A statement from Tesla's board of directors said they are, "fully confident in Elon, his integrity, and his leadership of the company."
Analysts have been quick to chime in, with Citi downgrading TSLA stock to "sell" from "neutral," saying "even after the post-close stock pullback (to $274), risk/reward is still tilted negatively." J.P. Morgan Securities, meanwhile, reiterated its "underweight" rating, expressing concerns that "decreased confidence in Tesla on the part of investors may impact the company's ability to raise capital on amenable terms."
Against this backdrop, TSLA stock is down 11.9% this morning to trade at $270.89, pacing for its biggest one-day drop since November 2013. It's been a more active than usual stretch for Tesla shares recently, per their 60-day historical volatility of 58.5%, which ranks in the 89th annual percentile. What's more, from its Aug. 7 peak at $387.46 to its Sept. 7 low of $252.25, the stock plunged more than 35%.
Options volume is accelerated in early trading, too. Within the first 20 minutes of today's session, nearly 66,500 puts and 53,000 calls have changed hands -- almost seven times what's typically seen at this point. Day traders are initiating new positions at the weekly 9/28 260- and 270-strike puts, as well as the 275- and 280-strike calls.
The weekly 10/5 300-strike call is most active, though, where it looks like new positions are being purchased for a volume-weighted average price (VWAP) of $3.28. If this is the case, breakeven for the call buyers at next Friday's close -- when the weekly options expire -- is $303.28 (strike plus premium paid).