Options Check-Up: Tesla Motors (TSLA), Cisco Systems, and Herbalife

Analyzing recent option activity for TSLA, CSCO, and HLF

by Andrea Kramer

Published on Oct 28, 2014 at 7:37 AM
Updated on Apr 20, 2015 at 5:32 PM

Among the stocks attracting attention from options traders lately are electric vehicle maker Tesla Motors Inc (NASDAQ:TSLA), tech concern Cisco Systems, Inc. (NASDAQ:CSCO), and nutritional supplements maker Herbalife Ltd. (NYSE:HLF). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on TSLA, CSCO, and HLF.

  • TSLA plunged 5.8% to $221.67 yesterday, after the firm unveiled a new lease program for its Model S sedan, resulting in a 25% lower lease price and allowing buyers three months to return a vehicle if they're not happy. Meanwhile, some media outlets speculated the new lease program aims to counteract a notable decline in domestic sales, with deliveries of the Model S allegedly down 26% through September. In the options pits, Tesla Motors Inc's drop yesterday was likely to the delight of the options crowd. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.96 stands higher than four-fifths of all other readings from the past year, pointing to a healthier-than-usual appetite for long puts over calls of late. Now is an opportune time to gamble with TSLA's short-term options, as the stock's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 99, implying the stock has tended to make outsized moves on the charts, relative to what the options market has priced in.

  • CSCO ended fractionally lower at $23.76 on Monday. The security has added 5.9% in 2014, but option traders have been picking up puts over calls at an accelerated clip during the past two weeks. CSCO's 10-day put/call volume ratio on the ISE, CBOE, and PHLX has ascended to 0.94 -- above 90% of all other readings from the past year. As a result, the stock's Schaeffer's put/call open interest ratio (SOIR) is docked at a 12-month peak of 1.80, indicating that Cisco Systems, Inc.'s short-term options crowd hasn't been more put-biased during the past year. The equity's near-term contracts are reasonably priced, as its Schaeffer's Volatility Index (SVI) of 26% ranks in the middling 47th percentile of its annual range.

  • Finally, HLF dropped 3.1% to end right at $50 yesterday, bringing its year-to-date deficit to 36.5%. It's not too surprising, then, to find Herbalife Ltd. a popular target among the skeptics. The security's 10-day ISE/CBOE/PHLX put/call volume ratio of 3.54 sits just 5 percentage points shy of an annual peak, and its SOIR of 2.36 ranks higher than 98% of all comparable readings from the past 12 months. Short-term option buyers are paying up to gamble on HLF, as the equity's SVI of 103% registers in the 97th percentile of its annual range. Likewise, the stock's SVS of 24 suggests HLF's short-term options have tended to be overpriced, relative to the equity's technical movement.

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