Is Sentiment Shifting Among Tesla Motors Inc (TSLA) Traders?

TSLA speculators are scooping up weekly call options

by Andrea Kramer

Published on Nov 11, 2014 at 12:26 PM
Updated on Apr 20, 2015 at 5:32 PM

Electric vehicle maker Tesla Motors Inc (NASDAQ:TSLA) is up 2.5% at $247.87 on no apparent news, though the company is scheduled to appear at the Robert W. Baird Industrial Conference this afternoon. Whatever the motive, option traders are gambling on more short-term upside for the shares, with intraday call volume running at a 68% mark-up to the norm.

Digging deeper, speculators have taken a shine to the weekly 11/14 250-strike call, where implied volatility has popped 4.7 percentage points, and volume exceeds current open interest -- both signs of fresh initiations. Plus, the majority of the calls traded on the ask side, suggesting they were bought.

In light of TSLA's jump today, delta on the call has more than doubled, to 0.44 from 0.21 at yesterday's close. In other words, the options market is giving the calls a roughly 44% chance of finishing in the money on Friday, when the weekly series expires.

While profit potential is theoretically unlimited to the upside, the buyers' risk is capped at the initial premium paid for the calls, should TSLA remain south of $250 -- a level not conquered on a daily closing basis since Oct. 9 -- through the end of the week. However, those buyers can rest assured that now is an opportune time to trade TSLA's short-term options.

The stock's Schaeffer's Volatility Index (SVI) of 37% stands higher than only 12% of all other readings from the past year, suggesting TSLA's near-term contracts are attractively priced, relatively speaking. Likewise, the equity's Schaeffer's Volatility Scorecard (SVS) is docked at 100, indicating the stock has tended to make outsized moves on the charts during the past year, relative to what the options market has priced in.

From a broader sentiment standpoint, though, today's preference for TSLA calls over puts marks a change of pace among recent buyers. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.98 registers in the 84th percentile of its annual range. In simpler terms, Tesla Motors Inc (NASDAQ:TSLA) traders have bought to open puts over calls at a much faster-than-usual clip during the past couple of weeks.

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