Option Traders Pay to Play Tesla Motors Inc (TSLA)

Option bears target TSLA as analysts comments send the shares lower

Kirra Fedyszyn
Feb 2, 2016 at 12:49 PM
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After dipping dangerously close to a yearly low last week, electric car company Tesla Motors Inc (NASDAQ:TSLA) is hurting again today, down 6% at $185.32, after an analyst from Pacific Crest Securities told his clients to "avoid" the stock. In addition, the analyst slashed his full-year earnings estimates for Tesla, saying "Model X orders are still lagging expectations." Against this backdrop -- and amid an automaker swoon in the wake of lackluster January auto sales -- TSLA option bears are revving their engines.

TSLA is set to unveil its new Model 3 in late March, but brokerage firms have been wary, citing low-volume expectations for both the new model and the already available Model X. In fact, analysts as a whole are relatively skeptical, as TSLA sports just five "buy" or better ratings, compared to five "holds" and five "sell" or worse designations.

Moreover, nearly 29% of the stock's available float is wrapped up in short interest. At TSLA's average daily volume, it would take about seven days of trading to cover all these bearish positions

And with just over a week left until TSLA reports its fourth-quarter earnings, option traders have also been fairly pessimistic -- not too surprising, considering the stock has shed about 35% since hitting a yearly high of $286.65 in late July. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has a 10-day put/call volume ratio of 1.02 -- higher than 71% of all readings from the past year.

Today, TSLA options volume is running at 1.3 times the average intraday pace, with puts slightly outnumbering calls. It looks like some bears are buying to open the weekly 2/5 190-strike put -- most active so far -- to bet on an extended retreat south of the strike through Friday's close, when the options expire. 

Meanwhile, the weekly 2/5 192.5-strike call has seen more than 2,000 contracts change hands. However, it looks like most of the action is of the sell-to-open variety, meaning traders are betting the underlying security will stay below the $192.50 level through the end of the week, so the options will expire worthless.

Tesla Motors Inc's (NASDAQ:TSLA) short-term options are relatively pricey at the moment -- a boon for premium sellers. The equity's 30-day at-the-money implied volatility is in the 99th percentile of its annual range, at 60.7%, and the stock's Schaeffer's Volatility Index (SVI) of 67% stands higher than three-fourths of all readings from the past year. TSLA's relatively low Schaeffer's Volatility Scorecard (SVS) of 26 indicates the security has tended to make undersized moves on the charts during the past year, compared to what the market has priced in.

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