Tesla Motors Inc (TSLA) Options Attractive Ahead of Gigafactory Event

Tesla Motors Inc (TSLA) stock options are attractive ahead of tomorrow's Gigafactory tour

Jan 3, 2017 at 3:39 PM
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Tesla Motors Inc (NASDAQ:TSLA) investors are gearing up for tomorrow's big reveal: an exclusive tour of the electric automaker's $5 billion Gigafactory. Ahead of tomorrow's event, TSLA shares are trading 1.1% higher at $216.10. The shares recently reclaimed their 320-day moving average, and have surged roughly 20% since rebounding off the $180 level in December. What's more, a mass exodus of option bears or a short squeeze could propel TSLA even higher.

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In TSLA's option pits today, calls are leading puts, 45,000 to 34,000, with nine of the 10 most active being weekly options set to expire before the end of the month. On one hand, there has been notable sell-to-open action detected at the weekly 1/6 227.50-strike call, according to data from the International Securities Exchange (ISE), indicating sellers are expecting TSLA to remain south of $227.50 through the end of the week.

On the flip side, one trader likely bought to open a block of 1,041 weekly 1/13 232.50-strike calls, for almost $198,000 ($1.90 ask price * 1,041 contracts * 100 shares per contract). However, given that these calls are deep out of the money, it's possible this call buying is attributable to a short seller hedging her bets, especially given TSLA's short interest is up 12.2% over the last two reporting periods. Shorted shares now account for 30% of TSLA's float, which would take traders 8.7 days to cover, at TSLA's average daily volume. If these short sellers decide to exit their positions, it could leave TSLA a prime candidate for a short squeeze.

Widening the lens, today's appetite for calls marks a change of pace for TSLA. The stock's 50-day put/call volume ratio at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than 70% of all other readings from the past year, indicating traders have bought to open puts over calls at an accelerated pace. What's more, near-term option players are also especially put-skewed, with TSLA's Schaeffer's put/call open interest ratio (SOIR) of 1.79 sitting just 4 percentage points from an annual peak. An unwinding of these pessimistic positions could work as a tailwind for TSLA.

Now looks like a good time to pick up Tesla Motors Inc (NASDAQ:TSLA) options. TSLA's Schaeffer's Volatility Index (SVI) of 40% sits lower than 88% of all other readings from the last 12 months. This suggests near-term option players are pricing in historically low volatility expectations. Meanwhile, TSLA's Schaeffer's Volatility Scorecard (SVS) of 67 indicates the stock has managed to exceed volatility expectations over the past year.

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