Volatility Expectations Balloon on Tesla Stock Ahead of Earnings, Model 3 Launch

Implied volatility on Tesla options is unusually high

Jul 26, 2017 at 11:34 AM
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Tesla Inc (NASDAQ:TSLA) shares have been fighting back since their sharp fall in early July, bouncing from their July 10 low of $303.13 to trade at $342.21 today. This momentum comes ahead of two major events for the electric car manufacturer: this Friday's Model 3 launch, and next Wednesday's earnings release. As such, data suggests options traders will have to pay up if they're wanting to speculate on TSLA stock. 

For example, Tesla has a Schaeffer's Volatility Index (SVI) of 49% ranks just 10 percentage points from an annual high. This means unusually high volatility expectations are being priced into near-term options. This fact is supported by TSLA's 30-day at-the-money implied volatility, which ranks in the 87th annual percentile, coming in at 44.8%. 

This makes sense, however, given how volatile Tesla stock has been in the past. The shares have a Schaeffer's Volatility Scorecard (SVS) 80, which means they've shown a strong tendency to exceed options traders' expectations over the past year. As for next week's post-earnings session, traders are pricing in a 8.9% swing in either direction. TSLA has fallen 5% and 6.4%, respectively, in the days immediately following their last two earnings reports. 

Looking closer at recent options activity, it looks like traders are staying bullish on the equity. The shares have a 10-day call/put volume ratio of 1.20 ranks in the 76th annual percentile. But among near-term strikes, the weekly 7/28 350-strike saw a notable rise in open interest, and there was a near-equal split between buy- and sell-to-open activity. So some traders are expecting Tesla stock to breakout above $350 by week's end, when the contracts expire, while others are betting on this level to act as a technical ceiling. 

Most analysts are taking a wait-and-see approach, with 10 of 15 giving Tesla stock a "hold" or worse rating. Moreover, the shares' average 12-month price target sits all the way down at $302.56, and just this morning UBS reiterated its "sell" rating. As contrarian traders, it's hard not to take notice of the potential for bullish analyst attention to come Tesla's way, especially with clear catalysts on the horizon. 

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