Tesla Call Options Hot as Analyst Issues Lofty Price Target

A short squeeze could propel Tesla stock to another record high

Patrick Martin
Oct 4, 2017 at 12:55 PM
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Electric vehicle maker Tesla Inc (NASDAQ:TSLA) is in the spotlight again today, with the stock attempting a rebound after bullish analyst attention. Specifically, Nomura Instinet started TSLA stock with a "buy" rating, as well as a 12-month price target of $500, which represents a roughly 40% increase from the stock's current perch. The firm's analyst believes Tesla is "well positioned to accrue most of the profits in the electric vehicle value chain." Below, we will examine TSLA's recent price action, and dive into today's influx of short-term option bulls.

Tesla stock yesterday fell as low as $331.28 before ending the day higher, amid concerns about Model 3 production and increased competition from General Motors (GM). Today, the shares are up 2.6% at $357.16, and back above their 100-day moving average, which has contained most of TSLA's pullbacks in 2017.

From a longer-term standpoint, the stock has added 66% year-to-date and touched a record high of $389.61 on Sept. 18. What's more, according to recent data from Schaeffer's Senior Quantitative Analyst Rocky White, stocks above $300 are more likely to enjoy a positive quarter, compared to lower-dollar stocks.

Despite TSLA's long-term success, most analysts are skeptical. Of the 11 brokerages covering TSLA, 16 maintain a "hold" or worse rating. Should the shares resume their quest for record highs, analysts could re-evaluate their pessimistic outlooks. Furthermore, TSLA's average 12-month price target stands at $318.63 -- a nearly 11% discount to the stock's current price..

A short squeeze could also give TSLA stock a boost toward Nomura's lofty price target. Short interest is at its highest point since June 1, and represents a whopping one-quarter of the stock's total available float. It would take six days for shorts to fully cover their positions, at TSLA's average daily trading volume.

In the options pits, there has been a healthy appetite for calls. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows TSLA with a 50-day call/put volume ratio of 1.22, which ranks 4 percentage points from a 52-week high. Today, call volume is running at almost double the average intraday pace, with about 77,000 contracts traded. Digging deeper, the weekly 10/6 series -- which expires at Friday's close -- makes up Tesla's 10 most active options, with the near-the-money weekly 10/6 360- and 355-strike calls garnering the most attention.

Those looking to bet on TSLA's trajectory by buying options are in luck, if past is prologue. Tesla stock has consistently rewarded premium buyers over the past year, per its Schaeffer's Volatility Scorecard (SVS) of 91. In other words, TSLA has tended to make outsized moves on the charts, relative to what the options market has priced in.

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