Unpacking Tesla's Frenzied Options Activity

Tesla hit the $1,000 level earlier this week

Patrick Martin
Jun 12, 2020 at 2:14 PM
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As the Nasdaq Composite (IXIC) completed its V-bottom earlier this week, no stock was as emblematic of the tech-rich index's rally as Tesla, Inc. (NASDAQ:TSLA). The electric vehicle manufacturer scaled the psychologically significant $1,000 level on Wednesday, but also participated in the broad-market selloff on Thursday. Amidst this week's volatility, Tesla's options pits are worthy of a deeper inspection. 

In the last two weeks, TSLA sports a 10-day call/put volume ratio of 1.81 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits one percentage point from an annual high, suggesting a much bigger-than-usual appetite for bullish bets of late. Digging deeper though shows that the weekly 6/12 1,000-strike put is home to the largest increase in open interest in this time frame.

Today, puts are rising in popularity. At last check, over 288,000 puts have changed hands, double the intraday amount and volume pacing for the 98th percentile of its annual range. The weekly 6/12 950-strike put is the most popular, with new positions being opened. Buyers of this put are banking on a last-minute pullback from TSLA by the close today, when the options expire.

At last check, Tesla stock was down 5.3% at $920.88, but is still looking at an 8.1% weekly win. It's been well-documented, but TSLA has more than tripled in the last 12 months, and March's sharp selloff was contained by its 320-day moving average.

Daily Stock Chart TSLA

A return to the $1,000 level could be made possible by a short squeeze. Short interest fell by 6.4% in the two most recent reporting periods, yet the 16.09 million shares sold short accounts for a healthy 10% of TSLA's total available float. And analysts remain on the sidelines too, with only five of the 22 doling out "buy" ratings. In other words, a round of overdue bull notes could also provide tailwinds to the equity.

What's more, Tesla stock's Schaeffer's Volatility Scorecard (SVS) sits high at 99 (out of 100), showing that the stock has tended to exceed option traders' volatility expectations during the past year, a good thing for option buyers.


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