Tesla Stock Options Traders Eye More China Upside – Schaeffers Research (blog)

Shares of Tesla Inc (NASDAQ:TSLA) are getting a big boost today on reports China is planning to eventually ban gasoline vehicles and is on track to install 800,000 new charging stations for electric vehicles by the end of 2017. TSLA stock was last seen up 5.4% at $362.06, bringing its year-to-date gain to 69.4%. And with the equity breaking out above a trendline connecting lower highs since August, options traders are betting on even more upside by week’s end.

tsla stock daily chart sept 11

With just about an hour left in today’s trading, roughly 76,250 TSLA calls and 60,000 puts have changed hands — 1.4 times the expected intraday rate. The front-month September series accounts for Tesla’s 10 most active options, with the September 360 and 370 calls taking the top two spots. It seems safe to assume new positions are being purchased here, with options traders betting on the stock closing north of the strikes at this Friday’s close, when the options expire.

Tesla options traders have been quick to initiate long calls relative to puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 77,360 calls have been bought to open in the past two weeks, compared to 63,245 puts. The resultant call/put volume ratio of 1.22 ranks higher than 80% of all comparable readings taken in the past year.

While it’s likely that some of this activity is a result of “vanilla” call buyers, it’s also possible short sellers are buying out-of-the-money calls to hedge their bearish bets against any upside risk. After spending 2017 declining from an early December record high, short interest has started to turn higher. Specifically, it rose 2.2% in the most recent reporting period to 28.70 million shares — 24% of Tesla’s available float.

Regardless of what call buyers’ motive may be, it’s an attractive time to purchase premium on the stock. Per TSLA’s Schaeffer’s Volatility Index (SVI) of 33% — in the 19th annual percentile — low volatility expectations are being priced in to short-term options. Plus, the security’s Schaeffer’s Volatility Scorecard (SVS) of 96 indicates the shares have tended to make bigger moves than what the options market has anticipated over the past year.

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