Tesla Motors Option Bulls Bet on Record Highs

Schaeffer's Investment Research
  JAN 28, 2013 2:45 PM

TSLA call buyers expect the stock to overtake round-number resistance.

 


Shares of Tesla Motors Inc. (NASDAQ:TSLA) have extended their upward momentum today, and it looks like some options traders are wagering on all-time highs for the automaker. As of 2:28 p.m. EST, TSLA has seen roughly 8,700 call options cross the tape -- about four times its average intraday call volume.

Garnering the most attention has been the February 40 call, which has seen about 1,900 contracts change hands on open interest of fewer than 800 contracts, pointing to new initiations. Plus, 72% of the front-month calls have crossed at the ask price, suggesting they were bought.

By purchasing the calls to open, the buyers are betting on TSLA to soon surmount the $40 level for the first time ever. More specifically, the calls have exchanged at a volume-weighted average price (VWAP) of $1.08, meaning the buyers will reap a reward if TSLA muscles atop the $41.08 level (strike plus VWAP) by the closing bell on Friday, February 15, when front-month options expire. Risk, however, is limited to the initial premium paid for the options.

Today's affinity for bullish bets runs counter to the growing trend seen on the major options exchanges. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.82 ranks in the 74th percentile of its annual range, suggesting options speculators have purchased TSLA puts over calls at a faster-than-usual clip during the past couple of weeks.

Echoing that skepticism, short interest accounts for nearly 37% of TSLA's total available float. In fact, it would take more than five weeks to repurchase all of these pessimistic positions, at TSLA's average daily trading volume.

In afternoon action, the shares of TSLA were last seen 3.5% higher in the $38.27 neighborhood. The stock has powered about 42.5% higher since skimming the $27 level in mid-October, led into the black atop its 10-day and 50-day moving averages. However, as alluded to earlier, the security could find a round-number roadblock in the $40 level, which stifled TSLA's rally in early 2012.

Should TSLA continue its upward trajectory, a reversal in sentiment among options players, or a short-covering situation, could add fuel to the equity's fire.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research.

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