Bulls creep back in to Tesla options after stock selloff

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NEW YORK (Businesshala) – Bullish sentiment returned to Tesla Inc options on Wednesday, as the stock plunged between gains and losses after three days of sharp selloff.

FILE PHOTO: A Tesla logo is seen at the Tesla Shanghai Gigafactory in Shanghai, China January 7, 2019. Businesshala/Allie Song/File photo

Tesla shares were down 16% this week until Tuesday, when Chief Executive Elon Musk asked his followers on Twitter here over the weekend whether he should sell his 10% stake in the company as Washington raises taxes for the super-rich. proposes. About 58% said they would support such a sale.

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Shares were recently up 3.6% on the day at $1,060.75, after falling earlier in the session and keeping Tesla’s market cap below $1 trillion.

Analysts said record buying of short-term bullish call options on Tesla over the past weeks helped fuel the stock’s recent swings, including a sharp rally in October that pushed Tesla’s valuation above $1 trillion. done.

A drop in the stock put options bets in Tesla on the bearish side on Tuesday, with trading in calls for the first time in nearly two weeks, according to data from options analytics firm Trade Alert.

Calls give the right to buy shares at a specified price in the future, while puts provide the right to sell shares.

On Wednesday, upside bets were in trend again with call options outnumbering puts by a 1.3-to-1 ratio. On Tuesday, only 0.8 calls were traded for each put.

Brian Overby, senior options analyst at Ally Invest, said the rapid turnaround by market participants reflects attempts to profit from the stock’s momentum, rather than a fixed opinion on the way stocks are moving over the long term.

“It’s the speculative nature of the stock,” Overby said.

On Wednesday, call options that would pay out if the stock expired above $1,100 and $1,200 by Friday were the two most traded contracts.

As per trade alerts, some of these options may close trades with expiry, the overall sentiment picked up on Wednesday.

Tesla options accounted for about $109 billion in premium changing hands over the past two weeks, or one out of every three dollars traded in the US listed options market, according to a Businesshala analysis of trade alert data, the bulk of it being bullish call contracts. is in. ,

According to a report by Wanda Research, hedging activity by market makers, who may have taken the other side of at least a portion of these trades, were responsible for intensifying the rally and the latest decline in Tesla.

With the bulk of open Tesla call options expiring this week and next week, there is a “not negligible” risk that further options-driven sales will result in a major pullback for the stock, Wanda analysts wrote.

Reporting in New York by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Matthew Lewis

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