Options Traders See Potential for a ‘Huge Move’ for Tesla Shares 

Bloomberg News Options traders are betting that swings in Tesla Motors Inc. shares could rev up after it reports fourth-quarter earnings after the bell Wednesday. The options market is pricing in a move of 9% in Tesla through Friday, based on the pricing of an options strategy called a straddle, according to Trade Alert. That would be the largest move after earnings for the stock since May 2014, when Tesla shares fell 11%. Still, it would be smaller than the 11.3% average earnings swing over the last eight quarters. The median move in the same period was 10%, according to Trade Alert. Tesla, of course, is one of the most actively traded “momentum stocks” and prone to wild swings even in the absence of major news. The stock has fallen 24% from its record of $286.04, set back in September. Shares are up 6.2% in February so far, and down 2.8% this year, through Tuesday’s close. While it’s been a back and forth ride for the stock in recent months, the luxury electric-car maker’s shares have surged since it went public in 2010. Back in February 2013, shares were trading just below $40 a piece. Tuesday’s close of $216.29 represents a leap of 463% over the last two years. And this huge move in Tesla’s stock over the past two years has come even as the electric-car company likely won’t be profitable on a basis that includes executive compensation and charges until 2020, according to Chief Executive Elon Musk. A call option grants the right to buy shares at a specific price, called a strike, by expiration. A put options confers the right to sell shares. The straddle strategy involves buying a call option and a put option at the same strike price, near the current price of the stock, in order to bet on the size of the move. The more expensive the strategy, the bigger the expected move. While the straddle shows the expected move through Friday, when the options expire, most of the move is likely to come after Tesla reports earnings. More In Tesla Here's What to Expect from Tesla Earnings Options Traders See Potential for a 'Huge Move' for Tesla Shares Tesla's Stock Suffers Power Failure After Elon Musk's Profit Projection Dimmer Outlook - Energy Journal Four Reasons for Tesla's Record-Setting Decline Activity in Tesla’s weekly options reflects bets the stock could decline after earnings. The two most-active Tesla options on Tuesday were weekly put options expiring Friday with strikes below the current price. That interest in downside puts could signify bearish bets ahead of earnings or investors wanting to hedge their stock positions, said Fred Ruffy, an options strategist at Trade Alert. Tesla shares rose 4.4% after third-quarter earnings and gained 4.5% after second-quarter earnings. The stock saw bigger swings in 2013, including a 24% jump after earnings in May 2013. “Even though the two last earnings events were subdued….there’s still a lot of potential for a huge move in Tesla,” said Steve Claussen, chief investment strategist at OptionsHouse. That can be gleaned from the relatively high prices investors are paying for Tesla options with strike prices that are far away from the current share price, he said. Those options are also known as out-of-the-money options. Tesla’s fourth-quarter earnings will give investors a look at how demand for its electric cars fared during the slide in oil prices, Mr. Claussen said. “As oil prices fell, all the alternative energy themes got hammered,” including Tesla, Mr. Claussen said. “How exciting is having an electric car when gasoline is only at $2 dollars a gallon?”

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