Tesla Poised for Dramatic Move After Earnings, Options Show - The Wall Street Journal

As Tesla’s stock has rallied to records, options have been changing hands at a frenzied... — As Tesla’s stock has rallied to records, options have been changing hands at a frenzied pace. Photo: kenzo tribouillard/Agence France-Presse/Getty Images

Gunjan Banerji

The Wall Street Journal

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@gunjanjs
gunjan.banerji@wsj.com

Jan. 28, 2020 8:00 am ET

Tesla Inc.’s TSLA -1.20% rally has been marked by big swings up and down. That pattern is expected to continue after the auto maker reports results Wednesday afternoon.

Options traders are forecasting as much as an 11.8% move in Tesla’s shares over the two sessions following its earnings report. That is a bigger swing than the average 9.5% move over the past eight quarters, according to data provider Trade Alert.

The projections are based on an options trade called a straddle, which entails acquiring both bullish and bearish options contracts that allow investors to buy or sell stock at a specific price. The trade doesn’t measure the direction of the swing, just the size.

As Tesla’s stock has rallied to records, options have been changing hands at a frenzied pace. The auto maker just logged an eight-week winning streak, gaining 71% through Friday, the best performance during such a period since 2013. During the ascent, options volume jumped to a five-year high, and bullish options have been particularly popular in recent days.

In October, Tesla delivered a surprise quarterly profit that energized its stock price. Chief Executive Elon Musk also fulfilled his promise of boosting production and delivering at least 360,000 electric vehicles in 2019. Analysts will now parse the earnings results to see how deliveries in the fourth quarter affected the company’s bottom line.

The stock rally—making Tesla the biggest-ever U.S. auto maker by market value—has invigorated a debate over the company’s prospects.

The recent options activity reflects the dramatically different views investors tend to take on the company’s share price.

Some popular options trades have recently included bearish put options that would pay out if Tesla shares drop to less than half their current level and hit $200 over the next year, as well as bullish call options tied to a rally to as high as $1,015, Trade Alert data show.

China-made Teslas are hitting the road as buyers in Shanghai get their Model 3 sedans. But the car maker faces daunting challenges in its quest to conquer the world’s largest auto market. Photo: STR/Agence France-Presse/Getty Images

Call options give investors the right to buy shares at a specific price later. Put options confer the right to sell.

Stock analysts have recently increased the outlooks for the company’s shares, saying they could hit $600 or $612, at least a 7.5% jump from Monday’s closing level.