/Tesla%20Charging%20Station%20Plugged%20In.jpg)
Two large tranches of Tesla (TSLA) stock options were traded on May 30: one a near-term in-the-money put position and the other a long-term way out-of-the-money call option. This unusual stock options activity is likely from a large investor.
The Unusual Stock Options Activity Report from Barchart on May 30 showed that there were 13,039 put options traded at the $202.50 strike price for expiration on June 2, this Friday. The second tranche was for 13,064 call options traded at the $310 strike price for expiration on Oct. 20, 2023, 142 days from now.
Large Calls and Puts in TSLA Stock
The first tranche of options (puts) was in-the-money since the price of TSLA stock closed at $201.16 on Tuesday, May 16. The second tranche was way out-of-the-money (OTM) since the $310 call strike price is 54% higher than today's price.
But interestingly, both had very similar prices. That's what makes me believe that both tranches were likely initiated together. For example, the puts closed at $5.45 per put contract, and the calls traded at $5.15 per call contract.
That implies that the investor may have gone long the puts and paid the $5.45 price, even though they only have $1.34 of intrinsic value (i.e., $202.50-201.16=$1.34). The reason is that they shorted the OTM calls and received $5.15 per call contract. That leaves a net cost of just 30 cents (i.e., $5.45-$5.15).
So, in effect, the short-put investor has a profit of $1.04 in the long puts, as long as TSLA stock stays at $201.16 or lower. Meanwhile, they must figure the call options will wither over time unless TSLA stock rises by over 54% over the next 142 days (almost 4.75 months from now).
Where TSLA Stock Stands Now
Tesla stock is up over 22% so far in May and has risen 63.3% so far in 2023 since it closed at $123.18 at the end of 2022. Moreover, the company reported on April 19 that Q1 revenue rose 24% YoY compared to last year, although non-GAAP earnings per share (EPS) fell 22%.
However, analysts expect EPS to rise to $3.50 per share this year and $5.03 next year, up 43.7% by the end of 2024. This puts TSLA stock on a forward multiple of 40x for 2024, which is not that expensive.
So, theoretically, TSLA stock could rise 54% by Oct 20, especially since by then analysts would have received the Q3 earnings report for the quarter ending Sept. 30. Nevertheless, that could be a reach. In other words, it's possible that the call options could potentially be worth $5.15 by Oct. 20.
Nevertheless, there is a good possibility that TSLA might not be seen as undervalued given how far it has risen this year. That is likely what the investor who likely shorted these deep OTM calls is counting on.
It also shows that the investor is likely more bearish on TSLA stock as they have, in effect, a large in-the-money put position that is mostly paid for by shorting the OTM calls. So investors who intend to copy these moves should be careful.
Another Interpretation
Also, keep in mind that my interpretation of these tranches may not be correct. It is possible the investor went long on these OTM $310 strike price calls. They may have shorted the in-the-money puts with the hope that TSLA stock will rise in the next 2 days. That is they shorted the $202.50 puts, received $5.45 per contract, and turned around and used those proceeds to purchase the $310 strike price calls, paying $5.15 per contract for them.
At least that way the long call position is more than paid for, with a net 30-cent credit (i.e., $5.45 from the short puts - $5.15 for the long OTM calls). And even if the $202.50 strike price puts are exercised, at least then the investor will own the TSLA shares at $202.50 (less 30 cents net credit). So then they will have a covered call position with the $310 OTM calls.
Either way, you can see that a large investor has taken a big position in TSLA stock which is mostly bullish. You can decide if you want to copy them.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
