Unusual Options Activity: Tesla Motors (TSLA)

Tesla Motors (TSLA)

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  • Traders bet on continued rally after double-digit move higher Monday.

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  • Shares of Tesla Motors (TSLA) rose over 15 percent in trading on the news that the company would be able to expand in China.

    What’s more, since earnings last week, shares are up over 25 percent.

    That’s led to some traders betting on a further rally. The February 7th $805 call options saw over 1,800 contracts trade compared to a prior open interest of 100—an 18-fold rise in volume.

    The bet, expiring in 3 days, is that the company will see its shares rise from around $750 to just over $800. The option buyer paid about $7.65, so shares would need to clear $812 on Friday for the buyer to profit at expiration.

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  • Action to take: With a combined market cap larger than Ford and General Motors, Tesla shares are starting to look like a bubble, more than offsetting the value they traded at just a few months back. While we see more upside, particularly as short-sellers in the stock get squeezed, there’s no telling when the current rally will end. Those who have tried to short in the past have been burned.

    We prefer call options longer out to bet on the existing trend, but these options expiring Friday may be worth a solid double-digit return this week, and for a weekly trade, that’s a solid spot to be in.

    For shareholders, we’d suggest holding off on shares right now until they go from being overbought on a technical basis to oversold.