Options Investors Signal Confidence in Tesla's Momentum Through Earnings

Options investors have struck their most bullish pose towards Tesla in over three years, placing bets that the electric carmaker's recent rally is far from over. This wave of optimism comes on the heels of Tesla's second-quarter delivery numbers, which not only topped Wall Street estimates but also led to a sharp 10% spike in the company's share price on Tuesday, pushing it to the loftiest levels seen in nearly half a year.

The options market is reflecting this bullish sentiment shift, with the three-month call skew — the premium of call options relative to puts — reaching its widest margin since February 1, 2021, per Bloomberg data. This notable change in market mood represents sharp demand for call options and a stark contrast to the sentiment just three weeks prior and coincides with a 34% share price rally within that period.

Market signals currently indicate an "extremely bullish" level, with a significant reversal from the sentiment observed three weeks ago. The last time this metric reached such a level was on April 29, and since then, Tesla's cumulative gain has exceeded 37%.

Historical data suggest that July has traditionally been a "lucky month" for Tesla, with the stock closing higher in six out of the past nine years within this month, equating to a 67% likelihood. In particular, July of both 2020 and 2022 saw substantial gains, with the monthly increase exceeding 32%.

A critical date to watch is July 23rd, when Tesla will announce its earnings report after market close. Post-earnings, Tesla's stock has a 67% chance of climbing over the following two weeks, with an average appreciation of 8%.

The positive delivery news also buoyed Tesla's options trading volume, which soared to 4,223,518, far exceeding the 30-day average volume of 1,961,568. The $230 calls expiring this Friday dominated the activity with a volume of 311,933, followed by the $220 puts, which saw 217,985 contracts traded.

As Tesla gears up for its earnings announcement on July 23, 2024, the distribution of open interest in the options market provides a window into investor expectations. The maximal concentration of call open interest for the options expiring on Friday of the same week, July 26, is notably clustered around the $265 and $250 strike prices.

This optimistic positioning in the options market suggests that many traders are positioning for a scenario where Tesla's earnings could catalyze further upward movement in the stock price. The aggregation of open interest at higher strike prices indicates a belief that the company's forthcoming financial results might provide the impetus for the stock to challenge or even exceed these levels.

After Tuesday's dynamic trading session, Tesla exhibited a bullish volume imbalance of 365,328 delta volume. This metric suggests traders bought a net equivalent of 365,328 shares of Tesla stock, with the positive delta primarily arising from put selling and the negative delta from call selling.

The flurry of activity on both sides of the options ledger implies that while many investors are optimistic about Tesla's trajectory, a contingent remains cautious, maintaining a skeptical view of the EV giant's future performance.