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Strategizing Options After Tesla's Rally: How Investors Can Navigate the Surge
$Tesla (TSLA.US)$ stock gained nearly 9% on Monday, sending shares to their highest level since early 2022 and giving the company a market cap north of $1.1 trillion. Since Donald Trump’s presidential triumph on Nov. 5, the electric car maker has advanced over 39%.
Tesla options draw 'euphoric' trading
Tesla's contracts were the most heavily traded options on individual stocks on Monday, with some 2.5 million contracts changing hands by noon - more than twice the usual pace, according to Unusual Whales.
A heavy concentration of call contracts at the $350 and $400 levels (some 13% above the stock’s current price). Unusual Whales data showed much of the trading concentrated in near-term contracts, with options expiring by Friday making up about 56% of the total trading volume.
The options market sentiment is Very Bullish on Tesla
Options traders are betting on further gains. The premium of three-month calls over puts is at the highest since early 2021 according to Bloomberg. The current volatility skew, measured by the difference between the implied volatility of 25-Delta Put and 25-Delta Call, indicates that market sentiment is Very Bullish on Tesla.
Additionally, Unusual Whales data show that the Highest OI Contracts are calls of $610 strike price that expire on January 17, 2025. That would put Tesla shares on course to surpass an intraday all-time high of $414.50, set during the pandemic when retail traders drove up prices on many popular stocks.
However, some analysts have expressed skepticism over the magnitude of the rally
Wall Street price targets haven’t kept pace with the stock’s run and now imply about a 32% drop over the next 12 months. Some analysts have expressed skepticism over the magnitude of the rally, saying that it’s likely overestimating any gains that Tesla can reap from the Republican’s electoral victory.
Besides, Tesla’s 14-day relative strength index, a gauge of bullish and bearish price momentum, closed at 82.7 on Monday. A level above 70 is often considered a technical signal that a drop may soon be in store.
“Despite possible benefits from the election, Tesla stock looks overvalued,” Seth Goldstein, an analyst at Morningstar, said last week.
How can investors use options strategies after Tesla’s huge runup?
● Utilizing Volatility: Tesla implied volatility (IV) is 73.69%, which is in the 97% percentile rank. Meanwhile, Tesla’s Historical volatility (HV) is 92.05%, significantly higher than its implied volatility. This indicates that the market expects Tesla's future volatility to decrease. In this situation, investors can use short straddles or short strangles strategies to short volatility.
● If you are bullish on Tesla and believe that Tesla will not decline in the short term, then it makes sense to short put in nearby expiry periods and in out-of-the-money (OTM) strike prices. This way the investor can generate immediate income (short premium) and set a lower buy-in price target while waiting for the stock to retreat. Additionally, you can also use the cash-secured put strategy to capture short premiums.
Please note that these strategies may involve higher risks, significant losses may occur if Tesla's volatility continues to rise or price drops substantially.
Source: Bloomberg, Barchart, Unusual Whales
Disclaimer: Options trading entails significant risk and is not appropriate for all customers. It is important that investors read Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount. Supporting documentation for any claims, if applicable, will be furnished upon request.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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1047673861 : hello
73537341 : 720 target
105076413 : remember guys, anything goes up will eventually comes down. this is called the force of gravity. this force of gravity applied in almost everything including stock prices.good luck guys
Darren Invest : Tesla
102359231 : The euphoria from the Trump election triumph and EM association with Trump will definitely drive TSLA price north. After the euphoria subsides, then realities will set in n everything will be back to fundamentals n performances. The next catalyst to drive even further north is when Trump offers EM a government post. Trump 100 days review will determine the direction of TSLA.
104209762 : Emotion
warmhearted Eagle_10 : The next target is 414.00.
籠的傳人288 : It's best to do nothing if you have miss the
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101568512 :
Kevin Travers : This is great! Can we use moomoo data in the future?
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