Finance Association, November 12 (Editor: Xiaoxiang) “Working hard is ten times more beneficial; jewels are priceless, their benefits are 100 times greater; seeking national benefits is inexhaustible”...

If Tesla CEO Musk stood firm on Trump's side before the election and achieved great success, then now the market is convinced that Musk himself and Tesla, the electric car giant under its umbrella, will be expected to reap rich rewards from this “political speculation,” just like some “historical allusion” about 2,200 years ago at the end of China's Warring States.

There are growing signs that investors have recently been buying call options on Tesla stock, which has reached its highest level in more than two years, as investors are betting on CEO Musk's close relationship with President-elect Trump, which could benefit the electric vehicle manufacturer.

Trump closed the day up about 9% and stood at $350. Since voting in the US election on November 5, Tesla's stock price has increased by more than 39%, and the company's market value has increased by more than 300 billion US dollars.

According to Trade Alert, Tesla was the most traded single stock options contract on Monday. As of noon local time, about 2.5 million contracts had changed hands, more than double the usual number.

Steve Sosnick, chief strategist at Yingtou Securities, said, “This is exciting. Tesla is by far the most active individual stock option on our platform.”

He pointed out that the exercise price of bullish contracts is heavily concentrated at the level of $400, which is about 13% higher than the current price of the stock.

Trade Alert data shows that most Tesla bullish options are focused on short-term contracts, with options due on Friday accounting for about 56% of the total trading volume. Among them, Tesla call options, which expire on Friday and have execution prices of $350 and $400, are the two most actively traded contracts, with a total volume of about 180,000 shares.

Furthermore, the premium of a three-month Tesla call option over a put option has reached its highest level since the beginning of 2021. The active trading of these bullish options may also help drive up Tesla's stock price, as options traders selling these bullish contracts may buy more Tesla shares to cover their own risks if they respond to soaring stock prices.

Sosnick stated, “If enough people speculate on certain exercise prices, then stock prices will tend to move towards these exercise prices.”

Brent Kochuba, founder of financial insight company SpotGamma, said that the sharp rise in Tesla's stock price and a large amount of interest in options also means that the price of Tesla's bullish options has risen and may attract bears.

Kochuba's current concern is that if Tesla's stock price fails to keep up with recent gains, it may cause the price of these call options to fall, which may eventually depress the stock price.

Strange goods are habitable

Of course, at least for now, the popularity of deals surrounding Tesla is clearly continuing to rise.

According to public information, Musk has been a staunch supporter of Trump over the past few months and has donated at least $0.119 billion to pro-Trump campaign groups. In addition to electric vehicle manufacturer Tesla, the billionaire's commercial activities include Sky Discovery company SpaceX and brain-computer interface company NeuraLink, all of which rely heavily on regulation, subsidies, and policies. Analysts expect they may benefit from a new government that is more friendly to Musk.

In fact, even if Trump were to remove subsidies for electric cars, it would be relatively beneficial to Tesla. Although the electric vehicle tax credit in the “Inflation Reduction Act” has helped Tesla in the past few years, Musk said in the company's second-quarter earnings call that removing these incentives would only cause “minor” damage to the company, but at the same time it would “have a devastating impact on our competitors” and “may actually benefit Tesla in the long run.”

Many industry insiders pointed out that Tesla has been a typical momentum stock for a long time, and sharp changes in investor sentiment often cause rapid gains or losses to have a snowball effect.

Sosnick of Yingtou Securities said that Musk did his best to help Trump win, so it is understandable that the market sees Tesla as a beneficiary. Coupled with the market's enthusiasm to buy on dips, chase the rise, and often use leverage or options, this ultimately contributed to a sharp rise in stock prices.”

Wedbush analyst Daniel Ives has now predicted that Trump's entry into the White House will “completely change” Tesla's autonomous driving and artificial intelligence business. He raised Tesla's target price from $300 to $400. He estimates that artificial intelligence and autonomous driving opportunities alone would be worth $1 trillion to Tesla. “We are fully confident that under the Trump administration, these key initiatives will advance rapidly as the federal regulatory challenges Musk and his team have faced with FSD/autonomous driving over the past few years will be greatly simplified in the context of Trump's new era.”

The analyst maintained a buy rating on the stock and expects Tesla's market capitalization to double halfway through Trump's new term. Ives wrote, “We believe Tesla's market capitalization will begin to move towards $1.5 trillion and $2 trillion in the next 12 to 18 months.”

Of course, some analysts are still skeptical about the room for Tesla's stock price to rise, saying that people may have overestimated the benefits Tesla can get from winning the Republican Party. Morningstar analyst Seth Goldstein said last week: “Despite the likely benefits of the election results, Tesla's stock price looks overvalued.”