(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of TSLA.)
Traders are looking for a big move in shares of Tesla Inc. (TSLA) over the next three weeks, according to the options market. The all-electric automaker is expected to announced delivery totals for the fourth quarter and the full year for 2017.
More critical will be the updates on production and deliveries on the Model 3 four-door sedan, the newest addition to the Tesla line-up. The launch has been plagued with production issues since the start, causing the company to fall short of initial targets. Tesla typically announces overall delivery totals within the first three days of the proceeding quarter. (See also: Tesla Stock: Analysts Divided After Low Model 3 Deliveries.)
Traders in the options market are expecting shares of Tesla to rise or fall by about 7 percent by expiration on January 19 from its current price of $316, but it's likely that volatility will occur over the next few days once the delivery numbers are release. That puts shares of Tesla in a trading range of $295 to $340, a change of nearly 14 percent.
The level of implied volatility stands at 38.5 percent, which is high when compared to that of the S&P 500 Index's 7.2 percent during the same expiration period.
High Levels of Volatility
The call options with the most substantial open interest are the $330 strike price and are trading at approximately $5.50 per contract. This means shares of Tesla would need to increase to at least $335.50, a rise of about 6 percent from the stock's current price, just for the options to break even.
Meanwhile, the puts with the most substantial open interest are the $300 strike price, with about 14,000 contracts of open interest. The options trade at $4 per contract, so Tesla's stock price would need to fall to $296, a decline of nearly 7 percent, just to break even.
There has been a lot of speculation in the market recently about the number of Model 3 cars being delivered, and the ramp-up rate of production. Electrek recently reported about the growing inventory of Model 3's at the Tesla manufacturing facility, and truckloads of Model 3's leaving the plant. Additionally, sources told the website that Model 3 production is nearing the Tesla target of 5,000 units per week.
The positive sentiment has helped lift shares of Tesla off the lows seen in early-November, when the stock was trading around $295, but well off the highs of around $385. That made the last quarter of 2017 anything but smooth for the stock price.
A lot is riding on these latest delivery numbers for Tesla, and the options market is pricing in a significant rise or fall in the stock price over a very short-term period.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.