Tesla's Stock Seen Rising 11% as Volatility Surges

(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of  TSLA.)

Tesla Inc.'s (TSLA) stock surged by more than 26% after reporting better-than-expected quarterly results at the start of August. But those gains disappeared after the company's CEO Elon Musk tweeted his plans to take the electric car company private, as skeptics raised doubts such a thing could happen. At least some options traders are betting shares recoup some of those losses and rebound by more than 11% by the middle of September from its current price of approximately $322. 

The options market is also pricing in high levels of volatility for Tesla over the coming four weeks. The options at the $320 strike price for September suggests shares rise or fall by as much as 14% using the long straddle options strategy. It places the stock in a trading range of $275 to $365.

TSLA data by YCharts

Some options traders are betting that shares of Tesla rise to more than $360 by Sept. 21. The call options at the $350 strike price have seen their levels of open interest surge by almost five times over the past month to about 14,000 open contracts. It cost $9.50 to buy the calls, and that means a buyer of the calls needs the stock’s price to rise to more than $359.50 by Sept. 21 to earn a profit. The dollar value for the open calls is not a small bet either, at more than $13 million.

Implied volatility levels are also high, at more than 59%. That is almost six times greater than the S&P 500's implied volatility of 9%.

(Trade Alert)

There are plenty of traders betting against Tesla as well. Short interest levels for Tesla are very high at almost 35 million shares, as of July 31. It represents almost 30% of the total float, a significant short position. But all the recent events have taken place since that short interest report, and that means this level may change when the next short report comes out, which should provide data through Aug. 15. Still, Tesla's stock has always been a strongly contested bull/bear debate, and short interest levels have historically always been high for this stock.

TSLA Short Interest data by YCharts

Whether Tesla's shares will rise or fall is open to debate. Some options traders seem to think it will rise, while short sellers bet it will fall. But if one thing is clear, the recent bout of volatility is not about to end any time soon.

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.