Tesla (TSLA) Option Traders Positioned for a Move Lower

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Tesla (TSLA) Option Traders Positioned for a Move Lower

Investors have lately pushed up Tesla, Inc. (TSLA) share prices to an above-average level. The stock has risen approximately 7% in the last month and 2% in the last week. This is no minor achievement for a firm with a market capitalization of more than $727 billion. Option activity has increased as the stock has risen. At first look, it seems that option traders are positioning themselves for a future decline in the share price.

Traders and investors have lately pushed up Tesla’s share price; however, option trading activity suggests that investor confidence in Tesla’s share price in the future is diminishing. This is because, although the stock price has climbed to practically extreme levels, option activity and open interest indicate that traders are selling call options and purchasing puts.

Key Takeaways

  • Traders and investors have lately pushed up the share price of Tesla, which has risen roughly 7% in the previous month.
  • Tesla’s stock price has just closed far above its 20-day moving average.
  • Put and call option activity looks to be positioned for a future decrease in the share price.
  • Support and resistance levels depending on volatility allow for a bigger move to the negative.
  • This setup provides traders with a chance to benefit from a reversal in the recent share price gain.

Option trading is a literal gamble on the market’s probabilities—a bet made by traders who, on average, are more educated than most investors. Understanding the circumstances in which the price change occurred is critical to maximizing insight in option trading. The chart below depicts Tesla’s price movement as of September 10, highlighting the unusual option activity setup.

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Current Trends

In mid-August, the share price of Tesla fell below the 20-day moving average before rising to the upper third of the volatility range shown by the technical analyses on this chart.

The 20-day Keltner Channel indicators are used to create these studies. These are price levels that are multiples of the stock’s Average True Range (ATR). This array illustrates how the price has increased to the top third of the volatility range. This price movement in Tesla shares suggests that investors are developing confidence in Tesla’s share price in the future.

Tip

The Average True Range (ATR) has become a widely used technique for illustrating historical volatility over time. The average amount of time employed in its computation is 10 to 20 time periods, which comprises two to four weeks of everyday trading.

Based on the price movement for Tesla closing above the 20-day moving average, chartists may see that traders were lately optimistic. By paying attention to option trading data, chart watchers may generate an opinion on investor expectations. Option traders have recently preferred puts over calls.

Tip

The Keltner Channel indicator shows a series of semi-parallel lines based on a 20-day simple moving average, as well as an upper and lower line. Because the higher lines are produced by adding a multiple of ATR to the average price and the lower lines are drawn by subtracting a multiple of ATR from the average price, this channel indicator is an ideal visualization tool for displaying historical volatility.

Trading Activity

Option traders’ recent behavior suggests that they believe Tesla shares are expensive and have been buying puts and selling calls. Put option open interest has climbed 5.9% in the last five trading days, while call option open interest has gained 0.3% in the same time period. It is worth noting that open interest on Friday included nearly 3 million put options vs 2.6 million calls, illustrating option traders’ prejudice.

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Friday’s option volumes also featured over 766,000 puts compared to 677,000 calls. While there are still a large number of call options in the open interest, the implied volatility for these options has been falling, indicating that these options are being sold more than they are being purchased. This reflects a bearish sentiment toward the Tesla share price.

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These gauges represent the relative level of open interest over the past 52 weeks. The higher these gauges read, the more expensive options on Tesla are currently priced compared to the past year. The gauge reading currently shows that Tesla options are relatively inexpensive, suggesting that put buyers can make this trade with a comparatively lower risk amount.

The purple lines on the chart are generated by a 10-day Keltner Channel study set at 4 times the ATR. This measure tends to create highly correlated regions of strong support and resistance in the price action. These regions show up when the channel lines make a noticeable turn within the previous three months.

The levels marked by the turns are noted in the chart below. What stands out in this chart is the wide discrepancy between call and put prices, which has lots of room to fall. This means that option purchasers are more confident that the price will fall in the coming weeks.

These support and resistance levels demonstrate a wide variety of price support and resistance. As a consequence, it is probable that a major shift in either way may occur in the near future. With so much wiggle space in the volatility range, share prices may increase or fall more than anticipated in the short term. However, there is additional space in the volatility range to support an upward advance.

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Wrapping Up

While investors have lately pushed up Tesla share prices to above-average levels, option traders seem to be positioning for the price to fall in the future. The stock price has lately closed above its 20-day moving average. Option traders seem to be selling calls and purchasing puts, implying a pessimistic view. This action, however, leaves more space in the volatility range for a future decline in the share price.

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