Options Action: Bearish sentiment creeping up on Tesla
By CNBC Television
Key Concepts:
- Options Market Sentiment: Analysis of put/call ratios and options volume to gauge market sentiment towards Tesla.
- Notional Volume: The total value of the underlying asset represented by the options contracts traded.
- Bearish Sentiment: Negative outlook on a stock's future performance.
- One-by-Two Put Spread: An options strategy involving buying one at-the-money put option and selling two out-of-the-money put options.
- Options Premium: The price paid for an options contract.
- Fading the Bounce: Taking a short position after a temporary price increase.
Tesla Options Market Analysis
- High Trading Volume: Tesla's options market is extremely active, consistently trading over 2 million contracts daily this week. It ranks second to Nvidia in contract count but surpasses Nvidia by approximately 65% in notional volume due to Tesla's higher share price.
- Comparison to Other Tech Giants: The options volume of Tesla is comparable to the combined options volume of Meta, MicroStrategy, Apple, and Amazon, all of which are actively traded.
- Shift in Sentiment: The recent stock pullback has led to an increase in bearish sentiment. The historical trend of calls significantly outpacing puts has diminished considerably as the stock price declined.
- Stabilization: The bearish sentiment appears to have stabilized somewhat as the stock price has shown signs of recovery.
Trading Strategy Recommendation
- Fading the Bounce: The speaker suggests considering "fading the bounce," implying a belief that the stock's recovery is temporary and that it will likely decline further.
- One-by-Two Put Spread: The recommended strategy is to implement a one-by-two put spread to capitalize on the expected decline while mitigating the cost of options premium. This involves:
- Buying one at-the-money put option.
- Selling two out-of-the-money put options.
- Rationale: The goal is to enter the trade with minimal premium outlay, as the speaker believes that steep pullbacks in Tesla's stock price are often followed by temporary rebounds before further declines.
Notable Quotes:
- "Tesla is about that kind of options volume [as Meta, MicroStrategy, Apple, and Amazon combined]."
- "I'd probably look to start fading this bounce a little bit. I think that we're, you know, getting into ticklish territory for the stock."
Technical Terms Explained:
- Notional Basis: Refers to the total underlying value controlled by the options contracts. It's calculated by multiplying the number of contracts by the strike price and the multiplier (usually 100 shares per contract).
- At-the-Money (ATM): An option whose strike price is closest to the current market price of the underlying asset.
- Out-of-the-Money (OTM): A put option whose strike price is below the current market price of the underlying asset.
- Options Premium: The price an investor pays to buy an option contract. It represents the intrinsic value (if any) and the time value of the option.
Logical Connections:
The analysis begins by establishing the high activity in Tesla's options market. It then highlights the shift in sentiment from predominantly bullish to more bearish due to the recent stock pullback. This shift in sentiment provides the rationale for the recommended trading strategy, which aims to profit from a potential further decline in the stock price while managing the cost of options.
Synthesis/Conclusion:
The options market data suggests a shift in sentiment towards Tesla, with increased bearishness following a recent stock pullback. The speaker recommends a one-by-two put spread strategy to capitalize on a potential further decline in the stock price, emphasizing the importance of minimizing premium outlay. The analysis provides actionable insights for traders looking to express a bearish view on Tesla while managing risk.
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