The Tesla Rally Flips Options to the Most Bullish in Three Years

Options investors in Tesla Inc. are displaying unprecedented optimism, with bullish sentiment reaching its highest level in more than three years. This surge in confidence comes amid a rally that has propelled Tesla's stock to nearly a six-month high, suggesting that investors believe there is still significant upside potential.

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According to Bloomberg data, the three-month call skew, which compares the premium of call options to put options, is now at its widest since February 1, 2021. This marks a significant shift in sentiment from just three weeks ago and coincides with a 34% rise in Tesla's share price during that period.

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On Tuesday, Tesla shares soared as much as 10%, reaching $231.15. This spike followed the company's report of a smaller-than-expected annual decline in quarterly vehicle deliveries, outperforming Wall Street estimates. Although this marked the second consecutive year-over-year drop in deliveries, it represented an improvement over the first quarter's figures.

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By 1:04 p.m. in New York, total options volume had already surpassed the 20-day average. Leading the charge were more than 240,000 of the $230 call options set to expire on Friday, underscoring the robust trading activity centered around these bullish bets.

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Analysis of Tesla's Options Activity

The renewed bullish sentiment among Tesla's options investors highlights a few key trends and developments:

1. Three-Month Call Skew at Record LevelsThe three-month call skew is a critical measure of market sentiment, indicating the relative demand for bullish call options versus bearish put options. The current level, the highest since early 2021, suggests that investors are increasingly confident in Tesla's near-term prospects. This shift reflects a significant change in market perception, with investors now more willing to pay a premium for the potential upside in Tesla's stock.
2. Stock Rally Driven by Strong Delivery NumbersTesla's recent stock rally, culminating in a 10% surge, was fueled by better-than-expected vehicle delivery numbers. While the company did report a second consecutive year-over-year decline, the reduction was smaller than analysts had anticipated, and there was an improvement from the first quarter. This performance has bolstered investor confidence, contributing to the heightened demand for call options.
3. Increased Trading Volume and Focus on Call OptionsThe substantial increase in trading volume, with options activity surpassing the 20-day average, indicates heightened interest and engagement from investors. The significant trading of $230 call options, in particular, highlights the market's focus on bullish bets. This activity suggests that investors are positioning themselves to capitalize on further gains in Tesla's stock price.

Implications for Tesla's Future

The current sentiment and trading patterns among options investors suggest a few potential implications for Tesla's future performance:

1. Sustained Bullish MomentumThe elevated call skew and increased options trading volume indicate that investors believe there is still room for Tesla's stock to rise. This sentiment, if sustained, could drive further gains in the stock price, as more investors pile into bullish positions.
2. Market Sensitivity to Delivery NumbersThe market's reaction to Tesla's delivery numbers underscores the importance of this metric in shaping investor sentiment. As such, future delivery reports will likely continue to be a significant catalyst for the stock, with better-than-expected numbers potentially driving further rallies.
3. Potential for Increased VolatilityWhile the current sentiment is bullish, the heightened activity in the options market could also lead to increased volatility. Investors should be mindful of the potential for sharp price movements, particularly around key events such as earnings reports or delivery updates.

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Conclusion

Tesla Inc.'s options investors are exhibiting a level of bullishness not seen in over three years, driven by a strong rally in the stock and better-than-expected vehicle delivery numbers. The record three-month call skew and increased options trading volume highlight the market's confidence in Tesla's near-term prospects. However, this optimism also brings the potential for increased volatility, as investors navigate the stock's future trajectory. For now, the sentiment remains decidedly positive, suggesting that many believe Tesla's rally still has room to run.

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