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Big Tesla Options Trades Could Signal Institutional Interest

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Big Tesla Options Trades Could Signal Institutional Interest

Tesla Inc (NASDAQ: TSLA) shares closed up 4.6% on Wednesday after the company reported 95,200 vehicle deliveries in the second quarter, topping consensus analyst expectations.

The Trades

On Wednesday morning, Benzinga Pro subscribers received nine options alerts related to Tesla.

From 9:45 a.m. to 9:49 a.m, likely a single trader made six different large Tesla put purchases at the ask price. All together, the trader bought 3,005 Tesla put options at a $222.5 strike price that expire on July 12. The puts were purchased at ask prices of between $2.34 and $2.431 and represent more than a $700,000 bearish bet on Tesla shares.

At 10:32 a.m., another trader made a pair of huge Tesla put purchases. The trader bought 10,001 July 19 $225 Tesla put options at ask prices of between $4.197 and $4.383. The two buys represented an additional bearish bet worth about $4.29 million.

A final trade came through at 10:49 a.m., when another trader bought 531 Tesla put options expiring on Friday with a strike price of $235 at the ask price of $1.895. The final trade represented a $100,624 bearish bet.

All together, the total value of all the Tesla purchased on Wednesday morning totals more than $5 million.

Why It’s Important

Due to the relatively complex nature of the options market, options traders are generally considered to be more sophisticated than the average stock trader. In addition, large options traders are often professional, wealthy individuals or institutions, either of which could have unique insight or information about a company. Even traders that stick exclusively to stocks watch the option market closely for unusual trading activity as an indicator of where the “smart money” is focusing.

Unfortunately, because stock investors often use put options to hedge larger bullish stock positions, there’s no way to be 100% certain whether an option trade is a standalone purchase or a hedge against a stock position.

Given the large size of the call sales on Thursday morning and the fact they seem to have been broken up strategically into smaller lots, there’s a good chance at least some of them were institutional hedges, suggesting all the put buying may not be as bearish as it seems.

What's Next

On the surface, Tesla’s record number of second-quarter deliveries certainly seems like a win for bulls. However, Tesla has a long track record of inconsistent results.

Tesla also eased fears over slumping demand by disclosing that second-quarter demand exceeded deliveries, but several analysts have said Tesla’s long-term demand and path to profitability remain in question.

Given the amount of uncertainty surrounding Tesla’s outlook, it’s understandable why an institutional Tesla bull may want to hedge that bet in the options market.

Interestingly, Wednesday’s large option trader(s) are sticking to trading ahead of Tesla’s second-quarter earnings report expected out on July 31. If the options trades are a hedge on a bullish bet, the trader(s) don’t seem to be positioning for a potential earnings beat, but may instead be playing a run-up heading into earnings.

Tesla's sock closed Wednesday at $234.90 per share. The stock is down 29.6% year to date.

Related Links:

Wall Street Analysts Still Divided On Tesla Following Record Deliveries

How To Read And Trade An Options Alert

Posted-In: Options Top Stories Markets Trading Ideas Best of Benzinga

 

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