Are Traders So Bearish It's Bullish? Put Options Dominate With Tesla Stock Remaining 'One Of The Biggest Casinos On Wall Street'

Zinger Key Points
  • Options traders are positioning for further downside despite the steep decline in broader markets this year.
  • "Are traders so bearish right now that it's actually a bullish sign for the market?" Gunjan Banerji asks.

Despite the steep slide in stocks this year, the options market is flashing ominous warning signs about what's to come

What Happened: The Wall Street Journal's Gunjan Banerji told CNBC's "Squawk Box" that the options market was signaling further downside, with people "positioning for a potentially bigger drop in the stock market after an already terrible, terrible year for Wall Street." 

The put-call ratio shows traders don't expect the market to turn around in the near term. A significant portion of options trades is extremely short-dated.

Check This Out: How Has Elon Musk Reacted To Tesla's 70% Stock Plunge This Year?

Banerji also noted that the top 10 put trading days in history occurred in 2022, asking: "Are traders so bearish right now that it's actually a bullish sign for the market?"

Why It Matters: In 2021, calls dominated. People wanted to make big bets on stocks like AMC Entertainment Holdings Inc AMC and GameStop Corp GME, as well as several popular mega-caps like Tesla Inc TSLA, she said.

Although "people are still hungry to trade options," they are gravitating toward names that are still making big moves — even if it's to the downside like the move in Tesla shares on Tuesday.

This week, the EV maker lost its place among the most valuable public companies.

"These types of one-day moves create a ripe environment for options trading," Banjeri said. "Tesla options are one of the biggest casinos on Wall Street."

Tesla volumes remain elevated and Tesla has been one of the most heavily traded stocks among individual traders, she said. Individuals are even still buying shares of the Elon Musk-led company, she added. 

"It's fascinating to see. It kind of retained its popularity among this investor base and I think a lot of people are looking at this stock and saying ... 'Is it undervalued now?' And I think that's one of the biggest questions facing investors right now," Banerji said.

See Also: Cathie Wood Loads Up $2.7M In Tesla On Day Shares Crash 11.4%

TSLA Price Action: Tesla has a 52-week high of $402.67 and a 52-week low of $108.24.

Tesla shares are up 1.32% at $110.53 at time of publication, according to Benzinga Pro.

Photo: created with image from Tesla.

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Posted In: Long IdeasNewsPenny StocksShort IdeasOptionsMarketsTrading IdeasCNBCElon MuskGunjan Banerji
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