Do Options Traders Know Something About Tesla (TSLA) Stock We Don't?
Investors in Tesla, Inc. TSLA should pay particular attention to the stock given recent developments in the options market. This is because the $ 800 call on October 23, 2020 had the highest implied volatility of any stock option today.
What is Implied Volatility?
The implied volatility shows how much movement the market expects in the future. Options with high implied volatility suggest that investors expect a large move in one direction or another in the underlying stocks. It could also mean that there is an event coming up soon that could lead to a major rally or sell-off. However, implied volatility is only part of the puzzle when putting together an options trading strategy.
What do the analysts think?
Of course, options traders are pricing in a big move for Tesla stock, but what's the basic picture for the company? Currently, Tesla is a Zacks Rank 3 (Hold) in Automotive - Domestic Industry, which is in the top 34% of our Zacks Industry Rank. In the past 60 days, six analysts have raised their earnings estimates for the current quarter while two have dropped their estimates. The net effect has raised our Zacks consensus estimate for the current quarter from 45 cents per share to 50 cents in this period.
Given analysts' current attitudes towards Tesla, this massive implied volatility could mean a trade is developing. Often times, options traders look for options with high implied volatility to sell premiums. This is a strategy many seasoned traders use because it captures expiration. When it expires, the hope for these traders is that the underlying stock will not move as much as originally expected.
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