Tesla Inc.’s stock has already been on a rollercoaster ride over the past year. Investors better keep those seatbelts fastened and get ready for even more gut-wrenching volatility. The options market is suggesting Tesla may rise or fall by as much as 17% over the next two months while placing the stock in a massive trading range. (For more, see also: Tesla Stock Begins 2018 in Bear Market Territory.)
The electric automaker’s stock has already traded in a broad range in 2018 between $252 to $370 from April through June. The volatility stems from a slew of concerns, starting with the production of its newest car—the 4-door sedan Model 3. Investors have focused on the company’s ability to reach mass production levels of the vehicle. Additionally, concerns about the company’s massive cash burn and its need to raise more capital for the funding of future operations are also an issue. All these concerns have weighed heavily on the stock.
Wild Ride
The long straddle options strategy for expiration on September 18 suggest that the stock may rise or fall by roughly 17% from the $320 strike price. It places Tesla’s stock in a massive trading range over the next 65 days between $265 to $375, $110 apart. The cost of buying one call and one put is approximately $55, and a buyer of the straddle would need the stock to rise or fall by $55 for the strategy to be profitable.
Implied volatility is also extremely high for Tesla’s September options, at roughly 50 percent. That is almost five times greater than the S&P 500 implied volatility of only 10%. Another stock with big price swings at times is Amazon.com, and its implied volatility is nearly half that of Tesla, at just 27%, also for expiration in September.
Revenue Adjustments
Much of the uncertainty reflects in analysts’ estimates. Analysts have reduced revenue estimates for the second quarter by about 2%. But, at the same time, analysts have upped their revenue outlook for 2019 by nearly 2%.
Earnings Adjustments
The same can be said of earnings, with analysts leaving the current quarter’s earnings estimates unchanged, while seeing losses widen for the full year by 2%.
It seems apparent there are still plenty of questions surrounding Tesla and its stock in the future. The earnings results that come in a few weeks’ time will likely be vital in determining if the stock rises or falls and if the big price swings are likely to continue or not.
