With Tesla’s stock reaching its highest level in over two years, investors are flooding into bullish options bets on the electric vehicle manufacturer, hoping that Elon Musk’s strong relationship with President-elect Donald Trump will help the company.
Tesla’s stock has risen more than 35% since the election on November 5 and was up almost 8% to $346.12 on Monday. They haven’t been this high since April 2022.
Around 2.5 million contracts had changed hands by midday on Monday, more than double the typical pace, making Tesla’s contracts the most traded options on individual equities, according to Trade Alert.
“It’s euphoric,” said Steve Sosnick, chief strategist at Interactive Brokers. “Tesla is by far the most active option at our shop.”
At the $400 mark, almost 13% above the stock’s current price, he observed a significant concentration of call contracts. Near-term contracts accounted for a large portion of activity, with options expiring on Friday accounting for over 56% of all trading volume, according to Trade Alert data.
According to federal records, Musk has given at least $119 million to a pro-Trump spending entity and has been a Trump supporter for months. Analysts suggested that a friendlier administration may help the billionaire’s commercial endeavours, which, in addition to Tesla EVs, include SpaceX rockets and Neuralink brain chips. These endeavours rely significantly on regulation, subsidies, and policy.
The Trump White House victory, according to Wedbush Securities, is a “gamechanger for the autonomous and AI (artificial intelligence) story for Tesla and Musk over the coming years.” The firm increased its target price for Tesla shares from $300 to $400 on Monday.
With a combined volume of over 180,000 contracts, Tesla options that were struck at $350 and $400 and were scheduled to expire on Friday were the two most actively traded contracts.
As options dealers who sold upside contracts responded to the rising stock by purchasing more shares to offset their own risk, the bullish options activity was probably also contributing to the stock’s upward movement.
“If enough people speculate on certain strikes, the stock can tend to move toward those strikes,” Sosnick said.
According to Brent Kochuba, creator of the financial insights firm SpotGamma, the significant increase in the stock price and the intense interest in options also indicate that Tesla call options are becoming more expensive and may attract sellers.
The price of those calls could decline if the stock doesn’t follow its previous movements, he said.
“That can pressure the stock down,” Kochuba said.
