Tesla Options: Are Traders Bracing for a Crash?


Are traders bracing for a crash in Tesla Motors (TSLA)? Options data suggests they could be.

TSLA’s average put-call ratio over the last 20 sessions has risen to about 1.8 — its highest since the electric car maker went public in 2010. The gauge measures open interest, or established options positions carrying over from one session to the next.

The put-call ratio is a common measure of sentiment, found among dozens of prebuilt indicators on TradeStation. The elevated reading is potentially bearish because puts fix the price where a stock can be sold. Traders use them for hedging or to speculate on a move to the downside. (See our Knowledge Center.)

In another potentially bearish sign, TSLA tried to rally this morning on news that China would ease tariffs on imported automobiles. But that pop quickly faded, and now the stock is on course for its lowest close since early April. That could be viewed as just one more sign that a string of bad news is killing confidence, which is especially troublesome for a company that needs to ask investors for capital to maintain its growth plan.

Tesla Motors (TSLA) showing put/call ratio, 50-day moving average.

Just to recap: yesterday Consumer Reports found a braking problem with TSLA’s Model 3 sedan. Last week, Reuters reported management would halt its assembly line in late May to address production issues. There’s also been a string of executives leaving the company, along with Musk’s infamously weird behavior on a May 2 conference call.

And don’t forget about the stock chart. It tried to break above its 50-day moving average earlier this month, but quickly reversed lower. That’s often viewed as a directional signal. It might be even more bearish for TSLA because most other major Nasdaq-100 companies are now back above their 50-day moving averages.

In summary, this isn’t a recommendation and traders needs to draw their own conclusion, but the potential negatives seem to keep piling up for TSLA.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.