Tesla, Inc. (TSLA), Trending Stock Report

Tesla, Inc. (TSLA) is trending in the news. Social media mentions are up 137% in the last 24 hours. One-Month Volatility expectations are near highs for the year as investors begin to brace themselves for an earnings report that is due on October 23^rd. The funny thing is that volatility expectations for options expiring before the 23^rd are extreme given the stock’s history.

The table on the left shows the behavior of TSLA during the relative periods leading up to earnings going back to 2022. You can see that the only time shares fell more than 15% was after the third straight 0.75% interest rate hike by the Fed. Back then, investors worried the Fed wasn’t done hiking and they were right. The Fed had 6 more hikes to go. Now you have the opposite situation with the Fed lowering rates by 0.50% and more rate decreases expected. There is also a glimmer of hope that the Chinese economic meltdown might be about to turn. That means the conditions for a repeat of the only incident where TSLA fell more than 15% leading up to earnings is unlikely to be repeated.

While we’re not saying that TSLA will go up, we are saying that TSLA is not likely to drop more than 15% before October 18th. This sets up an opportunity for a limited-risk, high-probability trade.

This Volatility Term Structure chart for TSLA shows that volatility expectations for October 11^th expiration are the highest and expectations for the October 18^th expiration, which have better liquidity, are relatively high as well. Both expirations have relatively high expectations even though earnings are reported after the options expire and TSLA is unlikely to make a huge down move leading up to the earnings announcement.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of TSLA’s share prices over the past year (the blue histogram). You can see that the actual stock movement does not look like the modeled expectations. This graph tells us that expectations are extreme. Investors expect larger moves than TSLA shares have actually moved in the past year. Options prices are expensive compared to the past stock behavior.

TSLA options expiring on October 18^th are relatively expensive. Investors are overestimating the chances of TSLA shares making a down move greater than 15% leading up to expiration in current market conditions. This opens up an opportunity for limited-risk, high-probability Put Credit Spread.

To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily Option Trade Idea.