Tesla Rally Takes A Breather, But Option Market Suggests More Upside Ahead

After a brutal start to 2019, Tesla Inc TSLA shares have come back to life in September, gaining 9.2% so far on the month. While positive headlines have driven the rally, Tesla still has a lot to prove in coming months to get its stock back on the right track long-term.

Headlines

So far this month, Tesla shares have ridden the wave of some bullish news headlines.

On Sept. 4, the California New Car Dealers Association said in its quarterly report that, while car sales were down overall in the California in the first half of the year, electric vehicle market share jumped from 3.3% in 2018 to 5.6% in 2019. The report revealed that Tesla’s sales gain in the state so far in 2019 was 10 times larger than any other automaker.

On Sept. 11, Tesla reported that a prototype version of the Model S with the company’s new “Plaid” powertrain broke a speed record for fastest four-door sedan at the Laguna Seca race track in Monterey, California. The Plaid powertrain is currently in development and will be included in future versions of the Model S, Model X and Roadster vehicles, according to CEO Elon Musk.

But not all of the headlines this month have been positive. On Sept. 9, CNBC reported on the latest of what it said is “a litany of social media posts” showing Tesla drivers seemingly asleep at the wheel while using Tesla’s autopilot or seemingly misusing the function in otherwise dangerous ways.

Technical Outlook

Tesla shares bounced off of the $211 level in late August after dipping as low as $177 earlier in the summer. However, the stock must break above the $266 level to show meaningful bullish technical momentum in the near-term.

The $266 level represents the July high for Tesla and is also near the stock’s 200-day simple moving average. Tesla hasn't traded above its 200-day SMA since February.

Options Action

Large option traders have been decidedly bullish on Tesla throughout this week’s rally. Benzinga Pro subscribers have received four option alerts this week related to unusually large Tesla options trades.

On Monday morning, a trader bought 681 Tesla call options expiring on Friday with a strike price of $225 near the ask price at $1.20.Those calls have a break-even price of $226.20, suggesting the $80,000-plus trade has been a home run up to this point with the stock currently trading above $246.

The largest trade this week was a Tuesday morning purchase of 500 Tesla calls with a $260 strike price expiring on Oct. 18. The calls were purchased near the ask price at $4.25 and represent a $212,500 bullish bet that Tesla shares will be trading above $264.25 by mid-October.

All four of the large trades this week have been Tesla calls purchased at or near the ask price, bullish bets that Tesla stock is headed higher in the next couple of months.

Benzinga’s Take

After a disastrous first-quarter earnings report and a mixed second-quarter report, investors may be getting back into Tesla expecting better numbers from the EV maker in the second half of the year. However, some may simply be trading the volatile stock in the near-term, anticipating it will run out of steam in the $250 to $266 region.

Tesla's stock traded around $246.80 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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