Tesla Option Success: As Musk Sticks With Volume Over Margin, Skeptics Have The Last Laugh

Tesla Inc TSLA shares have lost over 13% in the last five days. The sell-off came in the wake of CEO Elon Musk's remarks that the EV-maker will continue cutting prices despite taking a hit on margins.

What Happened: Musk had said during the earnings conference call, "We expect our vehicles, over time, will be able to generate significant profit through autonomy. So we do believe we are like laying the groundwork here, and then it’s better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy. This is an extremely important point."

Also Read: Everything You Need To Know About Tesla Stock

Tesla’s operating margin fell 779 basis points to 11.4% during the first quarter compared to the same period a year ago.

As the stock witnessed a decline, skeptics of Tesla are likely to have made a significant profit if they had placed their bets on the Put options before the earnings report.

Price Action: Options expiring on Friday show that the $180 Tesla Put option has increased in value by about three times since the earnings announcement. A day ahead of the earnings announcement, Tesla stock was trading close to the $182-level and the $180 Put option expiring this Friday was priced at about $6.

As on Monday, the stock closed at $162.55. According to data available at the time of writing, the $180 Put option was priced at over $17, marking an almost three-time increase compared to last week.

Trading Levels: Options expiring this Friday indicate the $165-level will provide a tough resistance for the stock while $160 will act as a cushion for the near term.

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