These Bearish Tesla Option Trades Suggest More Downside Could Be Ahead

Tesla Inc TSLA shares traded slightly higher on Thursday but are still down 12 percent over the past five trading sessions and 42 percent in the past six months. Tesla bulls sticking to their guns are likely considering buying the stock on the dip, but several large bearish options bets on Thursday suggest the Tesla bloodbath could be far from over.

The Trades

On Thursday morning, Benzinga Pro subscribers received five options alerts related to Tesla.

The first two unusually large trades were purchases of put options at a $160 strike price that expire on June 14. The first batch of 567 puts were purchased at the ask price of $4.998 and the second batch of 638 puts was purchased at the ask price of $3.485. Together, the two trades represent a $505,729 bearish bet that Tesla will be trading below $156.515 within three weeks’ time.

Shortly thereafter, another trader purchased 1,129 Tesla put options expiring on Nov. 15 at a strike price of $125. This time, the buyer paid $9.75 at the ask price, a more than $1.1 million bearish bet.

Finally, another trader made purchased an additional 755 Tesla put options expiring on June 7 at a strike price of $155. The buyer paid $2.267 at the ask price, a $171,158 bearish bet.

The lone bullish Tesla option trade on Thursday morning was a sale of 2,284 Tesla put options at a $170 strike price that expire on May 31. The puts were sold at the bid price of $2.101 and represent a $479,868 bullish bet.

All together, the five trades represent a net $1.3 million bearish bet against Tesla.

See Also: China Concerns, Consumer Reports And Leaked Email Take Tesla Shares On Wild Ride

Due to the relatively complex nature of the options market, options traders are generally considered to be more sophisticated than the average stock trader. In addition, large options traders are often professional, wealthy individuals or institutions, either of which could have unique insight or information about a company. Even traders that stick exclusively to stocks watch the option market closely for unusual trading activity as an indicator of where the “smart money” is focusing.

Show Me The Demand

Tesla shares have tumbled this year after a growing number of Wall Street analysts have questioned Tesla’s demand and margin outlook. The stock bounced  on Thursday after an email by CEO Elon Musk leaked suggesting the company is on track for a record quarter of Model 3 production. The put buying on Thursday suggests options traders are skeptical of the Musk email after the company has repeatedly struggled to hit Musk’s ambitious targets.

Because stock investors often use put options to hedge larger bullish stock positions, there’s no way to be 100 percent certain whether an option trade is a standalone purchase or a hedge against a stock position. Given the largest buy on Thursday was larger than $1 million, it could be that the bearish position is a hedge on a larger bullish Tesla play by an institution or wealthy individual.

Tesla's stock traded around $194.61 per share at time of publication.