Unusual Tesla Option Trades Pushing Stock Higher And Higher

Tesla Inc TSLA once again traded sharply higher by 6.2% on Thursday, briefly touching the $2,000 level, despite no major news from the company.

Tesla shares are now up 77% in the past year as the company has made a profit in four straight quarters, and some say strange option trading activity could be driving the recent gains.

The Trades: On Thursday, Tesla’s sharp intraday rise coincided with large trading volume in some significantly out-of-the-money Tesla call options expiring on Friday.

“Actually… someone is buying a LOT of 8/21 $2,100 call options,” GLJ Research founder Gordon Johnson told Benzinga. “This has been going on a LOT (i.e., someone buying way out of the money short-dated call options, which forces the person writing these options to buy stock), which has pushed the stock up consistently.”

On Thursday morning, there were 55,616 contracts worth of volume in Tesla $2,000 call options expiring Friday and 22,892 contracts worth of volume on Friday $2,100 call options. The $2,000 strike price contracts and the $2,100 contracts have open interests of 14,798 and 5,091, respectively.

Upward Spiral: Stanphyl Capital Partners portfolio manager and Tesla short seller Mark Spiegel has also recently noticed the strange trading activity in the Tesla option market.

“Some entity — I don’t know who — was executing a strategy of buying massive quantities of out-of-the-money call options,” Spiegel said of Tesla’s huge run in 2020.

This strategy forced call option sellers to buy Tesla shares to cover their positions, according to Spiegel.

“This thing just kind of spiraled its way up,” he said.

TSLA 3100 calls expiring tomorrow bid pic.twitter.com/7Xl2ci3g52

— zerohedge (@zerohedge) August 20, 2020

Benzinga’s Take: There are plenty of explanations for Tesla’s insane run in 2020, including strange option trading, short squeezes, profits from regulatory credit sales, a spike in inexperienced Rbinhood retail traders and the stock's inclusion in the S&P 500. However, the ultimate metrics that will define Tesla’s success or failure in the long-term are auto sales and earnings growth.

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