Tesla Inc.’s stock options imply a one-day post-earnings movement that is more than 60% higher than the historical average, but the odds are currently against investors willing to bet on such unusual volatility.
The electric vehicle maker plans to report second-quarter results after Wednesday’s closing bell. The average estimates for the 23 analysts surveyed by FactSet are for an adjusted loss of 14 cents a share on revenue of $ 5.15 billion. The range of estimates is quite wide, with the low numbers losing $ 2.53 in revenue of $ 2.77 billion, while the high estimates are earnings of $ 1.79 per share in revenue of $ 6.18 billion.
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Saying TSLA shares the electric vehicle maker,
having been on a streak would be an understatement, as it has skyrocketed nearly four times (274.9%) this year, while the S&P 500 SPX index,
added 0.8%. The pace of earnings has accelerated in the weeks leading up to earnings as stocks are up 45.2% this month and have closed records in eight of the past 14 trading days. Shares, meanwhile, fell 4.5% to close at $ 1,568.36 on Tuesday.
To measure an expected price move for a stock the day after earnings are reported, option traders use a strategy known as a straddle, which involves pricing bullish (call) and bearish (put) options. with strike prices at the same price. the month, or current share price, to expire at the end of the week.
Straddles are pure volatility games as they are not directional. A buyer of a straddle earns money if the stock moves in any direction more than the price of the straddle implies, otherwise the straddle expires worthless.
Tesla forks were priced around noon Tuesday for the stock to move $ 224.58 in either direction on Thursday, according to data provided by Option Research & Technology Services (ORATS) director Matt Amberson. That’s 61.5% higher than the day-after-earnings average move over the past 12 quarters of $ 139.02.
To calculate the movement, ORATS used the implied 30-day volatility for Tesla shares of 108.3%, which is compared to the Cboe (VIX) VIX volatility index,
for the S&P 500 index of 24.5%.
FactSet, MarketWatch
The question is, should investors go for the excess and buy the Tesla straddle? While there is no way of knowing what Tesla will report on Wednesday, not to mention how investors will react to that report, recent post-profit stock activity suggests the odds are largely against straddle buyers.
So far, in this earnings season, which is in the middle of its second week, only 19% of the forks purchased have made money, according to ORATS, including 22% last week and none so far this week. On average, actual movements after one-day gains have been only 54% of what has been implicated by the hordes.
That compares to a historical win rate of 37% for the first week of earnings and 31% for the second week. And the actual one-day movements of earnings reporters’ actions generally account for about 88% of the implied movement in the first week and 83% in the second week.
Basically, while Tesla stocks have been quite volatile recently, that doesn’t mean investors should expect such unusual moves after earnings, good or bad.
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