Tesla call options jump on Musk tweet, short-sellers hurt

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NEW YORK (Reuters) – Some nimble traders in Tesla Inc’s options made massive paper profits on Tuesday, while short-sellers were hit with nearly $1 billion in paper losses after Tesla chief Elon Musk tweeted he was considering taking the company private.

A Tesla electric car supercharger station is seen in Los Angeles, California, U.S. August 2, 2018. REUTERS/Lucy Nicholson

“Am considering taking Tesla private at $420. Funding secured,” Musk tweeted at 12:48 p.m. EDT (1648 GMT). Tesla shares rose nearly 9 percent before being halted pending news.

The tweet spurred a rush of trading in Tesla’s options, driving volume to 416,000 contracts, nearly twice the daily average, according to options analytics firm Trade Alert.

Call options, which convey the right to buy shares at a fixed price in the future, were particularly busy and logged significant price gains on the day.

One block of 714 Tesla call options, betting on the shares rising above $365 by the end of the week, were bought for 85 cents, for a total outlay of $60,690, at 12:21 p.m. EDT.

On paper, their value jumped to $790,398 by 1:11 p.m. EDT. Other near-dated bullish contracts also registered sharp gains.

The contracts were bought minutes after the Financial Times, citing unnamed people with direct knowledge of the matter, reported Saudi Arabia’s sovereign wealth fund has built a significant stake in Tesla.

The rally after Musk’s tweet unleashed fresh pain for short-sellers in Tesla, the most shorted U.S. stock.

With shares at $369.90, short-sellers logged an on-paper loss of $977 million, according to financial analytics firm S3 partners.

Short-sellers, who had been saddled with sharp losses earlier this month after Tesla shares soared following quarterly results, were now $2.69 billion in the red for the year, according to S3 data.

“Tesla’s volatility makes it more of a trading stock than a value play,” said Ihor Dusaniwsky, head of research at S3 in New York.

“Both longs and shorts are susceptible to wild price moves which can easily swing a trader’s book from profit to loss in a single day, which may be the reason they are in the name in the first place,” he said.

“The added volatility of an Elon Musk tweet adds to the price uncertainty of the stock – and the possibility of sudden windfall profits or tragic losses,” Dusaniwsky said.

Tesla shares were last up 7.4 percent at $367.25. The shares have climbed about 23 percent this month, on pace for their best monthly performance since February 2014.

Reporting by Saqib Iqbal Ahmed, Editing by Alden Bentley, Rosalba O’Brien and Cynthia Osterman

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