Tesla options are making a comeback after a tough couple of months.
Tesla led the market in 2020, gaining nearly 900% from the bottom to its peak in January of 2021. After a tough few months, out-of-the-money Tesla calls are hot again.
While call volume is way back up, implied volatility (IV) levels are much lower than they were last year. Currently, the at-the-money calls are in the 40% IV range, compared to the 100%+ levels that were common last year.
Take a look at the 10-most traded names in the options market, thanks to Vig:
Tesla has consistently been in the top 5 on this list over the last couple of weeks.
With Tesla’s options there are a few potential plays right now:
Sell covered calls - If you own Tesla shares, selling short-dated OTM calls is a good way to add a bit of yield. It seems like Tesla isn’t going to spike 5%+ a day for several days in a row like it did last year.
Sell volatility - I think a lot of the increased call volume is due to wishful thinking. Traders are hoping that history repeats itself and Tesla goes on another tear. However, it’s impossible for a company of Tesla’s large size to go up 800% in a year. I think that a lot of people are buying OTM calls without realizing that the party is mostly over. Tesla may definitely show steady gains going forward, but we won’t see anything like 2020 again.
The volume and open interest in Tesla OTM calls is pretty astounding. Look at the figures for the calls expiring this week:
We just launched a Covered Call Newsletter. It’s all about how long-term investors can double or triple their cash yield by selling calls. I would really appreciate if you checked it out here