Posted By John W. B. Rich Posted On

People Can’t Stop Buying Tesla Calls

Many amateur traders are convinced that Tesla calls are basically free money. It’s gotten so bad that this guy bought calls that were 38% out of the money, and wondered why he was losing:

Plenty of others are blindly putting money into Tesla out-of-the-money calls assuming that the stock will continue to ascend into space. They may end up being right, but plenty will lose their shirts.

With an hour to go in Monday’s trading session, 556,839 call options have been traded. That’s about twice as many as Microsoft’s call option volume for today.

Just look at the option chain for Tesla calls expiring in three days. Many traders likely can’t afford in-the-money calls, so they’re reaching far down the option chain.

12,625 option contracts currently open for the $1,160 strike seems totally normal, right?

In total, over 100,000 option contracts (representing 10 million shares) that are out-of-the-money remain open, and that’s just for the options expiring on December 24th.

Implied volatility was crushed from Friday to today, with most out-of-the-money calls sitting at about 80% to 150% IV. On Friday morning, many of the calls were above 200% IV- even ones near the money.

If you had bought the $700 12/24 call on Friday at close for $13.55, you’d be down about 76% right now.

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