Tesla Is the Most Favored Stock-Options Wager on Wall Street

Jan 27, 2023

Tesla Inc. is currently among the favorite stock-option bets on Wall Street thanks to traders’ liking of Elon Musk’s electric car manufacturing company. 

Tesla options trading up to an average of 3 million contracts per day 

Cboe Global Markets data shows that in recent times Tesla stock trading has increased significantly, with an average of 3 million contracts changing hands daily. This is a considerable improvement from around 1.5 million reported a year ago and considerably higher than any stock. Interestingly, currently, only SPDR S&P 500 ETF wagers beat those on Tesla options. 

According to Cboe and OCC data Tesla currently accounts for around 7% of average daily options trading. For instance, on January 6, the busiest day, over 5.2 million options were traded, almost 10% of all options. 

For the first time in close to two years, Tesla options activity in December outpaced trading volumes associated with Invesco QQQ ETF. The fund tracks Nasdaq-100 equities. This topped option trading in Apple stock in July, a considerable achievement for the S&P 500, becoming the sixth-biggest firm in market capitalization to topple the leader. 

Most of the largest Tesla option wagers are lottery-ticket transactions that need unlikely changes to succeed. For example, the most common wager is that Tesla shares will double from their past historic high of $409.97 within a year. It would take a five-fold rise from Thursday’s closing price of $160.27.

According to Interactive Brokers Group Inc, chief strategist Steve Sosnick said that the traders purchasing these contacts are likely overzealous in their belief about the company’s tech and its CEO, Elon Musk. Sosnick explained that although Tesla is an outstanding stock, it is the cult-like following responsible for luring many speculators to its options. 

Surprisingly Tesla stock, which was once valued at almost $1.2 trillion, had lost 61% from its late 2021 highs before the Fed started hiking interest rates. Investor confidence has dropped due to declining demand in China, Musk’s divided attention to recently acquired Twitter, and increasing competition from other electric-car automakers. Of course, Musk’s sale of Tesla shares worth billions hasn’t helped the situation either. 

Mixed sentiment between bulls and bears regarding Tesla’s stock

With equally passionate admirers and vocal detractors, Tesla has emerged as Wall Street’s most divisive stock. Both factions have heavily relied on derivatives to communicate their opinions: bulls who believe the firm will revolutionize the game wager on astronomical upside prospects, whereas bears who believe the stock is grossly overvalued predict a sharp decline in stock price.

Since the beginning of 2022, investors and traders have spent more money on Tesla-related options compared to other stocks or exchange-traded funds. Only S&P 500 index-level wagers made more money.

The options sector has experienced tremendous growth recently. For example, retail investors are still snapping up Tesla stock despite losing the desire to buy the dip in technology stocks. Moreover, ahead of Tesla’s Q4 earnings report, there was an increase in the inclination to place large bets on the firm.

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