Options positioning in Tesla has flipped bearish
Looking Back on Tesla's 2020 Bull Run
Tesla is massively overvalued and has been for a long time. We're talking probably something from 20-100x fair value, to be honest. But Tesla has also continuously moved higher, for several reasons.
First, institutions have been systematically gamma-squeezing the stock higher by buying out-of-the-money call options on it. (The story of the Tesla stock run is often told as a story of retail hype, but in fact most of the out-of-the-money call buys have been very large, and when you drill into the data, you find that Tesla is surprisingly not actually a favorite of small retail out-of-the-money call buyers.)
Second, there used to be some fairly large short positions open on Tesla. The shorts have gotten squeezed as the stock moved higher and have almost all been forced to cover.
Why the Bull Run May Be Over
Over the last 30 days, Tesla's average put/call ratio was .67. Yesterday someone opened a very large out-of-the-money put position on Tesla, and today the put/call ratio is 1.3. That represents an extremely bearish shift in options interest, and it suggests that the call options gamma squeeze on Tesla is probably over. The puts are spread across a lot of expiration dates, so this is not just a short-term bet. Someone is banking on Tesla entering a long, slow correction from here.
The short squeeze is over too. Short interest on Tesla is now super low, with just one day to cover.
In terms of technicals, Tesla has been moving in a large parallel channel and is currently in the top half of the channel, with much more downside than upside. It made two lower highs in February.
Tesla is massively overvalued and has been for a long time. We're talking probably something from 20-100x fair value, to be honest. But Tesla has also continuously moved higher, for several reasons.
First, institutions have been systematically gamma-squeezing the stock higher by buying out-of-the-money call options on it. (The story of the Tesla stock run is often told as a story of retail hype, but in fact most of the out-of-the-money call buys have been very large, and when you drill into the data, you find that Tesla is surprisingly not actually a favorite of small retail out-of-the-money call buyers.)
Second, there used to be some fairly large short positions open on Tesla. The shorts have gotten squeezed as the stock moved higher and have almost all been forced to cover.
Why the Bull Run May Be Over
Over the last 30 days, Tesla's average put/call ratio was .67. Yesterday someone opened a very large out-of-the-money put position on Tesla, and today the put/call ratio is 1.3. That represents an extremely bearish shift in options interest, and it suggests that the call options gamma squeeze on Tesla is probably over. The puts are spread across a lot of expiration dates, so this is not just a short-term bet. Someone is banking on Tesla entering a long, slow correction from here.
The short squeeze is over too. Short interest on Tesla is now super low, with just one day to cover.
In terms of technicals, Tesla has been moving in a large parallel channel and is currently in the top half of the channel, with much more downside than upside. It made two lower highs in February.
Comment:
This has panned out quite nicely. Possibly we will see a bit of a rally from here after news that Ark Invest bought a bunch of Tesla today.
Comment:
This Tesla thesis has played out beautifully, and Tesla has even breached channel bottom today.
Comment:
*Really* impressive bounce today that slightly violated the downtrend resistance line. I'm not expecting follow-through today, but possibly later this week Tesla will push through that resistance and resume its uptrend (if bond rates continue to pull back).
